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Income tax — assessment for transfer by tax debtor

My clients were a married couple. In 1991, the husband transferred his interest in the family home to the wife. In 1993, Revenue Canada assessed the wife some $20,000 which the husband owed on his personal income tax and had not paid. The assessment was based on the "transfer of property" rule in section 160 of the Income Tax Act. She paid this assessment.

The husband was also assessed $100,000 as a director of a corporation that had gone bankrupt owing source deductions. When he was unable to pay, Revenue Canada assessed the wife, in 1997, for $100,000, based on the transfer of the family home to her.

I filed a Notice of Objection on behalf of the wife, taking the position that, since she had already been assessed once in respect of the transfer of the home to her, she could not be assessed again more than three years later. This was a novel point, not previously considered by the Courts, and I backed up my argument with extensive analysis.

The Revenue Canada appeals officer was unwilling to listen to my arguments and insisted that he disagreed, even though he clearly did not understand the point I was making. I insisted in a letter to senior management in Ottawa that the matter be referred internally for a legal opinion. It was, and Revenue Canada's lawyer agreed with me. The 1997 assessment of the wife was cancelled.

Problem vanished!

(1997)