When can the CRA collect my client's tax debt from a spouse or relative under section 160?
ITA section 160 lets the CRA assess a spouse, a minor or any non arm's length person who received property for less than fair market value while your client owed tax. The recipient owes the lesser of the value shortfall and your client's debt up to the year of transfer, and the CRA can assess at any time.
Which transfers does section 160 catch?
Section 160(1) applies when a person transfers property, "directly or indirectly, by means of a trust or by any other means whatever", to a spouse or common law partner (including someone who later becomes one), a person under 18, or a person they were not dealing with at arm's length laws-lois.justice.gc.ca. The CRA's collections circular adds the timing condition: the transfer happens at a time the transferor owes tax, "whether this tax has been assessed or not"
canada.ca.
| Condition | What counts | Where |
|---|---|---|
| A transfer of property | Any means, including through a trust | ITA 160(1) |
| To a listed recipient | Spouse or common law partner (current, former or future), anyone under 18, anyone not at arm's length | ITA 160(1)(a) to (c) |
| Not at arm's length | Related persons always (blood, marriage, common law partnership, adoption, a corporation and the person who controls it); unrelated persons as a question of fact | ITA 251(1) and (2) |
| For less than fair market value | Property worth more than what the recipient gave for it | ITA 160(1)(e)(i) |
| While the transferor owes | Amounts for the year of transfer or any earlier year, assessed or not | ITA 160(1)(e)(ii), IC98-1R8 |
"Related" reaches further than most clients expect. Under s.251(6), a blood relationship covers a child or other descendant and a brother or sister, and s.251(2)(b) makes a corporation related to the person who controls it laws-lois.justice.gc.ca. So a transfer to your client's own holding company, or to an adult son, sits squarely inside the rule.
Notice what's missing from the list: intent. Section 160(1) has no test of purpose or knowledge, so a spouse who never knew about the debt is caught the same as one who planned it laws-lois.justice.gc.ca.
How much can the CRA collect from the recipient?
Under 160(1)(e), the recipient and the transferor are jointly and severally liable for the lesser of two amounts: the amount by which the property's fair market value at the transfer exceeds the fair market value of the consideration given, and the total the transferor is liable to pay under the Act for the year of transfer or any earlier year laws-lois.justice.gc.ca.
| Piece | Amount | Rule |
|---|---|---|
| A: value gap | FMV of the property at transfer minus FMV of what the recipient gave | 160(1)(e)(i) |
| B: transferor's debt | Everything owed under the Act for the transfer year and earlier years | 160(1)(e)(ii) |
| Recipient's liability | The lesser of A and B | 160(1)(e) |
| Plus attribution tax | Extra tax the attribution rules put on the transferor for income or gains from that property | 160(1)(d) |
| Plus interest | Interest on the section 160 assessment itself | 160(1), 160(2) |
The CRA's collections page puts the cutoff in practical terms: the assessment "will only include debt that was incurred up to, and including, the date of the transfer" canada.ca. The attribution piece matters for gifts between spouses, because the tax on income attributed back under sections 74.1 to 75.1 is shared too; the mechanics are on the spousal attribution page.
Payments don't cancel out evenly. Under 160(3), anything the recipient pays reduces the recipient's liability dollar for dollar. A payment by the transferor reduces the recipient's liability only to the extent it brings the transferor's remaining debt below the amount the recipient is jointly liable for laws-lois.justice.gc.ca.
How much does a wife owe when she takes half the family home?
Your client Mark owes $85,000 at the transfer date for his 2022 and 2023 returns, interest and penalties included. In June 2025 he transfers his half of the family home to his wife Lisa. The house is worth $900,000.
Section 160(3.1) values an undivided interest as the same proportion of the whole property's fair market value, so Mark's half is worth $450,000 laws-lois.justice.gc.ca.
| Scenario | A: value gap | B: Mark's debt | Lisa liable for |
|---|---|---|---|
| Lisa pays $1 | $449,999 | $85,000 | $85,000 |
| Lisa pays $400,000 from her own funds | $50,000 | $85,000 | $50,000 |
| Lisa pays $450,000 from her own funds | $0 | $85,000 | $0 |
| Transfer under a written separation agreement while living apart | $0 (FMV deemed nil) | $85,000 | $0 |
| Lisa gives a $400,000 note that Mark forgives as part of the same series | $450,000 | $85,000 | $85,000 |
The last row is the 160(5)(c) rule. It measures the consideration at its lowest fair market value during the series, and a note that is cancelled or extinguished counts as nil; the Finance explanatory notes give the forgiven promissory note as the example fin.canada.ca.
Now the 160(3) gotcha on the second row. If Mark later pays $20,000, he still owes $65,000, which is above Lisa's $50,000, so Lisa still owes $50,000. Only once Mark's balance drops below $50,000 does Lisa's exposure fall with it. If Lisa pays $20,000 herself, her liability drops to $30,000 straight away.
