Practice National Taxation

The case of Muir v The Queen

Tax Court of Canada allows appeal over a section 160 assessment by the CRA

Author: David J. Rotfleisch
David Rotfleisch, CPA, JD
In the case of Muir v The Queen, the Tax Court of Canada allowed the appeal, says David J. Rotfleisch, CPA, JD, of Rotfleisch & Samulovitch P.C.

TORONTO – The Tax Court of Canada very recently decided a case regarding section 160 of the Income Tax Act in Muir v Queen 2020 TCC 8. Section 160 of the Income Tax Act allows the Canada Revenue Agency to pursue tax liability against a taxpayer who receives something of value from someone with tax liabilities at the time of transfer. This means that if you receive a gift from someone while they had a tax debt, the CRA can hold you personally liable for the debt and attempt to collect from you.

This gift can be anything of value that was transferred to the transferee by the transferrer at less than fair market value. Section 160 transfer can take place directly or indirectly to either a spouse or common-law partner, an individual under 18 years of age or anyone else who was not dealing at arm's length. The rationale behind this is that taxpayers shouldn't be able to escape from paying their tax debts by transferring value to a family member or a non-arm's length party.

When a transferee is assessed under Section 160 of the Income Tax Act, they are liable to pay the lesser of (1) the transferor's tax debt at the time of the transfer and (2) the net value of the property the transferee received from the transferor.

Unlike other provisions in the Income Tax Act, a section 160 assessment does not contain statutory time limit, nor will bankruptcy of the original taxpayer cancel the assessments. Additionally, the fact that the third party had no knowledge of the original tax debt will not be considered a defense. In simple terms, three general defences can be argued against a section 160 assessment.

  • The taxes were not actually owed.
  • The transfer was not a gift
  • The transfer was not as valuable as the CRA alleges.

It should also be noted that Section 160 applies to transfers from corporations as well and has a parallel provision in Section 325 of the Excise Tax Act for GST/HST.

The Case of Muir v The Queen

In the case of Muir v The Queen, a professional corporation facing financial difficulties had to sell off all of its assets for an estimated value of $1.2 million. Most of this amount was used to pay off its corporate liabilities at closing, however, $124,000 of it was transferred to one of its shareholders, Ms. Muir.

The understanding was that the shareholder would use the amount to pay off the remaining creditors, namely clients of the corporation, who would have been difficult to deal with on closing. More specifically, the amount was used to return the trust accounts of orthodontic patients and in the end, the entirety of the $124,000 transferred to the shareholder was spent doing just that. The following year, the corporation was reassessed by the CRA along with the shareholder under section 160 of the Act.

In the case at hand, Justice Boyle reiterated that while the purpose of section 160 was to preserve the value of the assets for collection it does not apply where something of equivalent value was given into consideration. Such a transaction does not negatively affect the original taxpayer from paying his tax debts and therefore does not prejudice the CRA as a creditor. In the case of Muir, the $124,000 that was paid to the shareholder in exchange for her taking on the discharge of the corporation's remaining debt. Even if the arrangement was never formalized by contract, there was still an equivalent consideration in return for the $124,000. Therefore, the transfer was not a gift and the CRA could not trace the tax liability from the corporation to the shareholder. As a result, the section 160 assessment was vacated.

Editor's Note: The appeal was allowed and the section 160 assessment vacated, with costs. If the parties cannot agree on costs within 30 days they may file written submissions of no more than ten pages each. David J Rotfleisch, CPA, JD, is the founding tax lawyer of Rotfleisch & Samulovitch P.C., a Toronto-based boutique tax law firm. With over 30 years of experience as both a lawyer and chartered professional accountant, he has helped start-up businesses, resident and non-resident business owners and corporations with their tax planning, with will and estate planning, voluntary disclosures and tax dispute resolution including tax litigation. Visit and email David at

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