Lien on Me: The CRA and Liens. Questions Answered.

When the Canada Revenue Agency (CRA) registers a lien against your home, they are securing their interest by attaching the repayment of their debt to your property.

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The CRA considers a lien to be enforcement action and this tool is commonly applied where there are properties in the name of a taxpayer who has a tax debt.  Collection officers at the CRA should be registering liens, or securing the Crown’s interest, much more frequently then they currently are, and it should be done whenever there is a tax debt of a considerable amount owing.

Below are some answers to common questions about CRA property liens to help you understand what to do, and where to turn for help.

1.  How to tell if there is a lien registered against your property 

A title search on your property will reveal the existence of a lien.

It is CRA policy that they advise you by letter when a Certificate has been registered in Federal Court which identifies the property in question and the balance owing for which they are preparing to register a lien.  This does not mean that a lien has been registered, but this is essentially a warning of impending action.

If, however, the CRA does not have your correct address you will not receive any notices and thus may only discover there’s a lien when you try to sell or refinance your property.  A title search reveals the existence of liens.

2.  When the CRA registers a Certificate do they always then register a lien?

Not necessarily.  The CRA could be using the Certificate in several ways, including; to secure their interest in the property to make sure that before the tax debtors interest in the property is liquidated, the tax debt is paid in full, or in order to get the attention of the property owner so they will begin negotiations with the CRA, or they may have the intention of proceeding with the seizure and sale of the property in order to pay off all or part of a tax liability.

3.  Will the CRA take my house and leave me homeless?

It is CRA policy to not seize and sell a property when it would result in the property owner having nowhere to live.  If this property is an income property or cottage or secondary place to live, then the CRA will likely proceed to realize on the property and pay off their debts.

4.  Have I lost title to my home?

No. A lien is a registration on the title of that property which prevents you from selling or refinancing that property until either the tax debt owing is paid in full, or there is a written arrangement to have the proceeds from a sale or refinancing directed to the CRA for full payment of the debt.

5.  What is a Writ of Fi Fa / Writ of Seizure and Sale?

If a Certificate has been registered in the Federal Court and the tax balance still exists, the Canada Revenue Agency (CRA) will register a Writ of Fi Fa (abbreviation of “fieri facias” which is Latin and means “that you cause to be made”).  It is a writ of execution obtained in legal action which is addressed to the sheriff and commands him to, in this case, seize and sell, the property of the person against whom the judgement has been obtained.

This is a very serious enforcement action and after your property is sold, you are entitled to any proceeds left over after the tax arrears have been paid in full.

6.  What are my options now that a Certificate has been registered and a lien applied to the property?

Even though the CRA has an interest in the property, you can still access the equity and use that equity to make arrangements with the CRA – or the Department of Justice – to refinance the property or even sell it with the understanding that this can only be done in conjunction with the CRA receiving full payment of their tax debt.

7.  What is the CRA’s priority regarding my property should I decide to sell it?

Assuming your mortgage is a traditional mortgage through a recognized financial institution, the proceeds from a sale should fall in this order (depending on the type of tax(es) owing);

1. Financial institution holding the mortgage

2. Secured lenders

3. Canada Revenue Agency

4. Other creditors who have registrations against the property

5. Property owner.

So if you have other debts including a tax liability (and the two tend to go hand-in-hand), then it is possible in this scenario to have nothing left over by the time the property is sold and all debtors are paid off.

8.  What if I owe CRA more than there they get from the sale of my property?

If, after the sale of your property there are still taxes owing to the CRA, them your tax balance is reduced by the amount the CRA is paid and the remainder is still owing to the CRA.

9.  What if I am not the only one on title – ie/ jointly with a spouse?  

In the case where there are more than one person on title in addition to you, it’s important to keep in mind that the CRA can only realize proceeds from your share of the equity in the property.  So if you sell, re-finance or are forced to sell, only your share of the equity can be paid out the CRA. The CRA cannot seize your spouses’, or anyone else’s equity.

