In Canada, 9 out of 10 individuals who owe tax pay it on time. It is important that we all pay our share. Taxes pay for health care, childcare, employment insurance, urban and rural infrastructure projects, and other important programs and services.
If you do not pay your debt in full and on time and refuse to cooperate, the Canada Revenue Agency (CRA) has several options to recover the money you owe. These options may result in serious financial or legal consequences for you. Once these proceedings have begun, the CRA will not usually withdraw them until your debt is paid in full or you can show the action is causing you undue hardship.
Note that the CRA may also charge interest compounded daily at the prescribed rate on any amount owing until your balance is paid in full.
The CRA collects tax debt and other government programs debt for individuals and businesses. The CRA may take one or more of the following steps to recover the money you owe.
If you are owed money by any federal government department or agency, the CRA can issue a statutory set-off and use these amounts to reduce your tax debt or other government programs debt.
For individual tax debt, for example, the CRA may take your goods and services tax/harmonized sales tax (GST/HST) credit payment to reduce your income tax balance.
For other government programs debt, for example, the CRA can offset your income tax refund and GST/HST credit payment to reduce or pay off your defaulted Canada Student Loan and other debts due to other government programs.
The CRA can issue a garnishment to intercept funds that a third party owes you or holds for you. A third party could include a person or organization such as your employer, your bank or other sources of income. The CRA sends a requirement to pay to the third party to redirect funds to us. The CRA will then use the funds to reduce or pay off your debt.
For example, in the case of a business, the CRA can garnish your company’s accounts receivable to pay your tax debt.
The CRA can legally register your debt with the Federal Court of Canada and get a certificate confirming the amounts you owe to the Crown. Once registered, the certificate has the same force and effect as a judgment obtained in a court. In either case, your debt then becomes a matter of public record. The CRA can also obtain a judgment from the provincial courts.
The CRA can get a writ or memorial and seize your assets and property. As an individual, this could include your car, boat, artwork, cottage, rental property, or personal residence. As a business, this could include your business assets and property.
The CRA can then have your assets and property advertised and sold by a court enforcement officer. If the CRA does this, you will have to pay all reasonable costs and charges the CRA incurs. The CRA will apply the net proceeds of the sale to your debt. You will still have to pay any remaining debt.
The CRA may hold a third party jointly and severally responsible for your tax debt. The third party could include a business partner, director, or a related corporation.
For example, if a corporation has not remitted its GST/HST debts or source deductions, the CRA can hold the directors of that corporation jointly and severally responsible for the corporation’s debt.