Canadian income taxes owing are due in full when CRA issues an income tax assessment or after a tax audit when a tax reassessment is issued. Normally if the amount is not paid in full CRA will communicate with the tax debtor after thirty days, usually by a computer generated letter sent by mail (CRA does not communicate by email) or sometimes by phone, asking for full payment of the outstanding income tax debt. If neither payment in full has been made nor has an attempt been made by the Canadian tax debtor to make a payment arrangement with the Canada Revenue Agency, then a final letter requesting for payment will be sent or a phone call will be made by a CRA collections officer. In this letter or phone call, the Canadian tax debtor will be informed that he or she has ninety days to pay the outstanding tax debt or arrange a payment plan with an authorized representative of the Canada Revenue Agency, otherwise, the CRA will initiate legal collections actions which may include registering a tax lien.
Once CRA issues a tax assessment, the amount is owing and a CRA collection officer will become involved. This does not mean that you cannot challenge the tax debt owing. It is always important that one of our top Toronto tax lawyers properly manage the CRA Collections Department officer while we work to reduce your alleged income tax debt owing. This way, our clients’ financial and tax affairs are properly protected.
CRA collection officers do not have the ability to accept less than 100% of all taxes, penalties and interest owing. Our Toronto tax lawyers are usually able to make payment arrangements when a Canadian tax debtor has exhausted all reasonable possibilities of obtaining the necessary funds by borrowing or re-arranging their financial affairs. We will need to provide the CRA collections officer with full income disclosure, living expenses, and assets and liabilities before CRA will accept any proposed payment arrangement.
Whatever deal Canada Revenue Agency agrees to, the tax debtor will continue to be charged interest until the tax debt is paid in full. Interest is compounded on a daily basis.
However there is a way to settle tax debt for less than face value, and that’s under the Bankruptcy and Insolvency Act, either by making a consumer proposal to the Canada Revenue Agency or by declaring bankruptcy. Of course this option is only available if the tax debtor has assets than are less than the tax debt owing. When appropriate our Toronto law firm will direct you to a trustee in bankruptcy.
Calls threatening Canadian taxpayers with arrest and jail due to debts allegedly owing to the Canada Revenue Agency (“CRA”) have become a common daily occurrence across Canada. These scam calls are frightening and aggressive, but there are telltale signs that indicate their fraudulent nature, and steps individuals can take to restore their peace of mind. The CRA does not jail taxpayers for unpaid tax debts. The CRA does not demand payment of tax debts by wire transfer or by any method other than cheque or money order payable to CRA. The CRA always provides written statements on CRA forms showing taxes owing before initiating any collection actions. The CRA general enquiries contact number will confirm if you have a balance owing. If you have tax concerns and don't want to contact CRA directly, you can speak to one of our experienced Canadian tax lawyers who can do so on your behalf.
If the steps set out above have not resulted in a payment solution that is acceptable to CRA, legal action could follow 90 days after the notice of assessment or notice of reassessment. Once a garnishee or other legal action is started, it will not usually be withdrawn unless the tax debtor settles the income tax debt owing by paying the full tax balance or providing evidence that the legal action is creating undue financial hardship. CRA will notify the tax debtor by mail of the collection action. CRA has draconian collections powers that it can exercise without court authorization.
Legal tax collections actions could include salary garnishment, bank account seizure, and/or home or other personal property tax liens, which can then be sold by the sheriff’s office in order to pay for the outstanding tax debt.
Wage garnishment or salary garnishment is a requirement that an employer pay an amount owing to a debtor. CRA is able to issue a wage garnishee or salary garnishee without a court order. CRA is also able to seize bank accounts and other assets such as accounts receivable without having to go to court for an order.
In Ontario, and many other provinces, you cannot be fired for a wage garnishment. This is specifically set out in section 74 of the Ontario Employment Standards Act.
A tax lien is a claim imposed by law against the private property of an individual owing back taxes to the CRA. CRA can secure a tax lien against a tax debtor on personal property or real property.
Furthermore if you cannot reach a payment arrangement with CRA, they have the power to withhold a payment from any other government department (for example: Canada Pension Plan) until your tax debt is paid in full.
As you can see, CRA has extremely broad collections and enforcement powers, so treat this debt seriously and never ignore it.
