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 best way to avoid being scammed by a fake CRA caller.
If they start raising their voice, threatening you, or tell you that you are going to be arrested, or that the government is going to seize your house, or car, and especially if they tell you that they are going to take away your children.
Just hang up.
If you receive an email from a scammer but it looks legitimate, check the return email address. Government email addresses end with “.gc.ca”, oh, and if claims to be from the Canada Revenue Agency (CRA), you should be aware that the CRA employees are they’re not supposed to and not allowed to email outside the office.
If you’re not sure, don’t buy into the threats, and certainly do not give them any information at all.
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.
I came across an interesting article this morning regarding liens, governments (municipal – property taxes, Federal – the Canada Revenue Agency), and the idea that people with unpaid taxes, or tax debts run the risk of losing their properties to the government. The article can be read here, and the title of the article –
“More Hamiltonians losing properties due to unpaid taxes”
– scared the death out of me because I know the truth about liens, and right away I suspected something was out of sorts.
I continued to read the article which explained that due to a decline in manufacturing jobs, coupled with a prolonged economic downturn (recession) people are struggling to pay their bills, so the one bill they seem to be delaying payment on most often is their property taxes. In fact, the article states that, “A record number of properties are being slapped with liens because Hamilton home and business owners can’t pay their taxes. By the end of 2013, the city will have registered more than 500 properties after warning owners that time is up to pay their overdue taxes.”
That is a lot of back taxes, and you know that there will come a time when the city’s Director of Taxation will have to find some “incentive” to “encourage” people to pay their taxes and that could come in the form of making an example of someone very publicly in order to show the rest of the delinquent accounts what is going to happen to them… Soon… Maybe…
But is this article not the public shaming itself?
If you were unaware of the consequences of having outstanding property taxes, you would think that the government is going to slap on a lien, then come and take your house from you. I thought maybe the residents of Hamilton were losing their properties to the government, that the government is seizing and selling them in order to recover the unpaid property taxes at a rate far greater than anywhere else in Canada, and that certainly is not the case if you read the entire article.
While the facts clearly point to an increase in properties registered with tax liens from 2008 when the recession began until 2012, one needs to wonder if it has to do with an increase in prpoerty taxes owing, or if maybe another factor falls into play – maybe employees are getting better with practice registering liens to secure the government’s interest.
Below are the number of registered liens in Hamilton per year:
2013 (projected): 500+
Interesting, however, the reality is that, “Few properties are actually sold in city tax sales. There were six in 2012 and three the year before.”
So what does this exercise actually mean to the government and to you, the taxpayer?
It points out that the government will register a lien on any property you own in order to secure their interest in a tax debt you have. Municipalities do it, and the CRA does it. To be honest, the CRA should be registering liens against any and all properties which have equity in them.
The lien sits on the property and the owner is not allowed to sell or re-finance the property until the lien is paid in full. In fact, most financial institutions will only lend money in instances where there is a lien provided that the agreement entails payment in full of the lien and word from government that the lien is going to be removed upon receipt of the full payment.
So how does this explain the seizing and selling of 2 properties?
The CRA, for example, makes it a policy to never seize a property where doing so would result in them having to “live in the street”. They will, however, never blink twice if the property they have registered a lien against is an income property, a cottage or in the case of a car, a second car. Those are fair game.
Does that mean you can ignore the lien?
But you need to know if the government is actively searching for assets to seize and sell, or if they are securing their interests. While they may not tell you, they will probably let your representative know – which is why prolonged tax issues regularly need a different voice to help the CRA understand that there is a person at the other end of the telephone and that nobody wants to be in a debt position they cannot get out of.
So before you ignore the debt, or the lien, you should understand that there is the possibility that the CRA could seize your asset in very short notice.
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.
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 firstname.lastname@example.org.