The “Trustee” of a trust holds a portfolio of securities whose fair market value is $125,000 on December 31, 2014. The 2014 return of the sole beneficiary of the trust (the “Taxpayer”) was assessed on April 30, 2015, showing an unpaid amount of $150,000, at which time the FMV of the portfolio was $100,000. On January 1, 2016, a demand to pay was issued to the Trustee, the Trustee liquidated the portfolio and applied the net proceeds of $70,000 (reflecting market declines) towards the demand to pay. Is the Trustee’s liability under s. 159(1) limited to the proceeds received on the arm’s length sale of such property? In responding negatively, CRA stated:
[A] legal representative’s liability…can commence at any time a taxpayer has an amount owing under the Act that remains unpaid. …
[S]ince the Taxpayer has an amount payable of $150,000 established on April 30, 2015, that remains unpaid, the Trustee is jointly and severally… liable with the Taxpayer, to pay the amount owing by the Taxpayer at that time. Moreover, the Trustee remains…[so] liable with the taxpayer at the time when the Minister makes a demand on the Trustee for payment (i.e., January 1, 2016) and any other time the amount owing by the Taxpayer remains unpaid while the Trustee remains the taxpayer’s legal representative. …
Furthermore…the Trustee’s liability is restricted to the property in the trust…notwithstanding that between the time the taxpayer’s liability arose on April 30, 2015 and the time the Trustee liquidated the Portfolio in satisfaction of the demand to pay on January 7, 2016, the value of such property declined in value from $100,000 to $70,000.