by Jeff KirshenWhat is the Non-Resident Speculation Tax?
The Non-Resident Speculation Tax (NRST) is a 15 percent tax imposed on the purchase or acquisition of a residential property located in the following communities: Brant, Dufferin, Durham, Haldimand, Halton, Niagara North, Niagara South, Northumberland, Peel, Peterborough, Simcoe, Toronto, Victoria, Wellington, Wentworth, and York. These communities comprise what is known as the Greater Golden Horseshoe Region (GGH). This tax only applies to purchasers that are (1) foreign nationals, (2) foreign corporations, and/or (3) taxable trustees. The tax does not apply to Canadian permanent residents.
The NRST applies to residential properties containing at least one, but not more than six, single family residence(s). Examples of single-family residences include fully detached homes, semi-detached homes, townhouses, condominiums, and apartment units. Examples of residential properties containing more than one family residence include duplexes, triplexes, fourplexes, etc. For more general information and frequently asked questions about the NRST, please the consult the Ministry of Finance Bulletin.
What is the Purpose of the Non-Resident Speculation Tax?
The real estate market in Ontario for the last several years has been characterized by significant price increases for residential homes. The purpose of the NRST was to adjust the real estate market in Ontario and provide affordable housing by discouraging foreign speculators and purchasers of residential real estate in the GGH area.
Am I Liable for the the Non-Resident Speculation Tax?
This tax is relatively new, and was introduced in April of 2017, which means if you purchased a property on or before April 20, 2017 and did not assign it to another person after April 20, 2017, you are not subject to the NRST.
How Can I get a Refund of the Non-Resident Speculation Tax?
There are three situations where a rebate may be available:
- becoming a permanent resident within four years of purchasing your property;
- having a work permanent for at least a year from the purchase of the property; or
- being a full-time student for at least two years after the purchase of the property.
You will still be required to pay the tax upon purchase or acquisition, but you may seek a rebate at a later late. No application may be made more than four years and 90 days from the date the NRST became payable. To qualify for a rebate, the foreign national must exclusively hold the property, or hold the property exclusively with his or her spouse. All rebate applications must be made using the Ontario Land Transfer Tax Refund/Rebate form for NRST. Supporting documentation will be required to substantiate all applications for rebates.
In accordance with the NRST, the law now requires purchasers to disclose information to the government regarding their residency, citizenship, and intentions for the purchased property. Incorrectly disclosing a purchaser’s residency can result in monetary penalties and/or tax assessments. When seeking to purchase real estate in international markets, it is imperative to seek advice from local professionals. Non-resident buyers need to understand whether the NRST is applicable to their purchase.
If you have paid the NRST, and are looking to apply for a rebate, give us a call for a free consultation to make sure you are getting the right legal representation!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer.
by Jason RosenCryptocurrency Mining and the CRA
This tax season brings many hot topics, however one that carries a high degree of complexity is the taxation of cryptocurrency. As the cryptocurrency market rebounds, and Bitcoin surges towards $12,000-mark, Taxpayer’s should be weary of how they report their income, what counts as income, and what must be reported.
Specifically, a looming question is, does a taxpayer who mines cryptocurrency include the value of “mined” currency in income at the time it is received? For more information on cryptocurrencies and the CRA in general, please see our prior blog post on cryptocurrencies and the CRA.
Cryptocurrency Mining and the CRA
Cryptocurrencies are entirely decentralized and therefore exist separate from a central bank. With this decentralization comes a notoriety of security, and in modern times they are often used as a method of payment for goods and services. However, unlike traditional currency cryptocurrency must be mined.
The mining of these cryptocurrencies is a very complex and digitally demanding matter. It requires the use highly specialized computers which must solve intricate mathematical problems. Upon the solution of these problems, the cryptocurrency transactions are complete, and the digital version of a currency is mined. Miners then group cryptocurrency transactions into blocks and try to guess a number that will create a valid block. A valid block is accepted by the corresponding cryptocurrency’s network and becomes part of a public ledger, known as a blockchain. By mining, a miner is monitoring and validating transactions occurring on the network.
