DAVID WILKENFELD, CPA, CA, canadian tax CONSULTANT

What’s Your Tax Issue?: Vicarious Tax Liability

In Canadian Income Tax on December 2, 2009 at 10:09 pm

The Tax Issue:

I recently sold my half of our house to my spouse. Can it still be seized by the government if I owe them any tax?

The Answer:

One of the many tools in the CRA toolbox that gets quite a bit of use is section 160 of the Act. This rule provides that if you transferred any property to your spouse, a child or any person with whom you do not deal at arm’s length, and if you owe taxes to the CRA in respect of the year in which the transfer is made, or any previous tax year, then that person may be liable for your debt to the government.

So, in your case, if you have a tax liability outstanding, or will be liable for tax this year, then the CRA will calculate the value of the property you sold, reduced by the amount your spouse actually paid you for it, and your spouse may have to pay to the CRA whatever amount you owe, up to that value.

So, for example, if you owe $20,000 in taxes for 2009 and previous years, and your share of the house is valued at $80,000, if your spouse paid you $65,000 for your share, then she is liable for your tax bill up to a maximum of $15,000.

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