Usually it does not. A CRA debt in your spouse’s name is your spouse’s to pay. It is generally true that each partner is solely responsible for their own CRA debt. There is an important exception in the Income Tax Act.
There are two ways it can still land on you. The first is property your spouse moves to you. The second is your own benefits, which the CRA recalculates when your marital status changes. We will give you the bad news first, because it is better you find it here than in a notice of assessment with your name on it.
The exception that reaches across: section 160
Section 160 of the Income Tax Act applies when a person transfers property to a spouse or common-law partner. The rule is short. If the property was worth more than what you gave for it, you and your spouse can be jointly and severally liable for your spouse’s tax.
The Act sets how much. You and your spouse are jointly and severally liable for the lesser of two amounts. The first is the fair market value of the property minus what you gave for it. The second is the total your spouse was liable to pay under the Act in or for the year of the transfer or any year before it.
What does that look like for a couple? These are round numbers in dollars, an illustration and not a legal limit. Say your spouse owes the CRA 40,000 for past years. Your spouse puts a share of the house in your name, and you pay nothing for it. The share is worth 150,000, and that is the gap. The debt is 40,000, so you can be assessed for 40,000. Now say you paid 130,000 for that share. The gap is 20,000. That is the most the CRA can assess you for under that rule.
Does that mean you each owe half? No. Jointly and severally means the CRA can collect from either of you. Section 160(3) adds a trap. Whatever you pay reduces your own amount. What your spouse pays reduces your amount only once your spouse’s debt falls below it.
Two more rules make this worse than people expect:
- No deadline to assess you. Section 160(2) says the Minister may at any time assess a person for an amount owed under this section.
- No defence of not knowing. The Ross Firm says there is no defence of due diligence or ignorance, and no time limitation.
If the house or the savings have already moved, tell us the date of the transfer at the start.
The separation exception, and why the order matters
Section 160(4) sets special rules for a transfer of property to a spouse or common-law partner. It applies when property is transferred under a court order or judgment, or under a written separation agreement. At that time, the two of you must be separated and living apart because the relationship broke down. When both are true, the Act says that for paragraph 160(1)(e) the fair market value of the property at the time it was transferred is deemed to be nil.
The order is the part that fails. On taxpage.com, David J. Rotfleisch writes that the transfers must have taken place concurrently with, or subsequent to, any separation or divorce agreement being put in place. His example is a spouse who moves a half share of the family home first and signs the divorce agreement later. In that case, he writes, the protection will not be effective.
Which comes first, the paper or the title? The paper. The title moves second.
A separation agreement does not bind the CRA. The Ross Firm says the CRA is not bound by agreements between spouses. An indemnity clause, where the spouse with the tax debt agrees to repay you if you are assessed, does not bind the CRA either. The clause may still give you recourse if you are assessed.
Moving the title is not a plan.
The CRA debt you can create in your own name
This one has nothing to do with your spouse’s taxes. Who reports the change? You do.
The CRA defines separated as living apart from your spouse or common-law partner because of a breakdown in the relationship for at least 90 days. It says you must wait those 90 days before you tell it. Once they pass, the date of your separation is the day you started living apart, not the day you told the CRA.
Then the clock starts. The CRA says you must tell it about the new status by the end of the month after your status changed. The CRA lists ways to change your marital status online, or you can complete and send Form RC65, Marital Status Change.
The CRA then recalculates your benefits and credits on your new status, to see if you received too much or too little. A recalculation that finds too much is a balance the CRA can collect from you, and under section 160.1 of the Income Tax Act the spouse who lived with you when a child benefit or GST/HST credit was paid can be jointly and severally liable for it as well. The CRA also says you must file an amended return to adjust any amounts you claimed while you were married or living common-law.
Before anything changes hands
- Ask for the notices of assessment. Ask whether your spouse has outstanding tax returns, reassessments, arrears or audits. You cannot rely on ignorance as a defence.
- Write down the day you started living apart. The CRA says the effective date of your separated status is the day you started living apart.
- Sign first, transfer second. Get the written agreement or the court order in place before title or an account moves.
- Keep proof of what you paid. Under section 160, what you gave for the property is the number that shrinks the gap.