Successful miners will receive two types of payments. One payment represents the creation of new cryptocurrency on the network and the other payment represents the fees from transactions included in the newly validated block. Both types of payments should be disclosed on the taxpayer’s returns.
Cryptocurrency Mining and the CRA – How is it Taxed?
Ultimately for taxation purposes, if you perform the mining processes, you are paid with the cryptocurrency you are validating. In the CRA’s view, this is a barter transaction.
A barter transaction occurs when two parties agree to exchange goods or services and carry out that exchange without using legal tender. Cryptocurrencies are not legal tender, therefore, when a cryptocurrency is used to pay for, or is received as payment for, goods or services, this is treated as a barter transaction. Thus, if you or your corporation are in the business of mining cryptocurrency, the currency received must be included as income at the time it is earned under section 3 and section 9 of the Income Tax Act.
As a result, taxpayers who receive cryptocurrency as proceeds from their mining activities, must bring into income the value of the services rendered or the value of the cryptocurrency received. The value to be included depends on whichever is more readily valued. In most cases, this should be the value of the cryptocurrency received and this is the amount to be brought into income.
If you have ever been involved with mining of cryptocurrencies or cryptocurrency transactions in general, and are being audited by the CRA or have questions, contact our office today. As well, if you believe you have not properly disclosed this income on your tax returns in the past, the Voluntary Disclosures Program may be available to correct your past errors or omissions. Call us today, we can help!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer.
by Jeff KirshenGST/HST Rebates when Buying Canadian Property
Houses are expensive, so it is important to take advantage of any program that allows you to recover some of your costs. The New Residential Rental Property Rebate (“NRRP”) and the New Housing Rebate (“NHR”) allow you to do this. However, the criteria can be confusing, and people often apply for the wrong one, or their circumstances change and the application that they originally applied for is no longer appropriate. That is why it is important to know the differences.
The New Residential Rental Property Rebate
The NRRP allows you to recover some of your costs when you purchase real estate that will be used as residential rental property.
The New Home Housing Rebate
The NHR allows you to recover some of your costs when you construct or substantially renovate a home.
What are the Criteria for Applying?
The criteria for an NHR are:
- The home must be used as a principal residence; and
- The construction must be for a newly built home or for substantial renovations or major additions
- Substantial renovation must include gutting the entire home with at least 90% of the dry wall removed; and
- A major addition must at least double the size of the home.
The criteria for an NRRP are:
- First occupants of the new residential rental property must be the tenants;
- First occupants cannot include the landlord; and
- The fair market value of the qualifying residential unit at the time the tax was payable must be less than $450,000.
- If you are a resident of Ontario and the fair market value exceeds $450,000 you may be eligible to claim the provincial NRRP.
If you receive the NRRP and then sell the residence within 1 year, you may have to repay the entire rebate unless you sell it to a person who occupies it as their principal residence.
How to Apply?
You can apply for an NHR by:
- Within 2 years are the property closes, complete either Form GST191 for owner-built houses or Form GST190 for houses purchased from a builder; and
- Provide the appropriate supporting documentation.
You can apply for an NRRP by:
- Within 2 years after the property closes or sells, complete Form GST524; and
- Provide the appropriate supporting documentation.
Change in Circumstances
If you purchase your home with the intention of making it your primary residence, often the builder will apply for the NHR on your behalf, thus lowering your purchase price. However, if your circumstances change, and once the home is built you are no longer the first occupant, you no longer meet the criteria of the NHR. However, if you rent out your new home, you could very likely qualify for the NRRP instead.
When this occurs, it is very possible the CRA audits you to determine if you qualify for the rebate. We see quite a lot of this and can assist with your audit!
Other Issues to Note
The principle residence exemption can also result in tax implications upon the purchase or sale of property.
Property assignment can result in GST/HST as well as income tax implications. Assignment is when you purchase a pre-construction home or property, and sell the property before it is built and before you gain title to it. In other words, you are assigning your purchased rights to a home to another person.
