Principal Issues: Does the CRA have an administrative policy on the particular situations
Position: No. CRA does not provide administrative relief
Reasons: The Act
Federal Tax Roundtable, 5 October 2012
2012 APFF Conference
Question 27
Section 160 --Double taxation
ITA section 160 provides that a person who transfers property to a person with whom the person was not dealing at arm's length is jointly and severally liable with the transferee for the payment of the tax due by the transferor up to the value of the property received during the transfer less any contingent consideration given for the property.
Section 325 of the Excise Tax Act ("ETA") and section 14.4 of the Tax Administration Act ("TAA") provide identical recovery measures to section 160.
ETA section 325 provides that amounts already assessed in respect of a transfer under section 160 must be deducted from the amounts that may be claimed under ETA. However, the reverse is not true because the amounts assessed under ETA section 325 do not reduce the amount of a subsequent assessment under section 160.
No such relief is provided respecting TAA section 14.4. Thus, the combined application of these three tax recovery measures can lead to a situation of "double taxation" or even "triple taxation" for the recipient of the transfer.
Consider the following example: A is the spouse of B. A owes $50,000 in tax to the CRA and $50,000 in tax to the Agence du revenu Québec (the "ARQ"). A transfers $10,000 to B without any consideration. According to section 160 and TAA section 14.4, the CRA and the ARQ can each issue a $10,000 assessment to B for a total of $20,000 while B received only $10,000 from A.
The Tax Court of Canada stated in Ouellet v. R., 2012 TTC 77 ("Ouellet") that there is no statutory provision to avoid such a situation, but that "the competent tax authorities tend to be empathetic towards taxpayers who are subject to ‘double taxation’ in such circumstances.” Furthermore, in Ouellet, the CRA agreed to reduce the amount assessed under section 160 to $20,622.53, which corresponds to the difference between the value of the property transferred ($60,480.87) and the amount paid to the ARQ under section 14.4 of the TAA ($39,858.34).
Questions to the CRA
a) Does the CRA have an administrative policy of assessing a taxpayer under ETA section 325 before assessing the taxpayer under section 160 to avoid any risk of double taxation?
b) Does the CRA's administrative policy decrease the amount assessed by virtue of section 160 by the amount paid to the Québec tax authorities by virtue of TAA section 14.4 to avoid any risk of double taxation?
CRA Response
Response to Question (a)
It is necessary to first make an assessment under ITA section 160 and then another under ETA section 325 in order to avoid any risk of "double recovery" since it is only ETA section 325 which makes it possible to consider an assessment by virtue of section 160.
In the situation where the two assessments are being dealt with at the same time, the administrative policy of the CRA is to issue the assessment under ETA section 325 last.
Response to Question (b)
The CRA does not have an administrative policy of reducing the amount assessed by virtue of ITA section 160 by the amount payable to the Québec tax authorities by virtue of TAA section 14.4.
In making an assessment by virtue of section 160, the Minister cannot make the assessment otherwise than in conformity with the authority conferred under the ITA.
Anne Dagenais
(613) 957-2121
2012-045424