Recent amendments to section 160 may give rise to new and complex challenges in a tax dispute over its application.  Three of these potential challenges are described below.


Section 160 of the Income Tax Act is essentially a collection tool — a secondary liability provision that the Canada Revenue Agency may use to collect unpaid tax debts from third parties. This provision is generally triggered by a transfer of property by a tax debtor (the transferor), to a non-arm’s length party (the recipient, or transferee), at less than fair market value. Where section 160 applies, the recipient may be jointly and severally liable for some, or all, of the transferor’s tax debt. The section 160 requirements are factual in nature and the provision is frequently litigated in the Tax Court of Canada.

In the 2021 Federal Budget, the Department of Finance raised concerns that certain taxpayers were engaging in transactions designed to circumvent the application of section 160. Finance proposed three specific anti-avoidance rules in draft legislation released in February 2022. Following a consultation period including submissions from the CBA/CPA Joint Committee, Parliament enacted new subsection 160(5), which provides three anti-avoidance rules, and new section 160.01, which legislates a penalty regime for “section 160 avoidance planning”.1 These amendments, enacted in December 2022, are generally deemed to have come into force on April 19, 2021.

Valuators may need to consider the expanded timing under the new anti-avoidance rule

Valuation reports may be important evidence in section 160 cases. The amount of the transferee’s liability under section 160 is generally limited to the amount by which the transferor’s tax debt exceeds the value of the consideration given for the property transferred. For example, where the transferor transferred property in exchange for share consideration, the extent of potential section 160 liability may depend on the fair market value of those shares. A business valuator may be engaged to opine on the value of the shares at the time of the transfer.

New paragraph 160(5)(c) expands the timeframe for examining the value of the consideration given. This new paragraph takes into account the fluctuations in value throughout the series of transactions and deems the value of the consideration to be the lowest of fair market value at any point during that series or, in certain circumstances, nil. Before the amendments, the fair market value determination for the consideration given was made as of the time of the transfer of the property to the transferee.

When working with a proposed valuation expert in a dispute over an assessment made pursuant to section 160, it is important to determine whether paragraph 160(5)(c) was applied, and, if so, to carefully instruct the expert to opine on the values during a range of points of time to meet the criteria of the provision. Further, the expert may need to follow property that is substituted for the consideration throughout the series of transactions.

Purpose tests may raise considerations on expert evidence

New paragraphs 160(5)(a) and (b) require examining the purpose of the relevant transactions. Paragraph 160(5)(a) applies where it is reasonable to conclude that one of the purposes of undertaking the transaction or series is to avoid joint and several liability for the transferor’s tax debt. Paragraph 160(5)(b) requires a determination of whether it is reasonable to conclude that one of the purposes for the timing of the transfer of property is to avoid the payment of the transferor’s future tax debt. Where those paragraphs apply, parties may be deemed not to act at arm’s length at all times in the transactions or series, or a tax debt of a time following the time of the transfer may be deemed to exist as of the earlier taxation year in which the property was transferred.

There may be situations where a testifying expert is engaged to situate the transactions in the marketplace or explain why commercial parties may enter into those transactions. Parties should be aware of the limitations of engaging experts to opine on what persons would reasonably do. Expert witnesses, subject to certain limited exceptions, may not opine on a taxpayer’s subjective intention or motivation. This proposition was set out in Adam v Campbell,2 where the Supreme Court held:

Neither experts nor ordinary witnesses may give their opinions upon matters of legal or moral obligation, or general human nature, or the manner in which other persons would probably act or be influenced.3

Canadian courts have confirmed that such opinions may only be adduced by experts qualified to opine on human nature.4 As such, market experts may not be permitted to tender opinions on subjective intention in a section 160 appeal. Instead, parties to an appeal would likely have to engage an expert in human nature or behaviour (e.g., a psychologist) in order to adduce opinion evidence on subjective intention, on what a reasonable person would likely do, or how a reasonable person would likely act.

Third-party information may be relevant to the new purpose tests

Based on the phrasing of paragraphs 160(5)(a) and (b), the transferor’s (and not just the transferee’s) subjective or objective purpose for the transfer may be relevant to whether the deeming provisions apply. A transferee assessed under section 160 may not know or have evidence of the transferor’s purpose.

Determining the transferor’s purpose raises considerations about the onus of proof in derivative liability cases. Although the topic of onus in tax cases is complex and beyond the scope of this commentary, generally the taxpayer has the initial onus of disproving the Minister of National Revenue’s assumptions of fact that underlie the assessment. The reason is that in many circumstances the taxpayer is in the best position to produce the relevant evidence to establish the correct facts. However, there are exceptions to this general rule for third-party information.

Where the Minister of National Revenue is in a better position than the taxpayer to establish the assumed facts, the onus may not fall on the taxpayer. For example, the Crown has the onus of establishing the transferor’s underlying tax liability in section 160 cases where the transferee cannot access the relevant information.

Third-party information that may be relevant to paragraph 160(5)(b) includes the transferor’s subjective purpose for making the transfer, the transferor’s objective circumstances before and after the transfer, and whether the transferor had contemplated a future amount payable under the Income Tax Act. Taxpayers faced with a section 160 assessment that raises these new anti-avoidance provisions may need to carefully consider the facts and evidence required to dispute the assessment, including who has the relevant historical knowledge and documentation, and use the procedural tools available to access this information if needed.

For further information on this topic please contact Kristen Duerhammer or Shara Sullivan at KPMG Law.

1 Letter from the Joint Committee on Taxation to Department of Finance regarding Avoidance of Tax Debts proposals included in the draft legislation, April 5, 2022
2 Adam v Campbell, [1950] SCJ No 51
3 Adam v Campbell, [1950] SCJ No 51 at para 34 (citing Phipson on Evidence, 8th ed, p 385)
4 See e.g., Minister of National Revenue v Furnasman Ltd, [1973] FC 1327 at para 23; Matthew v R, [2001] TCJ No 491

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