Your friend comes to you with a favour and proposition: The Canada Revenue Agency has attempted to collect back taxes and has frozen your friends’ bank accounts.
Your friend needs to pay rent and buy groceries and asks you to help. Your friend will endorse paycheques cheques over to you to which you deposit to an account in your name. In return you agree to give your friend a debit card for your account and some blank signed cheques.
Voila. Your friends’ cash flow problem is solved! That is until the CRA comes knocking at your door demanding payment of your friends tax bill.
That’s the scenario the Federal Court of Appeal just ruled on. In that case the helpful friend was held jointly and severally liable for her friends’ tax bill under the Income Tax Act. Essentially, if someone transfers property to another party in a non-arms length transaction the person receiving the transfer can be held liable of any tax the other party owed.
The moral of this story is simple. If you friend can’t open their own bank account because it’s been seized by the CRA, don’t accommodate them by agreeing to cash their cheques or hold other property in their name so they avoid paying the bill.