Statute of Limitations for Tax Debt: Canada

Statute of Limitations for CRA Debts – Truth vs Myth

There is a common belief that there is a statute of limitations on tax debts and that taxpayers can ride out these periods and ultimately pay no taxes.  Google it, and you will see all kinds of information out there, but it’s the Canada Revenue Agencies information which matters the most.

A Collections Limitation Period (CLP) is the time in which the Canada Revenue Agency (CRA) can begin actions to collect a tax debt.

Myth: After the CRA issues a notice of assessment, it has either 6 years or 10 years to collect the debt. If you don’t pay what you owe within that time, the CRA can no longer collect the debt.

Fact: Each tax debt has a 6 or 10 year collections limitation period (depending on the tax) and the limitation period can be restarted or extended by the CRA when certain events occur.  At that point, the total amount of time that the CRA has to collect the debt will be longer than 6 or 10 years.

Even after the collections limitation period ends, you can still have a tax debt and interest will continue to accrue until the tax debt is paid in full.

 

Start of the collections limitation period

The limitation period starts on the date that a notice of assessment or reassessment is sent, or 90 days after that date, depending on the type of tax debt.

 

Types of tax debt

The collections limitation period start date and duration will be different depending on the type of tax debt. Some tax debts are subject to collections restrictions, while others are not.

The following are some of the most common types of tax debt:

 

Individual (T1)

The Collections Limitation Period (CLP) starts on the 91st day after the CRA issues the notice of assessment – unless there is an objection filed.  There is a 10-year CLP on T1 debts which can be re-started and extended by the CRA.

 

Corporate (T2)

The CLP starts on the 91st day after a notice of assessment or reassessment is sent unless a NOA or appeal has been filed.  The 10-year CLP applies, however the CLP can be restarted and extended.

 

Large Corporations (as defined by the Income Tax Act)

The CLP starts on the 91st day after a NOA or reassessment is sent.   The 10-year CLP applies, however, the CLP can be restarted and extended.

This type of tax debt is subject to a 90-day collection restriction for the period after a notice of assessment or reassessment is sent, however, the CRA can act to collect 50% of the amount owing by a large corporation as soon as a notice of assessment or reassessment is sent.  The CRA can start collection action on the 91st day for the remaining 50% of the amounts owed by a large corporation, unless a notice of objection or appeal is filed.

 

Payroll (T4) Deductions

The CLP starts the day after the Notice of Assessment is sent.  There is a 6-year collections limitation period, however this CLP can be restarted and extended at any time.

NOTE: There is no collections restriction on Trust funds, so the CRA can begin collections actions the day after a Notice of Assessment has been sent.

NOTE: If a Notice of Objection or an appeal has been filed, the CRA can continue to collect the debt(s)

 

GST/HST

The Collections Limitation Period starts the day after the Notice of Assessment is sent and while the 10-year CLP applies, it can be re-started and extended at any time.

NOTE: Additionally, since GST/HST are also Trust Funds (funds held in trust for the Crown), there is no collection restriction once the Notice of Assessment has been sent.

NOTE: If a Notice of Objection or appeal is filed, the CRA can continue to collect the debt(s).

 

Collection Restriction Period

For tax debts subject to collection restrictions, the CRA cannot start collection action:

  • during the 90 days after a notice of assessment or reassessment is sent
  • during the time that you dispute your debt by filing a notice of objection or appeal

However, if the CRA determines that it might not be able to collect a tax debt because of collection restrictions, it can apply to the Federal Court (Canada) for a jeopardy order.  If granted, this order will let the CRA take collection action immediately.

 

Restart of the collections limitation period

The limitation period is restarted when either you or the CRA takes certain actions. Tax debts subject to the 6-year limitation period are restarted for another 6 years and tax debts subject to the 10-year limitation are restarted for another 10 years.

The following are examples of actions that will restart the collections limitation period. This is not a complete list.

 

Actions you initiate

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
  • Ask the CRA if you can make pre-authorized debt payments

 

Actions the CRA initiates

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 when you don’t make voluntary payments
  • Applies a refundable credit to your tax debt and notifies you by sending a letter or Statement Of Account
  • Issues a NOA or reassessment against a third party for amounts you owe
  • Certifies your tax debt in the Federal Court of Canada
  • Initiates seizure and sale action to collect your outstanding tax debt

 

Extension of the collections limitation period

The events listed below can extend the collections limitation period. When this happens, the clock stops running on the date that an event begins and it will not run during the event.

This has the effect of stalling the collections limitation period.

When the event is completed, the collections limitation period resumes where it left off.

Other events can then restart the limitation period.  It will end when the 6‑year or 10-year limit has been reached, even if it took more years than that to reach that limit if you include the stalled time.

The following events can extend the collections limitation period:

  • You file an assignment (bankruptcy or proposal) under the BIA, CCAA or FDMA.
  • The CRA accepts security instead of payment of a tax debt.
  • You become a non-resident of Canada after the CRA issues a NOA 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 extend the limitation period only for tax debts subject to collection restrictions.
  • You file an appeal with the Tax Court of Canada. This will extend the limitation period only for tax debts subject to collection restrictions.

 

NOTE: Filing a Notice of Objection with the CRA or an appeal with the Tax Court of Canada will restart the collections limitation period for all types of tax debts because both of these actions are considered acknowledgments of debt.

Similarly, if your tax debt is subject to collection restrictions, filing an objection or appeal will extend the collections limitation period.

 

End of the collections limitation period

Once the period ends, the CRA cannot take any further action to collect the debt, however, the tax debt still exists and you can make voluntary payments.  Voluntary payments you make after the limitation period ends will not restart it.

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