What To Do If You Receive A CRA Notice Of Collection

Here are some things you can do to stop CRA from enforcing its legal remedies:

• Pay the full amount of the debt

This will immediately and permanently stop CRA’s collection activities. If you don’t have cash available to make the payment, you may need to liquidate or refinance assets to come up with the payment. If this will take time, you will need to communicate with the collection agent and, if possible, get their formal agreement (in writing, preferrably) to grant you time.

• Contact CRA and make a mutually acceptable arrangement to pay over time

Simply making a partial payment is not sufficient, but CRA will usually suspend collection actions while you are actively negotiating an agreement regarding full payment of the debt.

Once an agreement is reached, CRA won't take further action as long as you’re compliant with the arrangement. However, even if you have a payment arrangement and are making payments, the CRA is still authorized to take amounts from any benefits or credits you receive while you have a debt remaining, and interest will continue to be charged.

• Apply for hardship relief

If CRA is already taking collection actions against you, they may be willing to suspend the action and possibly write off interest and penalties if you can prove that it is causing serious financial harm, such as making it impossible for you to afford the basic necessities of life. This will require you to provide significant financial disclosure to back up your claim, and is typically only granted in extraordinary circumstances. Collection of the remaining debt will be expected to continue when the extraordinary circumstances end.

• Provide security against one or more of your assets to CRA

CRA will typically suspend collection action (pending resolution of an appeal, for example) as long as their position is secured. However, this is usually a temporary solution. For example, if you allow CRA to file a writ against real estate that you own and plan to hold long-term, they may eventually take legal action to have the real estate sold if you don’t come up with a payment.

• File a notice of objection with the CRA or an appeal with the Tax Court of Canada within the allowable period after receiving an assessment

This does not always stop collection actions, but in many cases CRA will stop taking action once they receive your notice of objection or appeal. This  grace period will end if the objection or appeal is denied.

• Make a formal insolvency filing

If the above options are not feasible for you or they fail, you may be insolvent, in which case you’re eligible to make a formal insolvency filing such as a Consumer Proposal or bankruptcy. These options provide an immediate stay of proceedings stopping CRA from continuing or starting collection actions.

In the case of a proposal, a requisite majority of your creditors will have to vote in favor of the deal you’re offering for it to be approved. If other creditors representing the majority of the debt agree to your proposal, CRA will have to accept the deal. But if CRA is owed the majority of the debt, you will need to provide a proposal that is acceptable to them. Even if a collection agent rejected a settlement offer, it is still possible to obtain CRA’s agreement to a Consumer Proposal, as your file will be transferred to a different department of CRA authorized to accept settlement offers.

In the case of a bankruptcy, most tax debt can be discharged just like other unsecured debts, meaning you will no longer have any responsibility to pay the debt once you receive your discharge from the process. However, if you owe a large amount of tax debt*, you may be considered a High Tax Debtor. In that case, it’s more difficult to obtain your discharge. The matter will have to be addressed by the court, which may require you to pay more, or stay in bankruptcy for longer, or even possibly refuse to grant you a discharge. However, in most cases, bankrupt individuals are able to be released from tax debt.

*Total personal tax debt of at least $200,000 where it makes up at least 75% of your total debt

As you can see, tax debt is not a simple matter, and it can be difficult to try to deal with it yourself in the face of CRA’s special collection powers. If you need help assessing your options for dealing with debt owed to CRA, reaching out to a tax professional or a Licensed Insolvency Trustee is recommended.

Charla Smith & Company Ltd. is a Calgary-based Licensed Insolvency Trustee, serving the southern Alberta region. We regularly provide advice to individuals who are dealing with tax debt. If you would like advice on options for dealing with CRA, contact us for a free, no-commitment consultation.

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.