If you have any questions about the tax consequences that relate to purchasing or selling property, contact our firm for a free consultation. We are here to help!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
by Jeff KirshenThe CRA and Employment Agency Audits
Recently, the Canada Revenue Agency has created a group project auditing employment agencies located in Ontario, Canada. These audits typically encompass every year of operation for the employment agency. The CRA believes that these agencies have been apart of a group that has been claiming Input Tax Credits fraudulently. The CRA refers to this as a sham issue, which will be discussed below.
The CRA and the So Called Sham
A transaction is considered a “sham” for tax purposes where a transaction is conducted with an element of deceit as to create an illusion that leads the tax authorities away from the true nature of the transaction. A very common example of a sham is when there is collusion between parties that are intentionally creating the appearance that they are working at arms-length. Parties might do so to confer benefits upon themselves or related parties that avoid the imposition of additional tax. The CRA and the courts consider the participation in a sham to be tax abuse, and the CRA pursues suspected cases of tax abuse very diligently.
Employment Agencies and the Sham
In recent audits, the CRA has alleged that a group of labour-supply companies (employment agencies) are involved in a sham and have denied all their Input Tax Credits (ITCs). Customers would hire these labour companies (employment agencies) to provide cheap workers to fit their needs. If the task required lower skilled labour, the labour companies (employment agencies) would hire a subcontractor to provide the workers, and act as a middle-party. On their tax returns, the labour companies (employment agencies) would expense the cost of hiring the subcontractors and claim ITCs on their GST/HST returns.
The CRA alleges that this business structure is a sham. The CRA alleges the existence of a sham by claiming that the labour-supply companies (employment agencies) created the subcontractors themselves. The CRA believes that the subcontractors do not exist; that the labour supply companies (employment agencies) are providing their own workers to their customers, are cutting cheques to themselves but claiming they were to subcontractors, and are claiming to have hired subcontractors in order to write off ITCs.
Why Does the CRA think this is a Sham?
The CRA started investigating the existence of a sham when they were unable to contact any representatives of the subcontractors using the phone numbers and addresses on the invoices issued to the labour supply companies under audit. While the subcontractors have business numbers, GST numbers, and articles of incorporation, their tax-filing history was non-existent.
Basically, because the CRA was not getting the GST/HST collected by these subcontractors, they decided to audit the companies paying the subcontractors.
The CRA has now proceeded to deny hundreds of thousands of dollars, even millions, in ITCs of the numerous labour-supply companies (employment agencies) that they allege are involved in a sham. If you are a business owner and are accused of being involved in a sham by the CRA, contact our firm for a free consultation. We are here to help!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
by Jason RosenWhat is an Allowable Business Investment Loss?
When a capital loss satisfies certain criteria, it can be reported to the CRA as an Allowable Business Investment Loss (“ABIL”), which is subject to preferential tax treatment.
For a loss to be an “allowable business investment loss”, it first must be a “business investment loss”. An ABIL is simply the portion of a business investment loss that is deductible (thus the word “allowable” in ABIL). Of your total business investment losses of tax year, 50% qualify as ABILs and are therefore deductible. However, unlike other sources of income like capital gains which can only be applied to reduce capital losses, the Canadian tax authorities have decided to give taxpayers greater privileges when applying ABILs.
For instance, taxpayers can apply ABILs to any source of income, to reduce their overall taxable income. If your ABIL is higher than your income, you could effectively reduce your income to zero and pay no income tax for that year. Additionally, if you have ABILs that you do not wish to apply to your income earned this year, it can optionally be carried back three years or forward ten years to offset any amount of income from any source in those years.
What are the Requirements to claim an ABIL?
There are four questions taxpayers must ask themselves before determining whether their capital loss qualifies as an ABIL:
- Did the Taxpayer invest in shares or debt of a Corporation?
The taxpayer would have had to purchase shares or have made a loan to a corporation.
- Has the debt been established to be a bad debt?