Why the CRA has no deadline to assess
Section 160(2) says "The Minister may at any time assess a taxpayer" for an amount payable under section 160, and the Division I rules, including interest, apply as if it were a normal assessment under section 152 laws-lois.justice.gc.ca. The normal reassessment periods that protect your client's own returns don't apply; a transfer made a decade ago can still be assessed while the transferor's debt is collectible.
The assessment also feeds the collection clock on both sides. Under s.222(5)(c), assessing another person under 160(2) restarts the transferor's 10 year collection period, as long as it happens before that period ends. The recipient's own debt then gets its own period, starting 90 days after the notice is sent and running 10 years under s.222(4) laws-lois.justice.gc.ca. The full timing rules are on the collection limitation period page.
GST/HST has a twin. ETA s.325 makes a non arm's length recipient liable for the lesser of the value gap and the transferor's net tax for that reporting period and earlier ones, and 325(2) also lets the Minister assess at any time laws-lois.justice.gc.ca. IC98-1R8 lists s.325 alongside matching rules in the Excise Act, 2001 and the Greenhouse Gas Pollution Pricing Act
canada.ca.
Which defences actually work?
Every defence attacks one of the conditions or one side of the lesser of formula. Good faith isn't on the list.
| Argument | Does it work? | Why |
|---|---|---|
| The recipient paid fair market value | Yes, to the extent paid | The value gap in 160(1)(e)(i) shrinks to zero |
| The parties were at arm's length | Only for unrelated parties | Related persons are deemed not at arm's length; for others it's a question of fact (s.251) |
| Transfer under a court order or written separation agreement while living apart | Yes, for that spouse | 160(4) deems the property's FMV nil and removes liability for income from it |
| The transferor owed nothing yet | Often not | Amounts for the transfer year count, assessed or not, and 160(5)(b) pulls in future debts the transfer aimed to avoid |
| The recipient didn't know about the debt | No | 160(1) has no knowledge or intent test |
| The transferor has since paid part of the debt | Only past a point | 160(3) reduces the recipient's share only once the transferor's balance falls below it |
Valuation is where most files are won or lost. Get a dated appraisal of the property at the transfer and trace every dollar the recipient paid from their own money, because consideration is measured at fair market value under 160(1)(e)(i) laws-lois.justice.gc.ca. A recipient who disagrees with the assessment can object; 160(2) applies the Division I procedures, and s.165(1)(b) gives 90 days after the notice is sent
laws-lois.justice.gc.ca. Deadlines and extensions are on the notice of objection page.
Planning around section 160 now carries its own penalty
Subsection 160(5), added with effect from April 19, 2021, targets three workarounds fin.canada.ca:
| Rule | Workaround it blocks | Effect |
|---|---|---|
| 160(5)(a) | Making the parties arm's length at the moment of transfer | Deemed not at arm's length throughout if they weren't at any point from just before to just after the series, and one purpose was to avoid joint liability |
| 160(5)(b) | Moving property before the debt arises | A future amount is deemed payable in the transfer year if one purpose was to avoid it |
| 160(5)(c) | Paying with consideration that later loses its value | Consideration measured at its lowest FMV during the series; cancelled consideration counts as nil |
Advisers are exposed too. Section 160.01 imposes a penalty on anyone who engages in, participates in, assents to or acquiesces in planning they know, or would reasonably be expected to know but for gross negligence, is section 160 avoidance planning. The penalty is the lesser of 50% of the liability the planning sought to avoid and $100,000 plus the person's gross entitlements laws-lois.justice.gc.ca. It applies to transactions or series on or after April 19, 2021, and clerical or secretarial services alone don't trigger it
fin.canada.ca.
Sources
Does adding a spouse to the title of my client's house count as a transfer?
Yes. Putting a spouse on title transfers an undivided interest, and 160(3.1) values it as the same share of the whole property's fair market value laws-lois.justice.gc.ca. A half interest in a $900,000 home is $450,000 of value, less anything the spouse paid for it.
Can the CRA collect the full debt from both people?
No, not twice over. The CRA can pursue either one up to each person's limit, but under 160(3) a payment by the recipient reduces the recipient's liability, and a transferor's payment helps the recipient only once it brings the transferor's balance below the recipient's amount laws-lois.justice.gc.ca. Once assessed, the recipient faces the normal collection tools, including a requirement to pay.
Does section 160 reach unremitted payroll or GST/HST debts?
Yes for anything owed under the Income Tax Act, because 160(1)(e)(ii) counts every amount the transferor is liable to pay under the Act, and ETA s.325 does the same for GST/HST laws-lois.justice.gc.ca. Directors of a corporation that failed to remit face a separate rule; see director liability for source deductions.
Is a transfer to an adult child caught, or only spouses and minors?
An adult child is caught. A child is related by blood under s.251(6), and related persons are deemed not to deal at arm's length under s.251(1)(a), which brings the transfer within 160(1)(c) laws-lois.justice.gc.ca.
General information for the tax year shown, not advice for a specific client. Confirm the facts before you file or remit.