One power that CRA collections officers do not have is the right to go inside your home or business without a search warrant. CRA collections officers will sometimes visit taxpayer homes, but they do not and should not be let inside unless they have a search warrant (which they almost never do). If a CRA collections officer does show up at your door politely ask him or her to leave, and if they do not do not let them inside but call one of our Canadian tax lawyers for immediate assistance.
A decision to pay an income tax amount in dispute does not indicate that you believe that the CRA’s position is correct and does not affect your chances of success in any tax appeal. It is not an admission of any guilt or of any tax amount owing and does not impact our Canadian tax lawyer’s pursuit of your tax appeal case. It does stop CRA from charging you interest on the tax debt.
CRA’s ability to collect income tax debts and HST debts are set out in the Income Tax Act and Excise Tax Act. Section 225.1 of the Tax Act restricts the CRA’s ability to take collection action against a taxpayer that has objected or appealed a tax assessment (with some limited exceptions). So once your Canadian tax lawyer files a Notice of Objection or an appeal to Tax Court, the CRA collections officer can no longer pursue tax enforcement actions. However CRA interest continues to be charged if the tax debt is unpaid, and will be paid by CRA to the taxpayer if the tax debt was paid and you are successful with the tax appeal.
There is no equivalent collection restriction under the Excise Tax Act, so even if you appeal a GST/HST assessment, you have to pay the entire tax amount assessed.
CRA will charge interest on taxes owing and any penalties charged as of the day that the tax return was due. The CRA interest will continue to accrue until the tax debt is paid in full or the tax debt is vacated by way of a successful appeal. As suggested above, pay the tax debt owing as soon as possible.
The CRA’s prescribed interest is compounded daily under the Income Tax Act and Excise Tax Act. The CRA’s current prescribed interest rate is five per cent. As suggested above, pay the tax debt owing as soon as possible even if you have to borrow since money is cheaper from almost any other source. Furthermore CRA’s interest is not deductible.
CRA has the ability to follow assets when a tax debtor transfers money or property (such as a house) to a non-arm’s length third party (usually a relative) for less than fair market value. Under section 160 of the Income Tax Act and the equivalent section 325 of the Excise Tax Act, CRA will assess the non-arm’s length third party for an amount equal to the value of the money or property transferred less any amount given in return. For more details see www.taxpage.com/articles-and-tips/cra-collections/collect-taxpayer-debts-from-third-parties/
Note that section 160 applies where a spouse as transferor transfers his or her interest in the matrimonial home to the other legal or common law spouse, the transferee, leaving the transferor with no assets for the CRA to seize. CRA will almost always attempt to use section 160 to assess the transferee for the value of the interest in the matrimonial residence transferred or the tax debt, whichever is less.
As you can see it’s very dangerous to ignore a tax debt. If you are unable to pay a tax debt in full, or have been contacted by a CRA Collections Officer, you should immediately call one of our top Canadian tax lawyers before CRA seizes your assets, garnishees your wages or issues a tax lien.
Nathaniel completed his Juris Doctor degree at Osgoode Hall Law School where he excelled in the areas of tax law and legal writing and research.He successfully completed all of the requirements of Osgoode’s Taxation Law Curricular Stream
Carson Pillar articled with us and then joined our tax law firm as an associate Canadian tax lawyer having been called to the Ontario bar in June 2016. Carson runs our Calgary tax office. Carson earned his Juris Doctor from Western University and graduated in 2015.
Ian Thomas joined our Toronto tax law firm as an articling student (student at law) in July 2016 and upon becoming a Canadian tax lawyer in June 2017 he becomes our latest tax associate. Ian earned his Juris Doctor from Osgoode Hall Law School and graduated in 2016.
Tigra Bailey has now joined our tax law firm as a summer tax law student and is expected to return as an Articling Student in 2017-2018. Tigra is completing her Juris Doctor at Queen’s University and her expected graduation date is in 2017.
Ildi has joined the law firm of Rotfleisch & Samulovitch PC in June, 2000 and brings over 25 years of legal secretarial experience to the firm. She started as a Legal Secretary and after obtaining Certificates from The Institute of Law Clerks of Ontario
Jamin Chen joins our tax law firm as an articling student in September 2016 after earning his Juris Doctor from Allard Hall at the University of British Columbia.