Section 160 Related-Party Transfer Assessment Calculator
A dividend taken out of a corporation that owed the CRA can be assessed against the person who received it, years later, with no limitation period to stop it. Work out the assessable amount on each transfer, the total joint and several liability, and which defences are actually worth running.
assessable against the recipient
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Transfer by Transfer
| Transfer | Value Transferred | Consideration | Debt That Day | Assessable Amount |
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Conditions the CRA Has to Satisfy
| Condition | What Section 160 Requires | Your Facts |
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Defence Positions Worth Pricing
| Defence | What It Attacks | Amount at Stake |
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Points That Decide This
What to Do Next
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Disclaimer: Section 160 of the Income Tax Act applies where a person transfers property, directly or indirectly, to a spouse or common-law partner, to a person under 18, or to a person with whom the transferor was not dealing at arm’s length. The transferee and the transferor become jointly and severally liable for the transferor’s tax, limited to the lesser of the amount by which the fair market value of the property transferred exceeds the fair market value of the consideration given, and the total of the amounts the transferor was liable to pay under the Act in or in respect of the taxation year of the transfer or any preceding taxation year. Section 325 of the Excise Tax Act applies the same rule to GST/HST debts. Subsection 160(2) allows the Minister to assess a transferee at any time, so no ordinary limitation period applies. Under subsection 160(3), a payment by the transferor on account of the underlying liability reduces the transferee’s liability by the same amount. A corporation and a person who controls it are related under subsection 251(2), and related persons are deemed not to deal at arm’s length under paragraph 251(1)(a). Interest is modelled at the prescribed arrears rate of 8% compounded daily from the date of the derivative assessment. This page is general information, not tax advice.
What Section 160 Actually Does
Section 160 makes the person who received property from a tax debtor personally liable for the debtor’s tax. It is not a penalty and it does not require any wrongdoing. The CRA does not have to show that the transfer was made to defeat collection, that anyone knew about the debt, or that the recipient benefited in any particular way. Four facts are enough.
- Property was transferred. A dividend, a cheque, a car, a house, an assignment of a loan, a payment of someone’s personal expenses out of the corporate account.
- The parties were not at arm’s length, or the recipient was a spouse or common-law partner or a child under 18. A controlling shareholder is related to the corporation and therefore never at arm’s length with it.
- The recipient gave back less than the property was worth.
- The corporation owed tax for the year of the transfer or any earlier year.
The most common version of this is entirely routine bookkeeping. A corporation falls behind on its HST or its corporate tax instalments, and the owner keeps paying themselves dividends because that is how they have always been paid. Every one of those dividends is a transfer of property for no consideration from a tax debtor to a related person.
A Dividend Is a Transfer of Property for No Consideration
This is the point people find hardest to accept. The shareholder already owns the shares, so it feels as though something was given for the dividend. The courts have consistently held otherwise. The shares are not surrendered, cancelled or reduced when a dividend is paid, so nothing moves in the other direction. The full amount of the dividend is the value transferred.
The same reasoning catches a return of capital, a repayment of a shareholder loan that was never really owed, and management fees paid to a spouse who does not work in the business.
| What Left the Corporation | Consideration Recognised | Amount Exposed |
|---|---|---|
| Dividend | None, the shares are not given up | The full dividend |
| Salary for work actually performed | The services, at fair value | Nil, up to a reasonable amount |
| Salary above what the work was worth | The services, at fair value only | The excess |
| Asset sold to a related party at book value | The price paid | Market value less the price |
| Repayment of a genuine shareholder loan | Release of a real debt | Nil, if the loan is documented |
| Personal expenses paid by the corporation | None | The full amount |
The Assessment Is Capped Twice
The liability is the lesser of two figures, tested separately for every transfer. First, the value transferred less the consideration given back. Second, the corporation’s tax debt in or in respect of the year of the transfer or any preceding year. A large dividend paid when the corporation owed very little produces a small assessment, and a small dividend paid when the corporation owed a great deal produces an assessment equal to the dividend.
There is a third, practical cap. The CRA is collecting one debt, not several, so it cannot recover more in total than the corporation actually owes. Where several family members have each received transfers, each is assessed separately for the full amount within the limits above, and payment by any one of them reduces everybody’s liability.
Timing is the limb most often missed. A debt arising from a reassessment issued in 2026 for the 2019 year is a liability in respect of 2019, so a dividend paid in 2020 is caught even though nobody knew the debt existed at the time. The test looks at the taxation year, not at the date of the assessment notice.
