CRA’s Enormous Collections Policies

In Information Circular, IC 98-1R5 Collections Policies, issued on February 3, 2013, CRA clearly outlines the consequences that will follow if you make the bad decision to ignore their requests for payment.  Tax and financial advisors have an important role to play in advising their clients to stay out of this kind of trouble, because the consequences can be swift and financially brutal.

If debt management is an issue for you or your clients, it’s important to follow a specific order to get back on the path and into the black.  Failure to pay CRA voluntarily results in legal action that will allow CRA to garnish wages or set off the debt against money the federal government may owe the tax debtor.

All of that money can be redirected to the CRA until the tax bill is paid.  Indeed CRA can intercept a taxpayer’s wages or any other income sources, seize and sell assets or use any other means available to it under any statute or law to collect their money.

Worse, the taxpayer will be on the hook to pay all reasonable costs the CRA incurs to have the debt certified; which means it is the proceeds after such costs are deducted that will be applied to the debt.

The CRA has certain restrictions to abide by.  First, certain types of legal action cannot be initiated until 90 days after the date on the Notice of Assessment or Reassessment.  That’s why it’s critically important for taxpayers in this situation to see their DFA-Tax Services Specialist immediately upon receipt of these documents, in hard copy or by email notification.

CRA must wait 90 days after the receipt of these notices to begin legal proceedings in a court, or certify the amounts owing in the Federal court, under various sections of the Income Tax Act, the Excise Tax Act or other Acts.  However, no restrictions apply to the following debts, according to IC 98-1R5:

Under the Income Tax Act:

• Payroll: Assessments raised on payroll deduction accounts.
• SR&ED: Scientific research and experimental development tax credits—an amount payable under Part VIII of the Income Tax Act.
• Non-resident tax: Amount of tax required to be paid under section 116, or under a regulation made under subsection 215(4) of the  Income Tax Act, that has not been paid.
• Penalties: Amount of any penalty payable for failure to remit or pay a deemed trust amount, as and when required by the  Income Tax Act, the Canada Pension Plan, the  Employment Insurance Act, or a regulation made under those acts.
• Interest:  Any interest payable under a provision of the  Income Tax Act, the Excise Tax Act, the  Canada Pension Plan, and the Employment Insurance Act on an amount referred to in any of the above paragraphs.
• Large corporations:  For income tax purposes only, where a large corporation as defined in subsection 225.1(8) of the Income Tax Act has been assessed, CRA may take action to collect half of the amount assessed at any time during the first 90 days after the amount is assessed, regardless of whether an objection or appeal has been filed. After this 90-day period, if there is no objection or appeal, CRA can collect the outstanding balance. After the 90-day period, where an objection or appeal is filed, CRA can collect up to half of the amount under dispute and any balance not in dispute.

Under the Excise Tax Act and Air Travellers Security Charge Act  there are no collections restrictions provisions.  In addition, as per the CRA, collections restrictions do not apply if collection of all or part of an assessed is considered to be collections in jeopardy.

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