A “bad debt” is an expense owed to a creditor that is unlikely to be paid. For a debt to be claimable as an ABIL, it must be a bad debt; uncollectible.
- Was the property issued by a “Small Business Corporation”?
An ABIL can only be claimed on a loss from a stock in a small business corporation (“SBC”) or a debt owing to the taxpayer by an SBC. Meeting the definition of an SBC in Section 248 of the ITA is an important element of an ABIL claim:
- It must be a Canadian-controlled private corporation (“CCPC”)
- All or substantially all of the fair market value of the assets is carried on primarily in Canada
- Was the property acquired for the purpose of earning income?
The investment must have been made to an active business. Taxpayers are sometimes faced with the argument that the business was not being carried on because it never commenced or because it had already ceased. The question comes down to whether the taxpayer can prove they were investing in a business that was active; that it had indicia of an active business. Indicia can include an organizational structure, employees, market research, cost benefit analysis, etc.
Are there any Limitations to Claiming an ABIL?
The amount of ABIL you can claim is reduced by the amount you have previously claimed under the lifetime capital gains deduction. The capital gains exemption has a top limit, exempting you from paying tax on the first $424,126.00 (as of 2018) of taxable capital gains (half of $848,252.00 in capital gains) in your lifetime. If your capital gains exempt income from the past in addition to your ABIL reach that threshold, then the remainder can only be used to reduce capital gains.
If you have questions about the above, have attempted to claim a business investment loss, or an allowable business investment loss and the Canada Revenue Agency is auditing your loss claim, give us a call today to see how we can help!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
by Jeff KirshenPossible Taxes on the Sale of a Principal Residence
When you sell your home, you may realize a capital gain. A capital gain is a profit earned on the sale of property. However, there is an exception to this rule if your home is a principal residence which would allow you to pay no taxes on the sale.
What is the Principal Residence Exemption
The principal residence exemption allows homeowners to avoid paying taxes on the capital gains realized from the sale of their primary residence. If a property qualifies as a taxpayer’s principal residence, he or she can use the principal residence exemption to reduce or eliminate any capital gain otherwise occurring, for income tax purposes, on the disposition (or deemed disposition) of the property.
The Principal Residence Exemption and the 2016 Changes
Prior to 2016, for every year you have owned your property, it was your sole residence, you did not have to report any income tax on the profits from the sale of your home, or to report the sale of a principal residence at all. However, in an effort to ensure only eligible homeowners benefit from the exemption, the federal government now requires that taxpayers report information such as the proceeds of sale, and details of the transaction to claim the principal residence exemption. See our other article regarding designating your property here: How do I designate a Property as my Principal Residence – T2091 Form
For 2016 and onwards, this information is provided by the taxpayer on Schedule 3 of their income tax return, and by filing Form T2091, Designation of a Property as a Principal Residence by an Individual, for the year the property is sold. It is important to note that only one home is eligible for a principal tax exemption for any given tax year.
If you have sold your home and not reported it in your income tax return, it may be appropriate to submit an application through the Voluntary Disclosures Program to avoid significant penalties.
The Principal Residence Exemption and Possible Taxes
If you sell your principal residence, normally the profits are tax free. However, the Canada Revenue Agency (CRA) may claim that you are in the business of buying and selling homes. If this is the case, then your profit could actually be termed business income. You would have to include 100% of the profit as income, and you don’t even get to claim it as a capital gain which would have cut the taxes in half.
Additionally, if you are found to be in the business of buying and selling homes, the CRA may come in and say you should have charged GST/HST on the sale of the property. If this occurs, all of a sudden 13% (in Ontario) of the total purchase price actually counts as GST/HST. Which means you might owe hundreds of thousands of dollars in GST/HST which may remove your entire profit margin.
If either of the above happen to you, it is likely that the CRA will charge you their worst possible penalty known as gross negligence. This adds 50% of the amount owing as a penalty. So if you now owe $100,000, you will actually owe $150,000 before they even start calculating any interest charges.
