by Jeff KirshenWhat is a Defacto Director’s Liability Assessment?
A Defacto Director is someone who acts as a director, but is not a director on paper.
Directors of a corporation can be found jointly and severally liable for certain tax debts of a corporation under section 227.1 of the Income Tax Act and 323 of the Excise Tax Act. Directors’ liability arises in one of two ways, either in fact or in law. For more background material on this distinction, and on director’s liability, feel free to consult our blog post that discusses the topic at greater length.
It is possible to become a de facto director by accident, without knowing or recognizing this designation at the time of dealing with the corporation. Officers, employees, and those whom are not legally appointed or elected but who perform the functions that directors would perform, may be liable. It is imperative that individuals are vigilant and careful in their dealings with struggling corporations, as well as, those that are known to be failing to remit GST/HST or their payroll source deductions.
Defending Against a CRA Director’s Liability Assessment
All directors whether deemed such or those validly elected to the position can use procedural defences to protect against the assessment of liability. Furthermore, de facto directors can use the due diligence defence to prove that they acted responsibly and with due diligence, allowing the director to avoid liability. As well, there is a statutory limitation under section 227.1(3) of the Income Tax Act. This limitation on assessment protects any individual from being assessed on the basis of directors’ liability if they ceased to be a “de facto director” more than two years prior to assessment. The only other way to avoid being deeming such is to prove via the common law that one’s actions should not deem them a director.
Defacto Director Tax Court Cases
There is a test established by jurisprudence to determine whether one’s actions arise to the level of de facto director. As well, the Tax Court of Canada found for a Taxpayer not being de facto director on the grounds of documentary evidence alone.
In Mosier v. The Queen, 2002 GTC 28, a case where the taxpayer was deemed not to be a de facto director, the Tax Court of Canada Court heavily weighed documentary evidence. Specifically, the court relied on evidence which indicated that the powers and duties of the taxpayer were very extensive. The Court ultimately held that the taxpayer was not a de facto director as only the power and responsibility of running the day-to-day operation of the corporation were conferred to the taxpayer, but the power to participate in pure directorial acts was not.
As well, there is not a single factor which determines whether someone is a de facto director. Instead, the courts consider, as in Soper v. The Queen, a number of different non-exhaustive indicators to determine whether an individual is a de facto director:
- Whether the individual has been signing documents as a director;
- Whether the individual has been signing tax returns;
- Whether the individual has been attending director’s meetings;
- Whether the individual introduces themselves to third parties as a director;
- Whether the individual signs directors’ resolutions; and
- Whether the individual plays a significant role in supervising the management of the company or otherwise controlling the company.
If you have received a pre assessment letter threatening de facto director’s liability, or an assessment for Director’s Liability, we strongly recommend giving us a call. If found to be a director, you may be held liable for enormous amounts of money due to unpaid GST/HST or source deductions even when it was not your fault. The process can be quite complicated, with many moving parts that are time sensitive, so it is best to have legal counsel helping you navigate through it. Don’t delay, contact us for a free consultation 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 the articles. If you have specific legal questions you should consult a lawyer.
by Jeff KirshenAssigning Property and the 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.
Property Assignment and the Income Tax Implications
When you assign a property, you typically earn a profit from the difference in the amount that you originally purchased the property for and the amount that you sold your rights to the property for. This profit needs to be reported to the Canada Revenue Agency (CRA). This is done by including the profit as income for the year in which the assignment occurred.
Property Assignment – Income or Capital Gains?
Most people assume that the income earned from property assignment should be reported as capital gains and therefore only 50% of the profit is taxable. However, there are circumstances under which the CRA considers the profits as business income and therefore 100% of the profit is taxable.
It is the intent of the buyer, and not the nature of the property the determines whether the property was capital or inventory. If the CRA concludes that the property is capital, then its assignment (or disposition) would result in a capital gain. If the CRA concludes that the property is inventory, then the disposition of that inventory would result in business income.
The intent of the buyer is the key factor because if the CRA determines that the intention of the taxpayer at the time of purchase was to resell the property for a profit (or “flip it”), then they will classify the transaction as a business transaction and the profit as business income.
Property Assignment – What Factors does the CRA Consider?
There is no specific provision in the Income Tax Act that outlines the circumstances under which the proceeds from a sale of property must be reported as either business income or capital gain.
However, a review of court decisions shows that the courts have historically focused on several key factors in determining how to classify sales of property.
These are some of the factors that the courts have looked at:
- Individuals’ stated or deduced intention with respect to the property at the time of purchase and the feasibility of those intentions;
- Extent to which this intention was actively carried out by the seller;
- Geographical location and zoning restrictions of the property;
- Nature of the business/profession that the seller is involved in;
- The extent to which borrowed money was used to finance the real estate acquisition, including the terms of the financing;
- The length of time the property was held by the seller;
- Whether or not there were other individuals who shared an interest in the property;
- The factors involved in the sale of the property; and
- Evidence that the individual and/or their associates have previously dealt with real estate.
