Executive summary: key legal and evidentiary issues

• Arrears interest of $16,518.86 and $38,748.39 was assessed against the Appellant on reassessments under subsection 160(1) of the Income Tax Act following a Consent to Judgment that reduced the original assessed amounts.

• Subsection 160(1) creates joint and several liability for transferees of property from non-arm's length transferors, limited to the lesser of the fair market value of the property transferred and the transferor's outstanding tax debt.

• The Appellant argued that paragraph 160(1)(e) functions as an overarching cap on all amounts assessable, including interest, and that the Minister cannot assess arrears interest against a transferee.

• Parliament's 2013 amendments to the closing words of subsection 160(1) and subsection 160(2) were enacted to clarify that transferees are liable for arrears interest without any limit on the amount.

• The Abrahams principle — that a reassessment supersedes a prior assessment — does not reset the balance-due day for computing arrears interest, which remains the date of the original subsection 160(1) assessment.

• Applying a textual, contextual, and purposive interpretation, the Court concluded the Minister is not only entitled but required to assess arrears interest on subsection 160(1) reassessments.

Background of the property transfers and original assessments

Tamara Brown, the Appellant, received two transfers from a non-arm's length corporation (the "tax debtor"). The first transfer involved real property transferred to the Appellant by the tax debtor in May 2006, and the second involved cheques deposited into the Appellant's bank account in February 2005. In 2010, the Minister of National Revenue assessed the Appellant under subsection 160(1) of the Income Tax Act in the amounts of $105,000 and $61,840, respectively, reflecting her joint and several liability for the tax debtor's outstanding obligations. No arrears interest was assessed on either of the original 2010 assessments.

The appeal, consent to judgment, and reassessments

The Appellant objected to both original assessments and filed a Notice of Appeal in October 2014. The parties negotiated a settlement, and in July 2019, they filed a Consent to Judgment. Under the agreement, the first assessment was reduced from $105,000 to $25,000, and the second from $61,840 to $60,000. The Tax Court of Canada issued Judgment on November 27, 2019, sending the assessments back to the Minister for reconsideration and reassessment on those agreed terms. On December 15, 2020, the Minister issued two reassessments: the first in the aggregate amount of $41,518.86 (comprising the $25,000 agreed amount and $16,518.86 in arrears interest from September 17, 2010) and the second in the aggregate amount of $98,748.39 (comprising the $60,000 agreed amount and $38,748.39 in arrears interest from November 22, 2010). The Appellant challenged only the arrears interest portions.

The rule 58 motion and the central legal question

The parties agreed to proceed under section 58 of the Tax Court of Canada Rules (General Procedure), asking the Court to determine a single question of law on agreed facts: whether the Minister was entitled to assess arrears interest of $16,518.86 and $38,748.39 when reassessing the Appellant on December 15, 2020, to implement the November 27, 2019 Judgment. Both sides confirmed that the Court's answer would dispose of the entire appeal.

The Appellant's position on interest and the paragraph 160(1)(e) cap

The Appellant contended that paragraph 160(1)(e) operates as an overarching statutory ceiling on the total amount — including any interest — that the Minister may assess against a transferee. In the Appellant's view, the closing words of subsection 160(1), which appear to permit an unlimited assessment of interest, are themselves constrained by the paragraph 160(1)(e) limitation. The Appellant further argued that the Minister is never entitled to assess arrears interest against a transferee and that interest can only begin to run from the date of the reassessment. Relying on the Abrahams principle — that a reassessment renders a prior assessment a nullity — the Appellant submitted that the balance-due day for computing interest must be the date of the 2020 reassessments, not the original 2010 assessment dates.

The Court's textual and contextual analysis

Justice Spiro conducted a thorough analysis of the text, context, and purpose of subsections 160(1) and 160(2). The Court noted that paragraph 160(1)(e) clearly limits joint and several liability to the lesser of the fair market value of transferred property and the transferor's tax debts, but that nothing in the text of the provision suggests that either of those amounts includes arrears interest. The closing words of subsection 160(1) function as a "notwithstanding" clause — confirmed by the French version's use of "Toutefois" — ensuring that nothing in the subsection limits the transferee's liability for interest. Subsection 160(2) expressly incorporates the Division I provisions, "including, for greater certainty, the provisions in respect of interest payable," making the same arrears interest rules applicable to subsection 160(1) assessments as to ordinary Part I assessments.

Legislative history and the 2013 amendments

The Court examined the legislative history, noting that Parliament amended the closing words of subsection 160(1) and subsection 160(2) in 2013 in direct response to the Tax Court's earlier decision in Algoa Trust, which had concluded that the Minister was not entitled to assess interest to a transferee under the wording of subsection 160(1) as it then read. The Department of Finance Technical Notes confirmed that the amendments were intended to clarify that a transferee's assessment is subject to interest "without any limit on the amount of interest for which the taxpayer may be liable." The Federal Court of Appeal also confirmed in 1455257 Ontario Inc. v Canada, 2021 FCA 142, that the 2013 amendments "conclusively settled" the debate.

The ruling and outcome

The Court answered the Rule 58 question in the affirmative, holding that the Minister was entitled to assess the arrears interest of $16,518.86 and $38,748.39 on the December 15, 2020 reassessments. Justice Spiro went further, concluding that the Minister is not only entitled but required under the Act to assess arrears interest against a transferee. The balance-due day from which interest runs is the date of the original subsection 160(1) assessments in 2010, not the 2020 reassessment date, and the Abrahams principle does not alter this conclusion. The appeal of each subsection 160(1) reassessment was dismissed, with no costs awarded to either party as agreed. The Respondent, His Majesty the King, was the successful party; the combined arrears interest upheld totalled $55,267.25.