OVERVIEW
As a general rule, a taxpayer is only responsible for his or her
own taxes. There are, however, special rules that apply in the case
of non-arm's length transfers of property. An individual who
receives property, whether directly or indirectly, in a
non-arm's length transaction, can become jointly and severally,
or solidarily, liable for the transferor's outstanding taxes as
at the date of the transfer if the transfer occurs at less than the
fair market value of the property (Section 160). This rule also
applies to shareholders who receive dividends from companies with
which they do not deal at arm's length.
Section 160 is intended to prevent a taxpayer from rendering
himself judgment-proof by transferring his property to, inter
alia, persons with whom he does not deal at arm's length.
Its reach, however, is longer than its intended purpose, and can
catch innocent shareholders who receive dividends from a family
corporation.