Keep in mind that in order to get the Certificate, the CRA has to reconcile the account, determine the share owned by the tax debtor and then use that figure when sending the Sheriff out to seize and sell the property.

10.  The CRA has registered a lien against my property.  Can I sell my interest to someone else and get removed off title?

If a tax debtor initiates a transaction which puts an asset out of reach of the Canada Revenue Agency not at Fair Market Value, the CRA has the ability to initiate a section 160 Non-Arms Length assessment and assess the person(s) who received the asset for your liability (minus consideration received).  

11.  Will bankruptcy free me of a lien?

Filing for bankruptcy, or filing a consumer proposal, does not discharge a lien against your property. If you go bankrupt on your CRA debt, the lien remains and – even worse – accrues interest over time. Even after your discharge from bankruptcy, the lien remains in force, until you eventually sell your home and the CRA’s priority is now second in line after the bank.

If after all that the tax debt is still remaining, then and only then because of the bankruptcy, will the tax debt no longer be owing.

Who Can Help?

The bottom line here is that tax liens can cause serious problems and it’s best to seek our help to resolve your tax issues before it gets that far.  Even if a lien is in place in order to secure the Crown’s interest, it’s best not to ignore the CRA.

We have handled hundreds of liens, and will find the best solution for you.  It might be refinancing your mortgage, paying out the lien, or temporarily lifting the lien in order to improve your arrangement with the CRA.  Whatever the problem, no matter how complex, we have helped and can help.

Initial consultations are always free.

inTAXicating Tax Services.

Visit our website or send us an email at info@intaxicating.ca.

Toronto-based.  Canada-wide.

 

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Video Killed the Radio Star. Will Unions or Corporate Greed Kill the Twinkie…

Hostess Twinkies. Yellow snack cake with cream...
Hostess Twinkies. Yellow snack cake with cream filling. (Photo credit: Wikipedia)

The first part of my title is correct.  The video killed the radio star, but the second part of my title is still playing out, although all rhetoric seems to indicate that the end of the Twinkie – and Hostess Foods, is near. 

It’s an interesting scenario playing out and after reading this, you tell me which side you think is at fault and if you were the other side would you blame them?

Start with these ingredients;

Enriched wheat flour, sugar, corn syrup, niacin, water, high fructose corn syrup, vegetable and/or animal shortening –  – containing one or more of partially hydrogenated soybean, cottonseed, canola oil and beef fat, dextrose, whole eggs, modified corn starch, cellulose gum, whey, leavenings (sodium acid pyrophosphate, baking soda, monocalcium phosphate), salt, con starch, corn flour, corn syrup, solids, mono and diglycerides, soy lecithin, polysorbate 60, dexterin, calcium, calcium caseinate, sodium stearoyl lactlate, wheat gluten, calcium sulphate, natural and artificial flavors, caramel color, yellow #5, red #40.

Put that all together and you get a Twinkie, which was invented in 1930 by a baker at the Continental Baking Company when they realized that several machines used to make cream-filled strawberry shortcake sat idle when strawberries were out of season.  So the bakers created a snack cake filled with banana cream, and called it a Twinkie.  During World War II when bananas became rationed, the company switched to a vanilla cream filling.  In 2007, banana-cream Twinkies were  permanently restored (although I have never had one).  

On January 11th, 2012, Twinkie manufacturer Hostess filed for Chapter 11 bankruptcy protection.  Hostess – maker of Twinkies, Ho Ho‘s, Wonder Bread, etc., blamed in on their customers deciding to consume healthier foods.  On the brink of closing down, Hostess hired a new CEO who accepted a wage of $1.00 to see them through bankruptcy protection, which may all be for not as workers at Hostess Brands have threatened to strike if the company imposes “unfair” contract terms, including wage cuts.

The workers are members of the Teamsters Union which represents about 7,500 of the company’s 19,000 employees, said that more than 90 percent of its Hostess members voted to authorize a strike if “unfair contract terms” are approved as part of its bankruptcy proceedings.

