Written by Jenny Okonkwo
Remember when we were children, our parents always taught us not to accept gifts from strangers?
Well, it may be worthwhile considering this advice when it comes to family members as well!
Referring to Tony Wilson’s recent Globe and Mail article, “Section 160 of the Income Tax Act says that upon receiving a gift, a person becomes liable for the tax debts of the related gift giver to the lesser of the amount of the giver’s tax debt and the amount of the gift.”
In the article the author uses a hypothetical example of a small business owner gifting money to his daughter for her dream wedding.
Take a moment to think about that. Depending on the ‘size’ of that gift, I think you would agree that’s a pretty scary thought.
One can assume there may be a possibility that if a small business owes money to CRA and is making gifts to family members (e.g. daughter, son, spouse) when the business owners dies, the ‘gift’ could become a ‘liability’ in the hands of the recipient, presumably going towards settlement to the extent of unpaid taxes upon death.
In the same article Vancouver tax lawyer Jeff Glasner gives 3 examples of activities that small-business owners may get involved in that could lead to a Section 160 assessment:
• The tax-debtor husband takes his name off the title of the house he owns jointly with his wife.
• The tax-debtor wife makes mortgage payments on the family home that is solely in the husband’s name.
• The tax-debtor corporation pays a dividend to an individual who on his or her own (or combined with relatives), has a controlling position in the corporation.
If you are a small business owner and / or an entrepreneur, it might be worth reading and sharing this info with your business network.