Section 160 of the Income Tax Act (Canada) (the “Act”) generally provides that in certain circumstances where a tax debtor transfers property to a non-arm’s length transferee, the non-arm’s length transferee becomes jointly and severally liable for the tax debtor’s outstanding tax liability. Such transfers include the payment of a dividend by a corporation to a shareholder. These payments can have significant tax consequences for the shareholder recipient. In Kufsky v. The Queen (“Kufsky”),[1] the Tax Court of Canada (the “Court”) upheld a section 160 tax assessment of a shareholder, under which the shareholder was liable for approximately $69,000 in taxes owing by a non-arm’s length corporation.
Facts
Ms. Kufsky (the “Shareholder”) owned shares of Mon Refuge Décor Inc. (the "Corporation"). The Corporation provided advice on interior home decorating and the furnishing of homes (in addition to other products). The business thrived for many years.
However, following the 2008 financial crisis, the Corporation ceased operations. The Corporation had significant unpaid tax debts and accrued interest for its 2008 and 2010 taxation years (the “Tax Debt”). The Corporation also issued T5 slips that reported dividends paid to the Shareholder in 2009, 2010, and 2011 in the amounts of: (i) $35,000; (ii) $15,000; and (iii) $35,000 (the “Payments”), respectively. In addition, the Shareholder filed T1 Adjustment Requests reporting the Payments as dividends. Corporate resolutions were not passed in respect of the Payments.
The Corporation ultimately failed to satisfy the Tax Debt. The Minister of National Revenue subsequently reassessed the Shareholder in the amount of $68,615.69 on the basis that she was jointly and severally liable for the Tax Debt pursuant to subsection 160(1). The Shareholder appealed to the Court.
Please log in to read the full article.