Welcome to the blog of inTAXicating.ca! Since 2008 we've been writing posts to help Canadians solve their tax issues with the Canada Revenue Agency. If you have any questions, or if you need assistance with any CRA matters including, but not limited to; Collections, Enforcement, Audits, Liens, Back-Filing, Assessments, Director's Liability, s160/325, Taxpayer Relief or the Voluntary Disclosure Program. If you have debt and are considering Bankruptcy or a Consumer Proposal, speak with us first. With over 10-years of CRA experience in the Collections division, our expertise is in the diagnosing and solving of the most complex tax problems.
The Canada Revenue Agency have announced that they have charged a member of Nova Scotia’s Millbrook First Nation with evading $2.2 million in GST/HST.
The CRA charged Lisa L. Marshall who was the operator of the Traditional Trading Post, a convenience store, located on the Cole Harbour reserve of the Millbrook First Nation using the Excise Tax Act with wilfully evading or attempting to evade compliance with that Act.
The CRA alleges that between July 1, 2010, and June 30, 2015, the store failed to collect or remit $2,284,144.72 in Goods and Services Tax (GST) and Harmonized Sales Tax (HST) related to the sale of tobacco products to non-Aboriginals.
The agency says people who fail to remit tax owing are liable not only for the full amount, but also to penalties and interest, and if convicted, the court can levy a fine of up to 200% of the tax evaded and also impose a prison term of up to 5 years.
The moral of the story here, is that if you are required to charge, collect and remit GST or HST, you should. The CRA treats Trust Funds – money taken by registrants and held in trust until they are remitted to the Crown – very seriously, and those who misuse Trust Funds are dealt with swiftly and to the full extent of the law allowed to be used by the CRA.
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:
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.
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)
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.
In some not-news of the day, the Federal Auditor General has found that the federal government takes months — sometimes years — to make decisions, costing Canadians time and money when it comes to resolving tax disputes.
Audits of the Canada Revenue Agency unveiled exceedingly long delays which fall short of public expectations in an era of advanced technology and instant communications. He noted that departments, like the CRA, assess the time it takes to make decisions against their own internal benchmarks, giving little heed to what the taxpayers they serve might consider a timely decision.
The Canada Revenue Agency often leaves taxpayers waiting for months after they file formal objections to their tax assessments. Appeals officers seeking help from other parts of the agency often wait a year or more.
Over the last 10 fiscal years, the inventory of outstanding cases at the CRA grew by 171%, while the number of employees dedicated to resolving them grew by only 14%, the audit found. The backlog of unresolved cases as of March 31 represented more than $18 billion in federal taxes, the audit said.
But the solution here is not necessarily to grow the public service, but rather a review of the internal policies and how the union impacts the employees ability to do their jobs might need to be reviewed and revamped.
I remember when I started working in the CRA and was “advised” that I should be working 7 accounts per day. I can tell you this, when you begin your day at 7:15, and are completed your work by 8:30 there is only so much coffee you can drink per day. I wound up holding several inventories of accounts, and assisting my teammates in order to keep busy.
Eventually, as rules loosened, I was in charger of a collections / compliance team and we were working upwards of 90 accounts per day each which made such a significant dent in the total amounts coming into collections that they disbanded the team.
Our office had to take on work from other tax offices in order to have enough work for each employee and as stay left, took on other positions outside of collections or took leaves they were not replaced. Our tax office at 50% less staff was resolving 400% more accounts…
But like everything else in life, there was a downturn, contracts up for renegotiation, people moved on (like myself) and now the Auditor General reports there are too many accounts which cannot be handled at current staffing levels.
Did you know that not all the tax information and suggestions you find on the Internet are true?
Of course you knew that!
I’ve joked with everyone from my children, to family, friends, employers, employees and even director’s and CEO’s of huge organizations that tax information “must be true! It’s on the Internet”, no matter how absurd it might appear to be.
We all know, or should know to take everything we read with a grain of salt… and that fact-checking is critical when trying to decide if information is legitimate, completely made up, or aimed to scare you.
As we scroll through pages and pages of information, reading about situations and stories about how the Canada Revenue Agency (CRA) administers tax law here in Canada it is easy to lose sight of goal, which is to get a better understanding of what is acceptable and what is not regarding so many aspects of taxation. The best indicator of how close to the truth an article is can be determined by the sources cited in that piece.
An article about the CRA with a link to the CRA website (which backs up the facts) is the best indicator that the author knows their stuff.
If, however, you come across an article which has no references, no supporting links to the originating source, or links from a website titled something like “I_want_to_stop_the_CRA.org” then you can be assured the information is not going to be accurate, it is not going to help you, and more likely it was written to scare you, or present a horror story to get you to contact them to help you.
Don’t waste your time on those… Ever!
When a prominent tax lawyer wanted everyone to stop looking for solutions on the Internet it was presented that the CRA could find out you have a tax problem by sneaking into your house, taking your computer, breaking in to it, and seeing that you have been looking for tax help online.
