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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Canada Revenue Agency Offering to Close Dormant GST Accounts

[109/365] Taxation.
Taxation. (Photo credit: kardboard604)

I came across an interesting article on the H&R Block blog site regarding the Canada Revenue Agency (CRA) and their upcoming strategy regarding dormant GST accounts.  The original article can be found right here.  Having spent almost 11-years working for the CRA – almost 2 of those years dedicated to GST, I am very familiar with the problem the CRA faces by having many GST accounts open and unaccounted for.  When the CRA is unsure as to whether the account is open, active and not filing, or open, inactive and never used can often be difficult to determine is the phone number and address on file at the time of registration are no longer applicable.

As many of you are already aware, not filing GST returns is a criminal offence under the Excise Tax Act for which the CRA can, and will prosecute taxpayers.  When the CRA moves to action on these accounts their intention is in their approach so if they suspect the file was opened in error, or can be sure it is not required then they will call, or have a field officer drop by the residence or business to ask about the account.  If, however, they have reason to believe that the account is open and just not-filing, maybe as a result of a telephone conversation, then they approach this completely differently.

In this case, the CRA will begin to collect information for their permanent diary and see how the story differs from the information provided by the taxpayer.  Once they notice a difference, they move in with a Demand to File, which is an indication that they intend to prosecute.

The CRA understand that taxpayers register GST accounts then move and fail to update their address with the CRA (HUGE mistake!) at which point the CRA needs to determine if the account is inactive or a non-filer.  If this is you, or someone you know, it’s best to take care of this right now.

A common example would be this; a taxpayer opened a business which operated as a sole proprietorship (SoleProp) for 18-months until it incorporated.  The new corporation (NewCorp) registered a GST account and began to make its quarterly installments, while the SoleProp no longer had any income attached to it, but instead of closing it, the owner filed nil returns for the next 3-years.

This is an example of an account the CRA would happily close over the phone because the trail is clear and both are current.

Normally, you need to complete a RC145 Form (used to be a GST11)– Request to Close Business Number Program Accounts in order to close your GST account, however under this program, the CRA will close the account if you give them permission over the phone.

Whether the account is closed or not, you still have to file all your outstanding GST/HST returns and pay any amounts owing up until the day your business ends because closing your account does not exempt you from paying any GST owed back to the CRA.  In addition, if you have business assets and shut down the operation, the assets are deemed disposed of at Fair Market Value (FMV) on the day you stopped operating so you will need to calculate the GST on the value of your assets, too.  You will also want to make sure that you capture any bad debts on that final GST return if you have not previously.

If you sell to a purchaser who is a GST registrant and who continues to operate the business, you can jointly file a Form GST44, Election Concerning the Acquisition of a Business or Part of a Business, so the purchaser does not have to collect and you do not have to pay GST.

The important thing to remember about the GST is that once you open an account it remains open until you take action to close it.  If you have a dormant GST account and the CRA is calling you, it will save you time to answer the phone and provide permission to close it.  If you fail to close it and the CRA is unable to get in touch with you, they can enforce collection actions against you and raise director’s liability to hold you personally liable to corporate debts, as well as the previously mentioned criminal prosecution.  Stopping this kind of action can be difficult once the CRA has determined that you are hiding something from them.

Do not wait for the CRA to come collecting their returns or their GST, but if you are already embroiled into a battle with the CRA over notional assessments or GST amounts owing, or worse if you have received a Demand to File notice from the CRA that they are intending to assess you as a director of the corporation and are seeking a due diligence defence, you need professional help right away.

I can help!

Just visit http://www.intaxicating.ca and see how Intaxicating Tax Services can assist you in all your CRA matters.  Passionate about Tax.  Passionate about helping people.

info@intaxicating.ca