Generally, a director will not be held liable for corporate income tax absent misconduct. However, s.160 of the Income Tax Act introduces liability in certain circumstances where assets have been transferred by a taxpayer who owes a tax debt. The purpose behind this provision is to ensure that the CRA is able to collect tax debts where assets have been divested for less than market value.
Unlike s. 227.1 of the Income Tax Act, where a director’s liability is limited to tax withholdings and the like, s.160 creates liability for the recipient in a non-arm’s length transfer if the transferor has any kind of tax debt.
S. 160 applies to a person who has received a non-arm’s length transfer of property when the transferor owed a tax debt at the time the transfer occurred, and the transferee did not pay the market value for the property. Per s. 160(1), the transferee may be held jointly and severally liable for the tax debt, including interest, to the lessor of:
a) The value of the property transformed minus consideration given for it by the transferee; or
b) The total tax and interest that the transferor was liable to pay in or in respect of the year of the transfer and any preceding years.
In Borealis Geopower Inc. v the Queen, 2018 TCC 189 the Court applied s. 160 to corporate income tax. S.160, therefore, creates a situation where a director could incur personal liability for all or a portion of the income tax debt of the corporation if they were the transferee as described above.