Being in debt to the Canada Revenue Agency can be unnerving. The CRA has strong collection powers under the Income Tax Act and the Excise Tax Act so it’s important to know what you can do if you have received any form of notification as part of the Canada Revenue collections process.
The Canada Revenue agency collects many forms of government debts including:
- personal income tax,
- payroll deductions,
- benefit overpayments, and even
- Canada Student Loans.
In this article we look at how CRA can attempt to collect on unpaid tax and other government obligations and what your remedies are in dealing with CRA collections as well as some tax debt relief options.
CRA Collection Powers
The CRA can be very aggressive when collecting outstanding tax debts. They have several legal remedies and collection tools that can be applied, sometimes without prior notice.
The Right of set-off: Because the government has so many branches and programs you may owe money to one branch yet be owed money from another benefit area. CRA can keep a payment owing to you and apply that payment towards other government debt. For example, CRA can keep any HST credit to apply against outstanding income tax. Similarly, if you have a refund coming to you in one year, they can offset that refund and apply it towards any tax debts from prior years. They can even garnish CPP and OAS pension payments.
Garnishment: The federal government can issue a garnishment, without a court order, to seize any funds owed to you from someone else. That means they can freeze your bank account or issue a CRA garnishment of your wages. They will issue a ‘requirement to pay’ to your bank or employer who has no choice but to send money to the CRA instead of you, the tax debtor.
Registering your debt: Without warning, CRA can register your debt with the Federal Court of Canada. This has the effect of confirming the amount you owe (regardless of whether or not you agree) allowing them to take further legal actions. Like obtaining a court judgement order, this makes your debt a matter of public record.
Registering a lien: Once the CRA has registered your debt, they can register that debt on title against any asset you own including your home or car creating a tax lien on your property.
Seizing assets: The CRA can seize and sell assets that you own to satisfy any outstanding debt.
How the Insolvency Act Overrides the CRA
The Bankruptcy & Insolvency Act, like the Income Tax Act, is federal legislation. In most situations, a bankruptcy or consumer proposal stops the Canada Revenue Agency collection process and eliminates the debt. There are some limited exceptions to that general rule which would be reviewed with your licensed insolvency trustee.
Take action before a lien
If you own a house, or any other asset, you will want to settle or file insolvency before the CRA places a lien on your property. Liens are considered secured debt, and secured debts do not get discharged either through bankruptcy or a consumer proposal.
Confirm how much you owe
The CRA is willing to settle outstanding unsecured tax debt through a consumer proposal. However, they will first want to confirm how much debt is owing which means you will need to file all outstanding tax returns.
Canada Student Loans
Student loans that are in arrears are sent to the CRA for collections. Government guaranteed student debt can be eliminated through a consumer proposal or bankruptcy as long as you have been out of school for a minimum of 7 years.
If you are dealing with more tax debt than you think you can repay, only a Licensed Insolvency Trustee has programs that can stop all CRA collection actions and eliminate your tax debt.
Contact us to talk with a Licensed Insolvency Trustee about your situation to see what options you have when dealing with tax debt.