Many Canadians owe the Canada Revenue Agency (“CRA”)-federal government-for unpaid income taxes. For some, this is their largest debt. Some reasons an individual may owe the CRA for unpaid income tax include:
- Individuals who are self-employed with no income tax being deducted
- Individuals who work more than one job, with insufficient income tax being deducted by the employers
- Individuals that have redeemed RRSPs without having adequate income tax withdrawn by the RRSP administrator at the time of the RRSP redemption
- Pensioners with insufficient income tax being deducted from their pension incomes
The CRA has very broad and extensive powers to recover amounts owed for unpaid income tax. The collection remedies available to the CRA include:
1. Set-Off
The CRA may set-off amounts owed to you by the federal government such as goods and services tax (GST) rebates or income tax refunds to pay amounts that you owe to the CRA.
2. Requirement to Pay or Garnishment
A Requirement to Pay (“RTP”) or garnishment may be issued by the CRA to a third party (bank or employer) to garnishee your bank account, wages or other income such as commissions, bonuses or vacation pay.
3. Debt Certification with Federal Court of Canada
The CRA may register your income tax debt with the Federal Court of Canada to obtain a certificate of the amount you owe. The certificate is like a judgement which makes your tax debt a public record. The certificate enables the CRA to register your debt at Personal Property Registry, register a Writ against your home, recreational property, investment property, car or recreational vehicle.
4. Seizing and Selling Assets
Once the CRA registers your income tax debt with the Federal Court it has the power to seize and sell your assets such as your home, recreational property, investment property, car or recreational vehicle through a court enforcement officer. The proceeds from the sale of your assets will be applied to your income tax debt.
5. Assessing a Third Party for Your Income Tax Debt
In some instances the CRA may assess a third party for your income tax debt. The third party may be your spouse, business partner or a related corporation.
Income taxes owed to the CRA are unsecured debts, until such time that the CRA registers your income tax debt with the Federal Court of Canada and registers a writ against one or more of your assets. The registration of the writ provides the CRA with a security interest (lien) against your assets and converts your income tax debt from unsecured to secured.
You may be surprised to learn that debts owed to the CRA are no different than any other unsecured debts, and may be included in a consumer proposal or personal bankruptcy debt restructuring plan. But it is important that you obtain protection from the CRA before they register your income tax debt with the Federal Court of Canada and convert your unsecured income tax debt to a secured income tax debt.
Unpaid income taxes leaving you financially overstretched?
To obtain protection from the CRA and avoid having your assets seized and sold for the recovery of your income tax debt, give us a call. There are options for income tax debt. Let’s find the best one for you.
Thank you very much for all your help and giving us pointers.
Marguerite and Jeff