Now bankruptcy is nothing new for Hostess which – founded in 1930 – previously filed for bankruptcy in 2004 and re-emerged in 2009. The company has about $860 million in debt.

Here is the hold up; The company’s new CEO, Gregory F. Rayburn – who dispels the myth that their industry is bound to fail as consumers reach for healthier and healthier foods, citing booming markets in chocolate – said Hostess wants to cut annual pension contributions from $103 million to $25 million. Hostess also wants to change work rules that sometimes require two trucks instead of one, and they want to outsource deliveries to small stores.

The union has announced they will reject the offer, make a new proposal, and are willing to strike which could spell the end of Hostess and would ultimately see the 7,500 unionized workers put the other 12,500 workers out of jobs too by their actions.  

Apparently employees already accepted big concessions back in 2008 and back in February then union voted to authorize a strike, and the union vowed Saturday that workers would walk off the job if the bankruptcy judge agrees to the company’s cuts.

Hostess countered by saying if workers strike, they will be forced to shut down the company and liquidate assets.

Amazing, eh?

I read through several articles but could not figure out why the union was digging in their heels and taking such a harsh stance which would ultimately shut down the company and force both unionized and non-unionized workers out of jobs.  I worked in a unionized environment for almost 11 years and say what you will about unions, they are looking out for the best for the employees…

The I found this missing tidbit of information: 

Before the company filed for bankruptcy protection, eight top executives got pay raises last year of up to 80%.

In April, some of the executives sided with the CEO and agreed to accept $1 a year in income until the company comes out of bankruptcy or December 31st, presumably with all these reduced pension costs, whichever comes first.  some of the other executives wisely gave up their pay raises altogether.

Boy, the optics here look bad.  Why votes yourselves a raise if the company is heading into bankruptcy?  That looks bad to the employees, it looks bad to the creditors who are getting $0.10 on the dollar and it looks bad publicly.  Then again, the unions need to understand by striking they are not looking out for the 7,500 employees they represent but their actions are impacting 15,000 employees and because there are non-unionized workers does that mean no one looks out for them too?

This is an ugly battle and the outcome will be playing out in the media over time.

Stay tuned.

(P.S. It’s an urban legend that Twinkies have a shelf life of 25 years.  According to experts a Twinkie has a shelf life of 7-10 days.)

Who knew?

NetFlix Takes Out Blockbuster

On the same day that NetFlix launched its product into Canada, Blockbuster announced it is filing for Chapter 11 (bankruptcy) in the United States. Can that filing be coming up in Canada too?

Is this not a case of out with the old and in with the new?

Blockbuster became obsolete years ago, around the same time record stores like Sam the Record Man, HMV and Sunrise began to realize they were no longer a viable option.

ESOP termination in bankruptcy – US. Who pays?

What happens if a company, that you work for, is in chapter 11 and the new owners want the ESOP plan terminated. The present value of the stock is $0. The stock is not publicly traded. There is some cash left in the cash accounts associated with each participants ESOP account. The trustee is using the cash for the ESOP termination costs. Is this legal or should the company be picking up the costs?

Well, in this case, the court has authorized the payments out of the participants cash funds. As well, if you refer to your plan specific documentation, you will probably find that the company is under no obligation to pay for any plan expenses and the Trustee can use the ESOP funds to pay for costs.

The question of whether plan assets can be used to pay the costs of plan termination is addressed in DOL Advisory Opinion 97-03A. It is a fiduciary question under ERISA (employee retirement income security act). and requires an analysis of the terms of the plan document and of whether the termination of the plan is for the benefit of the participants or the plan sponsor. The cash in the ESOP is not an asset in the bankruptcy estate of the employer. While 97-03A does not refer to ESOP’s it does mention tax qualified pension plans, which indicates that the plan pays for the termination, specifically, “Accordinly, reasonable expenses incurred in implementing a plan termination would generally be payable by the plan.”