If you have recently sold your principal residence, and you are worried about the above, call us today! Or if you are being audited for the sale of your principal residence and you need professional assistance, we are here to help! Contact us today!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
by Jason RosenEdge Highshare Updates and Recent Correspondence
This blog will provide those who purchased a Franchise in any year with an update in respect of our ongoing Edge related dispute with the CRA. If you require an overview of the Edge program dispute in general please review our previous Edge Highshare Blog.
Below, please find a summary for the stage of the dispute resolution process that each franchise year is currently in, along with what will be happening in the near future.
2012 Franchisees
Some Franchisees, who invested in this year, are already in Tax Court. However, others are a few months into the appeals process but have elected to hold their position in order to join the 2013 Franchisees, which consists of a much larger group and allows us to split fees amongst more people.
If you are in the appeals process and looking to join our group for tax court, please contact Rosen Kirshen Tax Law.
2013 Franchisees
If you are a 2013 Franchisee, the CRA’s review of your previously submitted objection representations will take a significant amount of time.
It is our understanding that the completion of this dispute could take years to complete at the CRA appeals division (similar to the 4-5 years consumed by Audit). As well, the CRA has advised that they have not yet designated a team of appeal officers to focus on the Edge/Highshare matter.
As such it is our recommendation that franchisees in this predicament proceed straight to Tax Court.
2014 Franchisees
The CRA’s audit of the 2014 Franchisees has been completed for all of our clients. They have received final letters which outline the adjustments that the audit division made to their previous returns. After the CRA issues a final audit letter, a notice of reassessment for each taxation year will be issued creating the alleged tax liability, some of our clients have already received these reassessments.
Once these reassessments are issued, we can proceed to either:
(a) file a Notice of Objection and remain in the queue at CRA; or
(b) file a Notice Objection to start the 91-day clock allowing us to by-pass the anticipated delay inherent with the CRA appeals process and proceed to defend our position in the Tax Court.
As with the 2013 Franchisees, it is our recommendation that franchisees at this junction bypass CRA appeals and proceed to Tax Court. Furthermore, the CRA has not provided personalized audit responses but rather grouped their position into one final letter applicable to all of our clients. This blatant disregard for the taxpayer’s rights solidifies our recommendation of disputing these matters in Tax Court.
2015 Franchisees
The audit of 2015 Franchisees has begun. Many of our clients have received proposal letters already. This outlines the adjustments that the CRA is intending to make along with a brief explanation of their ill-founded reasons.
The deadline to respond to the proposal letters is usually 30 days from when they are issued. However, we have a working relationship with the designated team and they have afforded us the opportunity to negotiate extensions. If you have received an audit proposal letter from the CRA for your 2015 Franchise do not hesitate contact Rosen Kirshen Tax Law for assistance.
Moving forward, we anticipate the CRA will not issue a final audit position for several months. This is because, following the final audit letter being issued, it will likely take them several weeks to process the results and issue a Notice of Reassessment.
If you have bought into the Edge/Highshare franchise agreements, and are being audited by the CRA, contact our office today. Call us today for more information about this potential action and about how we can help.
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer.
by Jeff KirshenHome Depot and the CRA
In July of 2019, the Canada Revenue Agency used the “unnamed person requirement” to obtain a Federal Court order compelling Home Depot to disclose customer information to the CRA.
The CRA started its application for the information in 2016, but the application was put on hold while Rona disputed a similar application. Rona fought the CRA all the way to the Federal Court of Appeal, where it lost. It attempted to appeal the case to the Supreme Court of Canada, but leave to appeal was denied.
At that point, Home Depot informed the CRA that they would not challenge the application.
In September of 2019, Home Depot sent out letters to the customers affected, notifying them that their information would be provided to the CRA.
Who is Involved in this Request?
This involves customers who used Home Depot’s commercial credit card program between January 1, 2013 and December 31, 2016.
What Information and Documentation is being sent to the CRA?
Home Depot was compelled to disclose the identity, address, and the total annual amount spent by each customer.
