Am I liable for a seller's unpaid taxes when I buy a Canadian business?

The rule

“Transferee liability” is the mechanism, and it only bites on a specific fact pattern. Income Tax Act s.160(1) provides that where property is transferred to a person not dealing at arm's length with the transferor, “the transferee and transferor are jointly and severally … liable to pay under this Act an amount equal to the lesser of (i) the amount, if any, by which the fair market value of the property at the time it was transferred exceeds the fair market value at that time of the consideration given for the property, and (ii) the total of all amounts … that the transferor is liable to pay under this Act … in or in respect of the taxation year in which the property was transferred or any preceding taxation year.” The Excise Tax Act carries an almost identical rule for GST/HST at s.325(1): the transferee and transferor are “jointly and severally, or solidarily, liable to pay under this Part” on the same value-gap test.

Two features matter more than the headline number. First, the liability is capped at the value gap — pay full price and there is nothing to catch. Second, there is no clock on it: “The Minister may at any time assess a taxpayer in respect of any amount payable because of this section,” so it does not age out the way an ordinary reassessment risk does.

When this changes

Structure is the whole question. If the asset deal is between related parties or below fair value, s.160/s.325 attach regardless of how careful the paperwork is. If the identical undisclosed liability turns up on an arm's-length asset purchase at a fair price, neither provision reaches the buyer at all — the exposure is zero, not merely capped.

A share purchase is a different question entirely. There is no transferee-liability test to pass or fail, because you are not a transferee — you own the corporation, and every year the CRA can still reassess it travels with the shares. That is a matter of how long the reassessment window stays open, not who the buyer is.

Where this played out — from the Case Files

• • The building moved to the founder’s holdco for $1, and it did not make the operating company’s tax debt any safer to buy — a related-party transfer that put a second name on the hook, dollar for dollar, without reducing what the operating company itself owed
• • An asset buyer who owed nothing on the three years that reopened — the mirror image: the identical undisclosed liability, but an arm's-length asset deal, and genuinely zero exposure
• • Three years that were never actually closed — the share-purchase version of the same risk, where owning the corporation means owning its reopened years too

Sources

• • Income Tax Act, s.160(1)–(2) — joint-and-several transferee liability capped at the value gap, and the open-ended assessment power in s.160(2).
• • Excise Tax Act, s.325(1) — the parallel GST/HST transferee-liability rule.
• • Treadstone Law — what is section 160 liability if my corporation transfers property to me for less than it's worth?.