Taken together, these factors are used by the courts to determine whether the intention at the time of purchase was to resell the property for a profit.
Property Assignment and Other Tax Implications
Property assignment can also result in GST/HST implications. For more information on those implications, please review this article.
The principle residence exemption can also result in tax implications upon the purchase or sale of property.
The CRA has been actively pursuing and investigating real estate transactions due to the fact that this is a significant area of non-compliance.
If you have recently assigned a property, or have been assessed for the assignment or sale of a home/property in the course of a business, 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 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 KirshenReal Estate Agents and Incorporating a Company
For years, professions have been lobbying the province of Ontario to be permitted to incorporate. After doctors were given the right to incorporate over a decade ago, legislation has been introduced and tabled that would grant the same rights to real estate agents. To date, nothing has passed. However, it appears that Bill 104, the Tax Fairness for Realtors Act, is picking up steam, and soon may finally grant real estate agents the right to incorporate their business.
Tax Benefits for Real Estate Agents who Incorporate
Passing Bill 104 would carry significant tax benefits for real estate agents who decide to incorporate. In the province of Ontario, the highest income tax bracket is 53.53%, for every dollar earned over $220,000. As real estate agents are sole proprietors, their businesses have been subject to the same marginal tax rates as Ontario incomes.
However, as a Personal Real Estate Corporation, real estate agents will be able to enjoy the Ontario small business tax rate, which is 13.5% on the first $500,000 of income earned. Furthermore, as long as the corporation is owned, controlled, and operated in Canada, it can enjoy the Canadian Controlled Private Corporations tax rate of 26.5% on income that exceeds $500,000. The incorporation route promises huge tax savings for real estate agents.
There are also valuable income splitting opportunities with corporations’ income, which would be accessible to real estate agents. Income splitting allows corporations to separate its income among family members, which can be done strategically to stay in lower tax brackets. Corporations can do this by either paying them a “fair salary”, or issuing dividends.
There are also large tax deferral opportunities. Individuals are required to report income to the CRA that they earned during the year. Corporations only have to pay tax on income that is withdrawn. Therefore, they can delay the payment on a share of income by just leaving it in the corporation. This gives corporations significant tax planning advantages, as they can control the amount of income leaving their corporation in a specific tax year to lower their tax obligations.
Reporting Requirements for Real Estate Corporations
Of course, with incorporation comes new challenges. Requirements for filing and record keeping for corporations are far more onerous than for individuals. There are also indirect taxes like employer health tax, WSIB, taxes for payroll and GST/HST on commissions that can add expenses. In essence, while the power to incorporate would give real estate agents far more power to file their income strategically and enjoy small business tax rates, it also requires a far more complicated tax filing process with more costly obligations.
If you are a real estate agent and would like to discuss the implications of incorporating your business in the near future, 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 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 KirshenOffshore Bank Accounts and the Voluntary Disclosure Program
If you have an offshore bank account that holds more than $100,000 CDN, or many bank accounts that total $100,000 CDN, the Canada Revenue Agency wants to know.
Choosing to disclose this to the CRA is always hard, especially when you lack understanding of why you’re doing so. This is commonly the case with Taxpayer’s who posses offshore assets and property and need to file the T1135 form. However, even with this confusion on filing, the time to come forward is still as pressing as ever. This is because, the start of action against the Taxpayer with undisclosed offshore accounts and assets invalidates their ability to qualify under the Voluntary Disclosures Program.
As a result of this, Canadian Taxpayers with offshore accounts and assets have a small window of opportunity to start the disclosure process. This disclosure allows the Taxpayer to avoid the risk of gross negligence penalties, and the interest that will accrue on those penalties.
T1135 Offshore Reporting Form
The T1135 is required to be submitted by Taxpayers with foreign property which exceeded either the fair market value of $100,000 in a given taxation year, or the cost base exceeds the same number. Where a taxpayer has failed to file the form previously but was required to do so, it must be filed in conjunction with the above Voluntary Disclosure Program to properly avoid interest and penalties for gross negligence.
The objectives of this reporting requirement are:
- To enhance compliance with tax laws that require reporting of foreign-source income;
- To increase Taxpayers’ awareness of these laws;
- To provide information to the CRA for the purpose of verifying Taxpayers’ compliance with these laws; and
- To better target international tax evasion and aggressive tax avoidance.
T1135 – What Property Must be Reported?
The Taxpayer must report all “specified foreign property”. As well, the main criteria for reporting such property is $100,000 worth of such property in total. However, it should be noted that the $100,000 threshold is based on the cost of the property to the Taxpayer, not the current fair market value. Also, the form was updated as of May 16th, 2016 to incorporate a two-tiered information reporting structure.
The new tier, or “simplified reporting method” will apply to Taxpayers who held specified foreign property with a total cost amount of less than $250,000, throughout the year. This method will allow those individuals to report faster as less detail for each such specified foreign property is required. As well, individuals who want to disclose under this method can take advantage of E-filing their T1135 for the 2014 and subsequent taxation years.