Well, guess what?
If the CRA has to come and seize your computer, they already know you have a tax problem! They cannot seize your computer unless it’s part of a criminal investigation.
The true intention of these ads is not to warn you about a new power that the CRA has secretly acquired, but rather this firm doesn’t want you seeing that there are options available for you online to fix the problem yourself. So they scare you away from the Internet so you won’t find helpful tips and solutions at firms like this one, inTAXicating.
Better to hire them then get advice from a real former CRA Collection employee to help get you back on track.
In a capitalistic marketplace I don’t blame them, but I am concerned. Tax is confusing, especially when a tax problem suddenly arises and the CRA is pressuring you to fix it quickly in one of their 3 ways:
1) Pay it
2) File up-to-date and watch the balance go away, or,
3) Go bankrupt.
How can you be expected to make that sudden choice which has significant short and long-term implications on you, your business, your family and your life, without having the facts, all the facts, and not just the facts the CRA wants you to have, or that you believe they are telling you.
That’s where I come in, specifically, this blog, this business and this business model.
I want you to know the truth.
I want you to be able to make an informed decision whether that decision is made via information found on this blog, or on my website, or through an email to me. I want you to be able to understand the CRA and their collection, enforcement, audit, filing process and administrative process as well as I do.
I want you to understand the corporate culture there and that very infrequently is there an agent on the other side of the phone with your picture on a dart board in their cubicle.
I want you to know your options, your best next steps and that your long-term plan of action will not only help you resolve your tax situation but also keep you and the CRA happy.
I want you to know that in situations where I feel that you cannot do this alone, that I can help you, and will help you, make matters right, and I want you to know that a tax problem does not occur overnight and resolving them can take a long-time.
I have the knowledge and understanding that no-one else can claim to possess about the CRA collections policies and process and I don’t say that to boast, but rather to inform. I don’t profess to have an “army” of “real” CRA staff with me, nor do I pretend that background is in any area other than where it shows on my web-site, blog, and on my LinkedIn profile. Collections, collection, collections.
I’m also not going top pretend that a background in Appeals or Audit is going to help you better than a back ground in Collections. To each their own.
I write my blog posts myself and where possible I cite everything I can to the CRA website so that you can be comfortable knowing that information you read on my social media platforms are sourced from the people who want you to pay your taxes and question your deductions and filing deadlines.
I don’t write my posts in order to scare anyone or to force them to use my services, because quite frankly, I want everyone to be able to navigate the Canadian tax system without ever having problems and running afoul of the CRA and in a perfect world, one day I’ll be able to provide a users guide to the CRA to allow people to file, re-file and pay without incurring penalties and / or interest and where the CRA understands why people can’t, won’t or are unable to do so and then have the CRA deal with them in an understanding manner.
But for now, we have to take it one day at a time, and one situation at a time.
The best day to start fixing tax problems is today. There are always solutions and there are always options. In deciding what you want to do, you need to make sure you are getting the right information and from the right sources. Be wary of what you read on the Internet because it can make you want to close your blinds, change you name and hide from the CRA when all they want you to do is to close an account or file a nil return.
Get the facts!
inTAXicating Tax Services offers a free 15-minute consultation to determine how to best proceed with a tax situation.
From there if’s decided that a written plan of action is needed, I can produce one for you.
If from that, a decision is made to engage inTAXicating to represent you in your dealings with the CRA, then we determine if the hourly or fixed plan works best for you.
You don’t have to worry about opening those brown envelopes. Help is here!
I had a nice long conversation with a client the other day regarding the potential that either the Canada Revenue Agency (CRA) or the Provincial government (in Ontario) were going to pursue a Director’s Liability assessment against him for the debts of his now-deceased corporation. Part of the discussion surrounded how the Canada Revenue Agency and the former Ontario Retail Sales Tax (RST) group handled assessments, and the criteria they used when reviewing whether or not to pierce the corporate shield, plus the importance of a due diligence defense.
During my employment at the Canada Revenue Agency (CRA), I felt I needed to gain a more thorough understanding of Director’s Liability and figure out why there were so few assessments raised in our office compared to other offices. I personally had not raised any Director’s Liability assessments mainly because I was effective on the phone and combined with meetings, was able to resolve many debts prior to the assessment stage. Still, Senior Management encourage the Collections staff to utilize this collection tool more, so as the Resource and Complex Case Officer, I asked for, and was given, the Director’s Liability inventory to control.
By controlling the Director’s Liability inventory, that meant I needed to know the ins and outs of Director’s Liability – section 227.1 of the Income Tax Act and section 323 of the Excise Tax Act, because if anyone in our office wanted to raise an assessment, I would have to review their account, ensure all of the much-needed grunt work had been completed, then ensure they had spoken to the Director(s), given them sufficient notice, provided them time for a Due Diligence Defense, at which point I could sign off and begin to track the file.
