From: AlanBaggett@volcanomail.com   
      
   Beware the tax nightmare disguised as a gift : CRA SOTW   
      
   TONY WILSON   
   Vancouver — Special to The Globe and Mail   
   PublishedTuesday, Jun. 04 2013, 5:00 AM EDT   
   Last updatedTuesday, Jun. 04 2013, 9:38 AM EDT    
      
   There are countless things to keep in mind when you’re a small-business owner   
   dealing with the Canada Revenue Agency (CRA). It explains why accountants and   
   tax lawyers are usually so busy advising their clients about the perils of the   
   Income Tax Act and    
   the benefits of remaining on the right side of the CRA.   
      
   One of the many perils involves gifts that successful entrepreneurs or other   
   business people might make to family members, say for a first house or a   
   wedding, particularly if – at the time the gift was made – the entrepreneur   
   was offside with the CRA and    
   owed tax.   
      
   It is the recipient of the gift who may pay the real price.   
      
   Vancouver tax lawyer Jeff Glasner likes to explain the scenario and its   
   ramifications in these terms: Let’s say “Mandy” is raised by her mother   
   because her father abandoned them years before. Whether guilt made him do it   
   or not, Mandy’s father “gifts”    
   her $100,000 for a dream wedding. The problem is, at the time, her father and   
   his unincorporated business owed the CRA money.   
      
   Years later, Mr. Glasner says, the ramifications could play out this way:   
   Mandy is pregnant with baby No. 3, her husband has been laid off, and the   
   small business she owns is struggling. A letter comes in the mail from the CRA   
   saying Mandy is now    
   responsible for $100,000 of her father’s tax debts.   
      
   Have a nice day.   
      
   Why? Her father’s small business was on the rocks when he made the gift, and   
   he owed the CRA a lot of money when he paid for the wedding. It doesn’t matter   
   that she wasn’t aware at the time. It doesn’t mater that she was raised by her   
   mother and had    
   little contact with her father.   
      
   Regardless of her knowledge, Mandy became jointly and severally responsible   
   for her father’s tax liabilities the moment she received his gift. To collect   
   on this liability, the CRA may put a lien against her home, garnish her pay   
   cheques and/or freeze    
   and empty her bank accounts.   
      
   Section 160 of the Income Tax Act says that upon receiving a gift, a person   
   becomes liable for the tax debts of the related gift giver to the lesser of   
   the amount of the giver’s tax debt and the amount of the gift. Mr. Glasner   
   says there are three    
   primary defences used to argue against an assessment under Section 160. First,   
   Mandy’s father didn’t actually owe the taxes. Second, he owed Mandy money when   
   he gave her the gift, meaning his “gift” was not a gift at all, but a   
   repayment. And third, the    
   gift was not worth as much as the CRA says it was.   
      
   Mr. Glasner says there are many activities that small-business owners can get   
   involved in to trigger potential exposure under Section 160. These include but   
   are in no way limited to situations where:   
      
   • The tax-debtor husband takes his name off the title of the house he owns   
   jointly with his wife.   
   • The tax-debtor wife makes mortgage payments on the family home that is   
   solely in the husband’s name.   
   • The tax-debtor corporation pays a dividend to an individual who on his or   
   her own (or combined with relatives), has a controlling position in the   
   corporation.   
      
   Mr. Glasner says these kinds of assessments are very common as the CRA is   
   under increasing pressure to collect unpaid tax debts. As well, there is no   
   time limit to the CRA’s ability to instigate a Section 160 assessment, so an   
   individual may never have    
   the comfort of feeling totally in the clear about a transfer from a family   
   member, even if it happened a long time ago.   
      
   Mr. Glasner suggests that when the hypothetical Mandy got the letter in the   
   mail from the CRA, she should have seeked professional advice as soon as   
   possible. This could have at least bought her some time as the process allows   
   a short period for defences    
   to be presented prior to any formal assessments. Mr. Glasner says it’s often   
   during this “pre-assessment” stage that a tax lawyer is in the best position   
   to make the matter go away.   
      
   In any event, the possibility of receiving a letter in the mail under Section   
   160 should be a wake-up call to small business owners who want to give gifts   
   to family members when they have outstanding tax liabilities.   
   It’s also a wake-up call to recipients when a gift might not be a gift at all,   
   but a tax nightmare.   
      
   Tony Wilson is a franchising, licensing and intellectual property lawyer at   
   Boughton Law Corp. in Vancouver, he is an adjunct professor at Simon Fraser   
   University (SFU), and he is the author of two books: Manage Your Online   
   Reputation, and Buying a    
   Franchise in Canada. His opinions do not reflect those of the Law Society of   
   British Columbia, SFU or any other organization.   
      
      
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