Subsequently individuals who have more than $250,000 worth of specified foreign property must use the original, more detailed approach, and paper file the T1135. Thus, you must either attach it to your paper-filed tax return (or partnership information return), or submit it separately, and send it by the filing-due date.
T1135 – Deadline
For individuals the T1135 is due on the same date as the income tax return. Also, if you require additional space you may attach a schedule to your form. Please note that the schedule must be in the identical format as the tables on Form T1135.
T1135 – What is Specified Property?
In order to avoid penalties, whether in the simplified method or the more detailed reporting approach, the Taxpayer must disclose Specified foreign property. Specified foreign property is defined in subsection 233.3(1) of the Income Tax Act and includes:
- Funds or intangible property (patents, copyrights, etc.) situated, deposited or held outside Canada;
- Tangible property situated outside Canada;
- A share of the capital stock of a non-resident corporation;
- Shares of corporation’s resident in Canada held outside Canada;
- An interest in a non-resident trust that was acquired for consideration;
- An interest in a partnership that holds a specified foreign property unless the partnership is required to file Form T1135;
- A property that is convertible into, exchangeable for, or confers a right to acquire a property that is specified foreign property;
- A debt owed by a non-resident, including government and corporate bonds, debentures, mortgages, and notes receivable;
- An interest in a foreign insurance policy; or
- Precious metals, gold certificates, and futures contracts held outside Canada.
There are significant penalties that may be applicable for failure to file Form T1135 by the reporting deadline, or for making a false statement or omission with respect to the required information. If you are interested in using the Canada Revenue Agency’s Voluntary Disclosures Program to correct past errors or omissions for foreign property in your Canadian tax filings, please contact Rosen Kirsten Tax Law to ensure your privileged disclosure is handled correctly. 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 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.
by Jeff KirshenWhat is a Clearance Certificate for an Estate?
A Clearance Certificate is a certificate that is issued by the Canada Revenue Agency (CRA) and confirms that all amounts owing to the CRA by a deceased and/ deceased’s estate have been paid. A clearance certificate ensures that the CRA cannot hold the executor of the estate personally liable for any unpaid taxes from the estate.
The certificate covers a period up to a specified date, and it includes the following debts:
- Income tax of the deceased and/ or the deceased’s estate;
- Penalties and Interest payable by the deceased and/ or the deceased’s estate;
- GST/HST Credits; and
- Canada Pension Plan contributions and Employment Insurance premiums.
Do I need a Clearance Certificate?
A clearance certificate is not mandatory. However, not getting one could have severe risks for the executor of an estate.
Without a clearance certificate, if an executor of an estate distributes part of the estate and it then turns out that there was a tax debt owed, the CRA can hold the executor personally liable for any outstanding amount that should have gone to the CRA but was instead distributed.
If the executor of the estate is the sole beneficiary and is confident that there are no potential tax issues, he or she may decide not to get a clearance certificate.
Before applying for a certificate, you need to determine if it is necessary. The following are scenarios where the certificate is not necessary:
- The estate of trust continues to exist to pay income to the beneficiaries;
- The corporation’s assets and liabilities are being rolled over into another corporation and there is no other tax liability; and
- Enough funds remain in the estate or corporate account to pay amounts owing to the CRA.
How to Apply for a Clearance Certificate?
Before applying for a certificate you need to do all of the following:
- Notify the CRA of the death (individual);
- File the final tax return(s);
- Get the notice(s) of assessment and notice(s) of reassessment that apply; and
- Pay or secure all amounts owed.
Once you have completed the above steps, fill out Form TX19 Asking for a Clearance Certificate, and send it, along with the appropriate documentation, to your local tax service office.
Clearance Certificate Deadlines
The clearance certificate covers the period up to the designated tax wind-up date (the date of the final T3 Trust Income Tax and Information Return form). A certificate can be requested when an estate is ready for final distribution and all tax returns for the deceased and the deceased’s estate have been filed, (re)assessed, and all balances owing paid in full.
If T3 estate tax returns were not required, you can request a date of death certificate. This covers the period up to the date of death. If the final distribution of the estate assets will not occur for several years, it could be beneficial to obtain a date of death certificate or an interim certificate.
If the CRA does not request an audit, you should receive your certificate within 120 days of applying. Once you receive the certificate, then you are cleared to make distributions from the estate.
Who Must Apply for a Clearance Certificate?
An executor, trustee, or administrator of the estate can request a clearance certificate. An executor or a trustee is named in the deceased’s will or trust document. An administrator is appointed by the court if the deceased dies intestate (without a valid will) An authorized representative can also request the certificate on behalf of the executor, trustee, or administrator. To authorize a representative, the executor, trustee, or administrator will need to sign a T1013 Authorizing or Cancelling a Representative form. One form should be completed for the deceased using their Social Insurance Number and a separate form should be completed for the estate using the Trust Account Number.
If you are an Executor of an Estate and need assistance obtaining a Clearance Certificate, 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.