What is a non-arm’s length transfer assessment?

The CRA has wide-reaching powers when it comes to assessing, reassessing and collecting tax debt. A non-arm's length transfer assessment which allows them to hold another individual liable for the tax debts of someone with whom they have a non-arm’s relationship. Get Farber Tax to help you dispute a CRA assessment.

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What is a non-arm’s length transfer assessment?

 

The CRA has strong powers to assess individuals who they believe have been involved in a transaction that was undertaken to avoid having to pay the CRA. A common form of assessment the CRA will issue is what is known as a non-arm’s length transfer assessment. This assessment allows the CRA to hold another individual liable for the tax debts of someone with whom they have a non-arm’s relationship.

 

What is ‘non-arm’s length’?

 

Non-arm’s length refers to individuals who the CRA has reason to believe are related. In most cases, this involves married individuals. However, non-arm’s length is a very broad concept, which captures any blood relatives, common-law couples, and anyone who the CRA believes on a factual basis to be not dealing at arm’s length, including corporations.

 

What kind of transactions can cause a non-arm’s length transfer assessment?

 

To receive a non-arm’s length transfer assessment, four criteria must be met simultaneously:

  1. there must have been a transfer of property;
  2. the transferor and the transferee are not dealing at arm’s length;
  3. there was not adequate consideration flowing from the transferee to the transferor; and
  4. the transferor has an outstanding tax liability at the time of the transfer.

An example of this would be a married couple where the husband had accrued tax arrears. To avoid potential legal action from the CRA (for example, a lien on the house), the husband would transfer his interest in their matrimonial home to his wife. However, this transfer, if not done properly and supported by the appropriate paperwork, would then allow the CRA to assess his wife for the tax debt owed by the husband, or the amount transferred to the wife, whichever is lower.

However, if the wife can show she provided adequate consideration, for example by providing sufficient consideration to her husband of equal value, she can avoid that liability and assessment.

Farber Tax Solutions can help you successfully deal with CRA problems. We utilize the experience of our tax experts to:

  • 1| Offer a comprehensive solution that is focused on achieving the most favourable possible outcome for your tax issue;
  • 2| Communicate with the CRA on your behalf and navigate the entire CRA dispute process; and
  • 3| Offer a complete solution to your tax problems, including ex-CRA professionals and tax lawyers from Farber Tax Law.