The CRA understands that for many, these are challenging times as people have lost their businesses and jobs due to COVID-19. The Canadian economy is shrinking day-by-day and many economic indicators reveal the country’s alarming situation. However, the Canadian government has launched many emergency programs that have helped businesses and individuals survive during this unprecedented time.
On the other hand, the CRA needs to ensure that those who operate their businesses successfully, must pay their taxes on-time and in compliance with the CRA tax rules and regulations. If your business revenues have not reduced significantly and you still avoid paying taxes to CRA, you will be on the CRA’s radar. If you have an outstanding balance in your taxes, it is always recommended that you pay it according to the CRA tax rules. If you receive a phone call or letter from the CRA indicating that you owe taxes and you cannot pay your balance in full, you must notify the CRA directly or through the authorized representative so that the CRA may not use its collection powers against your business. If you don’t update the CRA about your current state of affairs, the CRA is likely to take more aggressive actions against you.
Following are some of the collection powers that CRA can use in case of non-compliance with tax rules and regulations:
Right to Set-off
The CRA is a very large governing body that has many different divisions, such as personal income tax, corporate income tax, and the GST/HST division. Your personal income tax return may indicate that you are in a tax refund position, but your corporate income tax return may indicate that you owe your taxes to the CRA. The CRA can withhold money owed to you and can use it for what you owe to the CRA. In this way, the CRA can exercise its right to set-off, as the main objective of the CRA is to collect taxes and minimize the country’s fiscal gap.
The CRA exercises its right to register your debt with the Federal Court of Canada without giving you any notice. It can have a double impact on you – First, the amount of debt you owe will be confirmed whether you agree or not. This will allow the CRA to take further legal action against you. Second, your debt to the CRA will become a matter of public domain and this will further strengthen the CRA to exercise its collection powers against you as needed.
Once your debt is registered with the Federal Court of Canada, the CRA can use that registered debt for any property you own and the CRA can then seize and sell your assets to settle the debt on you. This is one of the strong collection powers of the CRA that can be used regarding the debt settlement.
Garnishing a Bank Account
This is one of the most aggressive collection powers that allow the CRA to freeze or seize your bank accounts to collect taxes. The CRA issues an ‘obligation to pay’ notice to your financial institution or a bank and they will have no choice but to send money directly to the CRA instead of you.
If you want to stop CRA to garnish your bank accounts, you need to make sure that you are prepared to file for bankruptcy. Although, it may have lasting consequences and should only be executed if you have no other option but to do so.
In many cases, the CRA taxes can be included in a bankruptcy and the CRA has the option to not allow some taxes to be included. It is also possible that the CRA reduce your outstanding taxes when bankruptcy is filed. Bankruptcy and Insolvency Act will override the Income Tax Act. This means that bankruptcy may stop the CRA collection process and the debt can be eliminated.
It is important to know what the CRA can and cannot do, especially if you have outstanding tax payments. If you are currently struggling with your debt and want to seek professional help, you can reach out to us at GTA Accounting and discuss the matter in detail.
Sohail Afzal, CPA, CMA, MBA
Sohail Afzal, (CPA, CMA, MBA) is the founder & CEO of GTA Accounting Professional Corporation. He is a highly experienced Chartered Professional Accountant and businessman himself and understands the challenges that many businesses face when it comes to cash flow management. As an experienced business consultant & tax advisor, he is helping companies grow by providing the technical, financial, and contractual information necessary for strategic decision-making.