Debts Owing to the Canada Revenue Agency

Charity Audit Conditions 20140730

The following article by Robert W. Powell, CPA CA CIRP LIT, was published in the September issue of the District News.

The Canada Revenue Agency (“CRA”) is a common creditor for individuals, unincorporated businesses and corporations.  CRA debts can be for personal or corporate income taxes and, where a business is involved, for unremitted HST (HST collected on sales net of HST paid on supplies) and unremitted payroll source deductions (amounts withheld from employees for income tax, Employment Insurance premiums and Canada Pension Plan premiums).

CRA has some significant legislated powers to collect debts.  The most common is a garnishment more accurately called a requirement to pay or “RTP”.  CRA can issue an RTP to your employer to garnish wages, to a pension plan (including CPP) to garnish pension income, to a customer to capture payment of an amount due or to your bank to capture the balance of your account and whatever deposits are made after the RTP is issued.  They can also issue a judgment without actually going to Court.  This judgment can then be registered against any real estate you own and can also be registered under the Personal Property Security Act which then gives them a charge or lien on all of your non-real estate assets.  Registration of such a judgment by CRA will typically prevent or complicate your refinancing or selling your house or getting any new financing such as for a car.  In addition, if you transfer assets to related parties while you owe money to CRA, the related party could become liable for your debts to CRA.

Many people believe that debts owing to CRA will never go away.  That is not necessarily the case, particularly when an individual goes bankrupt or files a proposal under the provisions of the Bankruptcy and Insolvency Act (“BIA”).  For instance, income tax debts and debts for unremitted HST have no special status under the BIA (in bankruptcy or a proposal) and are unsecured claims no different than a credit card debt or an unsecured debt owing to a supplier.  Debts for unremitted payroll source deductions have a special status and can be difficult, but not impossible to deal with.

It is also important to understand that a director (member of the board of directors) of a corporation is jointly and severally liable for 100% of the unremitted HST and unremitted payroll source deductions of a corporation, including penalties and interest.  Many directors find out about this after the corporation already owes money for these debts and cannot repay the debts.  The lesson here is not to make all of your family members directors.  Who and who is not a director of a company should be a well thought out decision made with legal advice.

As with everything in life these days, there are rules, exceptions to the rules and then exceptions to the exceptions.  Dealing with the burden of significant debts to CRA can be incredibly stressful and even more so if you don’t think they can ever be resolved without full payment.  Now you know that these debts can be resolved.

Powell Associates Ltd. is a Licensed Insolvency Trustee (LIT) focused on providing debt settlement, proposal and bankruptcy solutions for individuals and businesses.  We offer free consultations to review your personal financial situation and practical debt resolution options.  Contact us to discuss your situation over the phone or book an appointment to meet us face-to-face in Saint John, Moncton, FrederictonCharlottetown or Dartmouth - it's your choice.