What is a Subsection 160(1) Assessment Under the Income Tax Act (Canada)?

Subsection 160(1) of the Income Tax Act (Canada) addresses situations where a tax debtor transfers property to a non-arm’s length party—such as a family member or related corporation—without receiving fair market value in return. In such cases, the Canada Revenue Agency (CRA) can hold the recipient of the transferred property liable for the transferor’s unpaid tax debts, up to the fair market value of the property at the time of the transfer.

The Excise Tax Act (Canada) contains a parallel provision under Subsection 325(1), which functions similarly to Subsection 160(1) but applies to situations where the tax debtor owes GST/HST debt.

Key Points

Purpose

Subsection 160(1) prevents taxpayers from evading tax debts by transferring assets to related parties—often as gifts or undervalued transactions—without settling outstanding tax obligations.

Who It Applies To

• Transferor: The person who owes (or will owe) taxes and transfers the property.
• Transferee: A non-arm’s length party, including family members, corporations, trusts, or partnerships.

Conditions for Subsection 160(1) to Apply

• A property (e.g., cash, real estate, shares) is transferred.
• The transfer occurs between non-arm’s length parties.
• The transferor has a tax debt at the time of transfer—or is subsequently assessed by the CRA for a period that includes the transfer date.
• The transferee did not pay fair market value (FMV) for the property.

Liability of the Transferee

The transferee can be assessed for the transferor’s tax debt, but only up to the fair market value of the property transferred, minus any amount actually paid.

Example:

If a house worth $1,000,000 is transferred as a gift and the transferor owes $400,000 in taxes, the CRA can assess up to $400,000 against the recipient of the house (assuming no consideration was paid).

No Time Limit

Unlike standard tax assessments, there is no statute of limitations for the CRA to initiate a Subsection 160(1) assessment.

How to Avoid Subsection 160(1) Issues

Transfer Assets at Fair Market Value

Conduct transactions with related parties at fair market value to minimize the risk of reassessment under Subsection 160(1).

Keep Thorough Documentation

Maintain clear records—such as appraisals, invoices, and receipts—especially for transactions involving family members and related entities. If you are repaying an old debt to a family member, that may be considered valid consideration and grounds to reduce or eliminate a Subsection 160(1) assessment.

Clear Your Tax Debt First

Before transferring valuable property, ensure all outstanding taxes are settled.

Seek Professional Advice

Subsection 160(1) can be complex. If you are concerned about a potential assessment or need guidance on a property transfer, consult an experienced tax lawyer. Our team offers confidential consultations and has extensive experience handling Subsection 160(1) assessments.