Section 160: the Tax Debt Trap Hiding in Plain Sight

As published on CBA National Magazine on Sep 24, 2026

By Eric Miller

Every day, assets change hands between people who trust one another. A parent adds a child to title. A spouse takes sole ownership of the family home. A corporation declares a dividend. An owner tidies up the books before a sale. Almost no one thinks of these events as tax planning; more often they are considered family arrangements, estate steps, or ordinary corporate housekeeping.

Then a letter arrives from the CRA, advising that the person who received the asset may be liable for the transferor’s unpaid taxes.

That is the force of section 160 of the Income Tax Act. It is not new or exotic, but highly underestimated. Put simply, its purpose is to preclude a tax debtor from putting property beyond CRA’s reach by passing it to someone close for less than fair market value.

But simple purpose does not mean simple consequences.

There are four core conditions for the application of the rule:

(i)      there must be a direct or indirect transfer of property;

(ii)     at the time of transfer, the transferor and transferee must not be dealing at arm’s length;

(iii)    at the time of transfer, the transferor must owe tax; and

(iv)    the transferee must give less than fair market value consideration for what they receive.

If these conditions are met, the transferor and transferee can be jointly and severally, or solidarily, liable up to the lesser of the tax debt and the benefit received, i.e., the value gap between what was received and what was paid.

Section 160 does not ask whether the transferee knows about the tax debt. It does not require fraud. It has no limitation period. Liability can attach when the transfer happens and surface years later, when memories fade and documents are missing. For taxpayers, the rule can feel like a surprise. For advisers, surprise is exactly the problem.

A common misunderstanding is that section 160 only catches intentional attempts to avoid a tax debt. It can also catch relatively ordinary transactions, such as a dividend from a corporation with a tax debt or a transfer of title to a spouse or child for nominal consideration. A corporate reorganization may invite scrutiny if property is transferred over a series of steps.

Even seemingly independent corporate shareholders may not be safe. In McCague, after dividend payments from a corporation with a tax debt to its two equal shareholders were found to be for personal needs rather than a business purpose, the Tax Court of Canada (“TCC”) found the shareholders to be dealing at non-arm’s length with the corporation for purposes of section 160. 

Past judgments kept section 160 anchored to its text. In Eyeball Networks, the Federal Court of Appeal (“FCA”) found that section 160 was to be applied separately to each transaction comprising a corporate reorganization. In Microbjo, the FCA followed Eyeball Networks in finding that each transfer in a chain of transactions must independently meet the conditions of section 160 for liability to cascade down the chain to the ultimate transferee.  

In certain circumstances, more recent judgments have, in certain circumstances, broadened the application of section 160. In Harvard Properties, the TCC found that, even if each transfer in a chain of transactions independently meets the conditions of section 160, the general anti-avoidance rule under section 245 can apply to ignore those transfers that frustrate the overall purpose of section 160. The FCA overturned the TCC judgment in August.

Legislative changes and budgetary proposals in the last five years have added, and propose to add, new rules under section 160 to stop tax plans designed to sidestep the conditions for its application, and to penalize promoters of these plans.

The application of section 160 to real estate, estate and probate planning should also be considered. In Gill, the TCC found that a transfer of legal title in a family home between family members is sufficient for the application of section 160 even where a transferee ultimately receives no beneficial interest. This decision leaves unresolved how section 160 liability should be quantified when a transferee acquires legal title but no corresponding beneficial interest. Until that issue is clarified on appeal, arrangements involving bare trusts or the addition of relatives to title should be reviewed for potential section 160 exposure. It cannot be assumed that “no beneficial transfer” means “no section 160 problem”.    

Avoiding the trap

While not all related-party transfers are at risk of invoking section 160, the provision has sharp edges. Before property moves, advisers should test the four conditions of the provision, check existing and potential tax debts, value the consideration, document the commercial purpose, and preserve evidence of beneficial ownership if title and economics diverge. And even after taking the precautions to plan around the text of section 160, advisers should always ask if their plan might frustrate its overall purpose.   

For taxpayers, the stakes are personal. Someone can receive an asset one day and face another person’s tax bill years later. For advisers, the stakes are professional. Treating section 160 as an afterthought to, or the focus of, the planning can leave clients exposed and, under the added rules, create a penalty risk.

As taxpayers witness the largest ever transfer of intergenerational wealth, they can expect ever more potential for the tethering of tax debts to shareholder payments, reorganizations, and family transfers. But with the right advisor, they do not need to expect a section 160 tax assessment.

This article does not, and is not intended to, constitute legal advice.

Primary sources relied on include:
McCague v. The King, 2025 TCC 59
Eyeball Networks Inc v. Canada, 2021 FCA 17
Canada v. Microbjo Properties Inc., 2023 FCA 157
Harvard Properties Inc. v. The King, 2024 TCC 139
Gill v. The King, 2026 TCC 18

Secondary sources relied on include:

Sigita  Bersenas  and  Mamtha  Shree,  "Section  160:  An  Introduction  to  Section  160  and  Its  Purpose, Recent Case Law, and How It Works in Conjunction with the General Anti-Avoidance Rule", in 2025 YP Focus Virtual Conference (Toronto: Canadian Tax Foundation, 2025), 4: 1-31.
Sigita  Bersenas  and  Mamtha  Shree,  "When Transfer of Legal Ownership Triggers Tax Liability: Insights from Gill", (2026) 16:2 Canadian Tax Focus 8-9.