What is the “Unnamed Person Requirement”?
The “unnamed person requirement” (UPR) found in the Income Tax Act is often utilized by the CRA to obtain information related to taxpayers from third parties.
As long as there is reasonable evidence that tax evasion is occurring, the CRA will likely succeed in obtaining the information requested.
UPR is often used by the audit division within the CRA in order to obtain information on taxpayers. The CRA has multiple options on how to obtain information during audit.
Why is the CRA doing this?
This is an example of the CRA’s latest attack on the underground economy. The CRA is targeting cash industries to discover businesses engaged in tax evasion. A Statistics Canada report released in 2018 found the underground economy accounted for $51.6 billion in 2016, or 2.5% of gross domestic product. Residential construction accounted for 26.6% of that.
The CRA has previously obtained a list of municipal building permits in order to discover unregistered building subcontractors. Their review of 8,396 building permits yielded 2,751 unregistered building contracts.
What Happens Now?
The CRA will use this information to attempt to find Home Depot commercial customers who have avoided filing accurate returns due to the fact that they work in a cash industry.
The CRA will look at the amounts that businesses spent at Home Depot and assess whether the revenue reported to the CRA on tax returns was reasonable in comparison. For example, if a business purchased $100,000 worth of items from Home Depot, but only declared $20,000 in revenue, this would likely be flagged to further review by the CRA audit division.
This will likely result in many businesses involved in construction being audited.
What if I am Affected?
If you are audited by the CRA, you should follow our guide on how to survive an audit.
Businesses or individuals who believe themselves to be at risk from the disclosure of third-party information to the CRA should consider applying to the CRA’s voluntary disclosure program in order to avoid prosecution and gross negligence penalties.
If you are worried about being audited or are considering applying for the voluntary disclosure program, contact our firm for a free consultation. We are here to help!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
by Jeff KirshenThe Power and Limits of CRA Collections
The Income Tax Act grants extensive powers to the Canada Revenue Agency (CRA). The CRA is not your average creditor; they have a variety of tools for collections and their powers are broader. Therefore, if you owe the CRA money, it is important to know the limits of the CRA’s power so you can deal with collections in the most effective way.
90 Day Window
The CRA typically grants a taxpayer a period of 90 days to make good on any debt stemming from an assessment before forwarding the case to a collections officer. This 90-day grace period is enshrined in the Income Tax Act. However, this only applies to debts under the Income Tax Act. If a taxpayer owes GST/HST or source deductions, the 90 days does not apply.
Initial Collections Activity
At this stage, the CRA will initiate phone calls to the taxpayer in an attempt to collect on money owed. These phone calls can often be intimidating as collection officers will often threaten legal action. Further, if the phone calls become ineffective, collections may escalate their efforts by making in-person visits to taxpayer’s homes or registered offices. It is essential for taxpayers to know that they are not required to speak to the CRA directly. According to section 15 of the Taxpayer’s Bill of Rights, taxpayers “have the right to be represented by a person of your choice.” In these types of cases, taxpayers should seek advice from experienced tax experts.
CRA Payment Arrangements
Taxpayers may attempt to get themselves on payment arrangements by negotiating with their collections officers. However, communicating with the CRA can create undue stress. This is just one of the many reasons it is useful to have experienced tax professionals negotiate with the CRA collections officers of your behalf. Tax professionals have a deep understanding of the Income Tax Act and can advocate for a payment arrangement between the CRA and the taxpayer to avoid undue hardship to the taxpayer. While the CRA would rather get paid on time, its ultimate goal is to collect the amount owed. A payment arrangement allows the taxpayer to pay smaller payments, that are affordable based on your financial situation, overtime, until the entire debt is paid off.
CRA Legal Action
If initial collections efforts are ineffective, the CRA has the authority to take legal action against a taxpayer. The CRA does not need to sue the delinquent taxpayer in order to obtain a judgement to garnish wages. This means that the CRA can issue a Requirement to Pay (RTP) to garnish your wages. At this stage, you still have the ability to communicate with your collections officer to attempt to arrange a payment plan that may reduce or remove the garnishment. Your employer is required to pay or will be held liable for amounts not remitted.