There Is No Limitation Period
Subsection 160(2) says the Minister may assess a transferee at any time. There is no three year window and no reassessment period. The Supreme Court of Canada confirmed in Addison & Leyen that the timing of a section 160 assessment is not itself a ground for relief, and assessments issued eight or ten years after the transfer are ordinary.
What does have a deadline is the response. Once the notice of assessment is issued, the recipient has ninety days to file a notice of objection, and that deadline behaves like any other. Missing it removes almost every defence set out below.
Section 325 Does the Same Thing for HST
Section 325 of the Excise Tax Act mirrors section 160 almost word for word. Where a corporation owes both corporate tax and net HST, the two assessments are usually issued together and add up to the whole debt. The distinction matters because the underlying liabilities are disputed in different ways and on different timelines, and because a director who has also been assessed under section 227.1 or section 323 may be facing the same money through two doors at once.
| Assessment | Statute | Who Is Reached | Limitation Period |
|---|---|---|---|
| Related-party transfer, income tax | ITA section 160 | Anyone who received property | None |
| Related-party transfer, GST/HST | ETA section 325 | Anyone who received property | None |
| Director’s liability, source deductions | ITA section 227.1 | Directors only | Two years after ceasing to be a director |
| Director’s liability, GST/HST | ETA section 323 | Directors only | Two years after ceasing to be a director |
What Actually Defeats a Section 160 Assessment
Arguing that the recipient did not know about the debt does not work. Arguing that the money has been spent does not work. Arguing that the assessment is unfair does not work. The defences that succeed attack one of the four conditions or the underlying number.
- The underlying debt is wrong. The recipient may dispute the corporation’s assessment itself, even where the corporation cannot or will not. If the debt comes down, the derivative liability comes down with it, and on many files this is the whole case.
- Consideration was given. A documented loan, a real employment relationship, an assumption of liabilities, a genuine purchase price. Documentation prepared at the time is worth far more than an explanation prepared afterwards.
- The parties were at arm’s length. Rarely available between a corporation and its shareholder, occasionally available between corporations under separate control.
- The valuation is wrong. Where the transfer was an asset rather than cash, the fair market value is a question of evidence and an appraisal can move it.
- The debt did not exist in the relevant year. Worth testing carefully against the corporation’s actual assessment history, transfer by transfer.
- Payments already made reduce it. Subsection 160(3) is mechanical. Anything the corporation or another recipient pays comes off.
The taxpayer relief provisions do not apply to the tax itself. Interest and penalties can be considered for relief, but the assessed amount under section 160 is not discretionary, and a payment arrangement is not a defence. Objecting within ninety days is what preserves the position.
How to Take Money Out of a Corporation That Owes the CRA
Carefully, and with the debt serviced first. A corporation with an arrears balance can still pay a salary for work genuinely performed, at a rate that could be defended as reasonable if someone unrelated did the same job. That is a transfer for consideration, and it sits outside section 160 to the extent the work was worth the money.
Dividends are the opposite. Every dollar is exposed. So is any asset moved out of the corporation as part of a reorganisation, which is why estate freezes and asset transfers done while a balance is outstanding deserve a section 160 review before they are implemented rather than after.
What This Calculator Does Not Cover
- Director’s liability under section 227.1 or section 323, which reaches unremitted source deductions and net HST through a different route
- Transfers between individuals, including the family home, which follow the same rules but need their own valuation work
- Indirect transfers through a trust or a third party, where subsection 160(1) still applies but the analysis is longer
- Provincial tax debts, which have their own derivative liability provisions
- Whether the underlying corporate assessment is correct, which is usually the most valuable question on the file
- Bankruptcy and proposal outcomes, which change what the CRA can collect and from whom
If a notice of assessment has already been issued, the ninety day objection deadline is the only thing that matters this week. Our CRA collections and tax debt service covers the objection, the underlying assessment, the valuation evidence and the negotiation with collections.
Frequently Asked Questions
Common questions on derivative assessments against shareholders, spouses and related corporations.
Related Calculators and Guides
More tools for owners dealing with CRA debt and corporate transfers.
Ninety Days Is the Whole Deadline
Send us the notice of assessment, the dividend history and the corporation’s account statement. We will test each transfer against both limbs, price the defences, challenge the underlying debt where it is worth challenging, and file the objection in time.