After organizing that inventory and rolling out the new procedures, I began to scour the accounts in our office for potential Director’s Liability assessments, then, in addition to my other inventories, provide recommendations and suggestions to the staff on how to proceed if I felt there was a possibility for an assessment. Management decided instead of burdening the staff, I should just take those accounts I felt were ready for Director’s Liability assessments and work them, plus all of the other accounts I was tracking where assessments were raised too.
It was a fair amount of work, but more importantly, it was very enlightening, to review the government’s policies on Director’s Liabilities plus review the procedures in place, compare that to how other office’s handled their files and really tighten up the process. If an account was a sure-fire Director’s Liability assessment, it was raised, and if there was no chance, or not the right time, the file was returned to active collections.
I found the first common misconception around Director’s Liability was that the issuance of the Director’s Liability Pre-Assessment Proposal Letter (which notifies director’s that we are reviewing them for Director’s Liability) was being used as just another letter by the Collections staff to remind directors of their obligations, when in fact the CRA intended on using this letter to notify Directors’ that an assessment was beginning. Internally, the Canada Revenue Agency was actually starting to investigate the personal ability to pay of the director(s) at the time this letter was issued.
Going forward, that letter was not to be used lightly, and it was not to be sent to the Director(s) numerous times. A Director would then have the assessment raised against them and wonder why it was raised this time, and not earlier when one of those letters went out, so in order to prevent a possible loss in Tax Court, the decision was made to send it once, and then follow-up with the Due Diligence defense letter before raising the assessment.
Ignoring the Due Diligence defense letter (which happens often) meant the one opportunity a Director had to start their case on the record was lost, and with the CRA building their case in the permanent diary, the Director(s) stood little chance of preventing the Canada Revenue Agency from raising the Director’s Liability.
Once that waiting period passes, the file usually gets very quiet…
From the Director’s point of view, either the assessment is raised and they receive a letter from the CRA stating that, or the assessment is raised and the letter gets lost in the mail (tossed out), or the assessment is raised and before the Director is notified, their personal assets come under fire. There is of course, the possibility that nothing happens and the Director(s) are left in limbo, but without having a dialogue with the CRA, or experience around the policies and procedures, there is no way that the Director(s) will know when and if the CRA is coming – if at all.
Once raised, the Director(s) have quite limited options.
A recent court case, which I will highlight below demonstrates a situation where an assessment was raised, and in Tax Court, the decision was turned over and the assessment cancelled. I guarantee it won’t happen again, as the CRA will ensure their processes are tightened even more to close this loophole.
The case was Bekesinski V The Queen.
The link to the case on the website for the Tax Court of Canada, is here.
In this case, Bekesinski was the Director of a corporation who was personally assessed by the Minister of National Revenue (CRA) in the amount $477,546.08 for the corporation’s unremitted income tax (T2) and employer contributions of CPP and EI for payroll (source deductions) plus penalties and interest for the 2001, 2002 and 2003 fiscal years.
Under Director’s Liability, the CRA can assess directors for payroll and for GST/HST, but not Corporate Tax liabilities.
The Tax Court of Canada held that since the taxpayer had resigned as a director of the corporation more than two years after the CRA’s assessment, the CRA was statue barred from raising the Director’s Liability assessment.
This was something the CRA should have known before raising the assessment and something that the director (or his representatives) should have mentioned at any point during the pre-assessment proposal period, especially at the due diligence defense stage, but was never mentioned.
Brief Overview of the Facts
In 1992 the taxpayer purchased D.W. Stewart Cartage Ltd., a general cartage, trucking and warehousing company where he served as a Director of the corporation.
When the corporation fell behind on filing obligations and as the balance owing to the CRA began to grow, the Director began to receive numerous letters from the CRA warning him that he could be held personally liable for the corporation’s tax debts as a Director of the corporation. He did not notify the CRA at any time that he had resigned as a Director of the corporation.
On October 15, 2010 the CRA raised Director’s Liability and issued a Notice of Assessment (NOA) to the taxpayer for unremitted income tax, employer contributions plus penalties and interest in the amount of $477,546.08.
The Director then argued that he should not have been assessed as a Director because he resigned as Director of the corporation on July 20, 2006 by way of a Notice of Resignation which would have made the raising of the assessment statute barred.
The CRA argued that the taxpayer was in fact a director and that the taxpayer had backdated the resignation to qualify for the exception, which happens more than you could imagine, and to counter this trick, the CRA often requests an “ink date test” to determine the authenticity of the Notice of Resignation.
Unfortunately for the CRA, the results from the ink date test was excluded by the Tax Court because the CRA did not advise the Court that they felt the Notice of Resignation was back-dated. Even the judge felt the Notice of Resignation was backdated, however since the CRA failed to mention it, it was not open for review in the Court.
In summation, Bekesinski avoided Director’s Liability for the corporate tax debts due to a litigation misstep on the part of the CRA, a mistake they are unlikely to be repeat.
It is highly advisable for corporate directors to carefully document their resignations so as to avoid potential future Director’s Liability assessments, because I guarantee, the CRA will challenges to the authenticity of backdated resignations on each and every case going forward.