The Income Tax Act also gives CRA collections officers the ability to seize bank accounts, RRSP accounts, accounts receivables, put a lien on a taxpayer’s property, including motor vehicles, and forcing the sale of your home. Seizure and lien action can derail the life of the taxpayer and cause undue hardship. If you are currently dealing with a debt that is being enforced, we can help you better understand the various solutions.
Dealing with the CRA collections department can be overwhelming and stressful. If you are having trouble with the CRA, give our team a call to ensure you have the right advice and effective representation. We’re here to help!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
by Jeff KirshenWhat is the Statute of Limitations on CRA Debt?
The statute of limitations or limitation period on Canada Revenue Agency debt is anywhere between 6 to 10 years and it depends on the type of debt that is owing.
What is a Collections Limitation Period?
A collections limitation period is the time in which the Canada Revenue Agency (CRA) can begin actions to collect a tax debt. According to subsection 221(3) of the Income Tax Act, the CRA may not commence or continue to collect a tax debt after the end of the limitations period.
What is the Length of the Collections Limitation Period?
Different types of debt are treated different by the CRA. The length of the limitation period depends on the type of debt and is as follows:
- Individual – 10 years;
- Corporation – 10 years;
- Payroll- 6 years; or
- GST/ HST – 6 years.
When does the Limitation Period Start?
The date that the limitation period starts also depends on the type of debt:
- Individual – 91 days after a Notice of Assessment or Notice of Reassessment is issued;
- Corporation – 91 days after a Notice of Assessment or Notice of Reassessment is issued;
- Payroll – the day after a Notice of Assessment is issued; or
- GST/ HST – the day after a Notice of Assessment is issued.
Restarting the Collections Limitation Period
The limitation period is restarted when either you or the CRA takes certain actions. The following is a non-exhaustive list of actions that will restart the collections limitation period:
The collections limitation period will restart when you:
- Make a voluntary payment;
- Write a letter to the CRA proposing a payment arrangement;
- Offer to provide security instead of paying the amount owed;
- Make a written request for a reassessment of an amount assessed;
- File a Notice of Objection with the CRA;
- File an appeal with the Tax Court of Canada; or
- Ask the CRA if you can make pre-authorized debt payments.
The CRA takes various actions to collect tax debts when taxpayers don’t make voluntary payments. The collections limitation period will restart when the CRA:
- Issues a garnishment or statutory set-off to collect an outstanding tax debt;
- Applies a refundable credit to your tax debt and notifies you by sending you a letter or statement of account;
- Issues a Notice of Assessment or Reassessment against a third party for amounts you owe;
- Certifies your tax debt in the Federal Court of Canada; or
- Initiates seizure and sale action to collect your outstanding tax debt
Extension of the Collections Limitation Period
There are events that can extend the limitation period. When these events happens, the clock stops running on the date that the event begins and it will not run during the event. When the event is completed, the collections limitation period resumes where it left off.
The following events can extend the collections limitation period:
- You file an assignment (bankruptcy or proposal) under the Bankruptcy and Insolvency Act, Farm Debt Mediation Act, or Companies’ Creditors Arrangement Act;
- The CRA accepts security instead of payment of a tax debt;
- You become a non-resident of Canada after the CRA issues a Notice of Assessment or Reassessment;
- The CRA postpones collection action without accepting security for an objected or appealed GST/HST debt. This applies only to GST/HST tax debts assessed under the Excise Tax Act;
- You file a Notice of Objection with the CRA. This will not apply to payroll or GST/HST debts; or
- You file an appeal with the Tax Court of Canada.
Whether or not the collections limitation period has expired can mean the difference between having to pay back a debt in full, and not having to pay it back at all. If you have a very old tax debt, or if you have a tax debt at all and need assistance with it, contact our firm today for a free consultation. We are here to help!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.