- Tell the CRA on time. The CRA says you must tell it by the end of the following month after your status changed.
Some couples try to settle the CRA by borrowing against the house they both own. Read our page on debt relief vs debt consolidation before you put your spouse’s tax debt on a home you share.
When the CRA debt is yours
Separation does not change a debt that was always in your name. It does change what you have to work with: one income, perhaps a buyout to pay, perhaps a house to sell. Look at the routes for tax debt relief in Ontario now, before the separation agreement fixes who keeps what.
If the CRA has already registered a lien on the house you are about to divide, read how to protect assets from creditors in Ontario first. Ask us, and a family lawyer, before you sign the agreement, not after.
Questions people ask
Am I responsible for my spouse’s debt after separation in Canada?
Not for a CRA debt in your spouse’s name alone, as a rule. Section 160 of the Income Tax Act allows the CRA to collect a tax debtor’s unpaid income tax debts from another person if certain conditions are met. If your spouse moved property to you for less than it was worth, you can be assessed for up to that gap, capped at what your spouse owed.
Can I still file taxes as separated if we live together?
The CRA’s definition of separated is living apart because of a breakdown in the relationship for at least 90 days. Whether your arrangement under one roof meets it is a question about your own facts, and the answer changes your benefits.
Who is responsible for CRA debt after separation?
The person assessed. That is usually the spouse whose return or business created it. A section 160 assessment makes a second person liable with them, jointly and severally, up to the amount the Act allows.
Does CRA debt ever go away?
There is a limit, and it can restart. Section 222 of the Income Tax Act says the limitation period for collecting a tax debt ends 10 years after the day on which it begins. It restarts when you acknowledge the debt, when the CRA starts an action to collect, or when the CRA assesses any person for it under section 160(2). An assessment against a former spouse can restart the clock on the original debt.
Every file is different, and your buddy’s file is not yours. How you answer the questions on a separation agreement and on a CRA form matters. Bring three things to the first conversation: the date you started living apart, any notice of assessment you have for either of you, and the draft agreement if there is one. The first consultation is free, and it covers all of Ontario from the Vaughan office, Monday to Friday, 8am to 5pm. Call 647-276-8844, or ask for a debt relief consultation.
Where we fit
Get Total Debt Relief is a debt consulting and representation firm, not a Licensed Insolvency Trustee. Only a Licensed Insolvency Trustee can file your documents for a consumer proposal or a bankruptcy with the Superintendent of Bankruptcy. However, he is not the only one you should get your information from. Unlike a Trustee, we look to preserve your equities and assets, not liquidate them. What we do is make sure you only pay what you have to pay, not what someone thinks you can pay. We use every tool available to make sure you protect your home, your business and other equities as well as Spousal rights. Once you’re ready to move forward with whichever process you choose, that’s when it’s time to move on to the selection of a Trustee. Please keep in mind that if for any reason, you have to deal with a legal matter during your Bankruptcy or Proposal, a Trustee can NEVER legally represent you. However, he CAN act against you. Choose your representation wisely!
DISCLOSURE:
Get Total Debt Relief is a debt consulting and representation firm. We are not a Licensed Insolvency Trustee, and we are not connected to the Canada Revenue Agency or any government body.
Only a Licensed Insolvency Trustee can file your documents for a consumer proposal or a bankruptcy with the Superintendent of Bankruptcy.
OUR SERVICE:
However, any Trustee you choose can’t legally represent you over your Creditors nor can he give you any advice that will benefit you over your Creditors. The Trustee’s job is to maximize how much he can get from you and your estate for the benefit of your Creditors and the more he collects in a Proposal, the more he makes.
What we do is the work before the filing and the path you choose will come from the advice and information that goes with it. More importantly, we use tools that are not available to the Trustee because of who’s interests he represents. We go through your whole situation with you. We answer your questions, for as long as it takes and as many times as you need to ask them. Every consultation is free and if or when you decide to move forward, you’ll know which option best suits you, your family and or your business. And, unlike the Trustee, we will NEVER use the information you’ve given us against you in Court. The bottom line is that we don’t look to liquidate your assets and equities, we look to protect them.