How The Canada Revenue Agency Is Different From Other Creditors
In some ways, the Canada Revenue Agency (CRA) is just like other creditors:
- most debt owed to the CRA can be eliminated by filing a bankruptcy;
- they are often an unsecured creditor, ranking equally with others in the distribution of funds from an estate;
- when voting on a proposal as an unsecured creditor, their vote is no more powerful than any other unsecured creditor;
- they can and do accept offers for less than the full amount of the debt in a Consumer Proposal when it makes sense.
However, there are several things that make the CRA a unique creditor, one that should not be taken lightly. Here are the main things that set the CRA apart from other creditors:
- Calculating what you owe:
The CRA has the authority to obtain a variety of information and documents to assist them in auditing taxpayers to confirm the amount they owe. Much of this information is not available to other creditors unless it is provided to them voluntarily or turned over by order of the court. If CRA is unable to obtain the documents it needs to calculate what you owe, they can do a notional (estimate) assessment which becomes the amount you legally owe.
- Penalties and interest:
The CRA can impose significant penalties and interest on unpaid taxes based on tax laws and regulations. Other creditors can typically only charge interest and other fees that you have contractually agreed to.
- Priority in repayment:
While most income tax debt is a regular unsecured debt, some debts collected by CRA have priority over other creditors, such as GST or payroll taxes you’ve collected from others to remit to them.
- Personal responsibility for corporate debts:
If you are a director, owner, or officer of a corporation, most of the corporation’s creditors can only pursue you personally if you’ve personally guaranteed or co-signed the company’s debt. However, tax laws allow the CRA to personally assess directors and others for certain corporate tax-related debts without your agreement.
- More time to collect:
Most creditors cannot wait too long to pursue you through the courts as a means of collection – the debt becomes statute-barred after a period of time which is determined by provincial law. In Alberta, this time period is two years from the time the debt is known. However, those provincial laws do not apply to CRA debt, which is subject to a 6-10 year statute of limitations period which can often be easily re-started by steps the CRA takes.
- Legal powers:
The CRA has the authority to use a wide range of legal measures to collect outstanding taxes without going to court or even giving you any major warning (they do have to at some point notify you of the possibility they will take action). These actions include garnishing wages, freezing bank accounts, seizing property, and registering a writ against your property. Other creditors can only do these things if they’ve taken you to court and won.
- Ability to withhold government benefits:
Not only can the CRA take the usual collection measures without as much effort or warning as other creditors, they can also use methods no one else can, such as withholding government benefits like the Canada Child Benefit and the Goods and Services Tax/Harmonized Sales Tax (GST/HST) credit, and even garnisheeing government pensions to recover tax debts.
Contrary to popular belief, it is possible to deal with tax debt. While regular CRA collection agents cannot accept a settlement offer, we regularly help people make successful Consumer Proposals to the CRA through their insolvency unit officers. We also assist people with getting tax debt discharged through bankruptcy.
When people wait too long to consult with a Licensed Insolvency Trustee to find the right option for dealing with their tax debt, they find out just how powerful the CRA’s collection options can be, and the results can create significant upheaval and deterioration of assets, sometimes reducing their viable options.
Charla Smith & Company is a Calgary-based Licensed Insolvency Trustee, serving the southern Alberta region. We regularly help individuals review their options for dealing with overwhelming tax debt. If you'd like some advice, please reach out to us.
Disclaimer: This publication provides general information and should be seen as broad guidance only. The information contained herein cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon this information without obtaining specific professional advice relating to your particular circumstances. Charla Smith & Company Ltd. does not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.
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Frequently Asked Questions
Licensed Insolvency Trustees (or LITs) are the only people who can provide bankruptcy or Consumer Proposals as an option for dealing with your debt. They are uniquely qualified to provide these services and give you advice about your debt. For more information, see our blog post: What is a Licensed Insolvency Trustee?
While technically a person is supposed to hand over all of their assets to the Trustee in a bankruptcy, in reality you typically don't lose your home for several reasons that are explained in this post. But if you own your home and you have available equity which you can't afford to pay into the bankruptcy estate, sometimes it is necessary to sell the home. For more information about what could happen to your assets in bankruptcy, contact us for a free consultation.
At Charla Smith & Company, we focus on the needs of individuals who are struggling with debt, so you've come to the right place. Check out our solutions page for information on insolvency options, our blog for a discussion of various bits of information surrounding those options, or better yet give us a call at 1-403-899-3890 or send us a message and we will work with you to figure out how the various options for dealing debt might look for you.
Nothing. We offer free consultations to anyone looking to review their options for dealing with their debt. If we decide together that one of the services we provide is the right option for you, there will be payments you need to make in connection with that, but that will occur only after you have made a decision and signed the formal documents.
Sometimes it helps to know how much your creditors would get in a bankruptcy, as this can help you figure out what a fair settlement with your creditors looks like. The amount your creditors could expect to receive if you made a bankruptcy filing is very much dependent on your situation.
A Licensed Insolvency Trustee will review your assets, debts, income, and family situation, while considering the applicable provincial laws about exempt assets, in order to determine what impact bankruptcy would have on your creditors. Be careful taking advice from anyone else about bankruptcy – only a Licensed Insolvency Trustee can provide bankruptcy filing services, so they have the training and experience to provide information you can rely on.
For more details on the features and benefits of Bankruptcy, visit this page or contact us.
No, a Licensed Insolvency Trustee is an impartial facilitator who communicates with all parties to make sure the process is transparent, and that everyone is following the required rules so that the process is orderly and predictable.
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