September 5, 2017

Some people do and don’t even realize it!

The Canada Revenue Agency (CRA) is notorious for its sometimes seemingly draconian collection abilities.  They can garnishee incomes and accounts and register on title of property with the need for Court Orders.  When the Agency makes mistakes, and they do, there is little recourse unless it is related to refunds.

Many small business owners have been put to significant expense facilitating trust exams (audits).  Sometimes there are costly disputes over allowances which can end up in court and even favour the business owner but they will not recover their costs.

What is the lesson then?  Hire a good accounting service and stay on top of your remittances – but even that will not ensure you do not at some point run afoul of Canada’s most powerful governmental organization.

If you owe taxes to the CRA one of the remedies that they will often resort to in order to ensure payment is that of registering a security interest on the title of your property.  Bankruptcy provides a good remedy for people who are overwhelmed with tax debts.  Some of the most likely people to have tax related debt issues are Realtors and other commission based sales professionals.  The reasons are simply that commissioned sales people do not get regular incomes and most often do not pay taxes at source.   

While tax debt is dischargeable in either a bankruptcy or a proposal proceeding Section 172.1 of the Bankruptcy & Insolvency Act is a special section that applies to “high tax debtors”.  Notwithstanding the application of S. 171.2 most tax debtors will obtain a discharge from the bankruptcy albeit with conditions attached.

However, if the CRA registered their interest on title of real property prior to filing the bankruptcy or proposal the stay of proceedings will be of no effect in respect of the registration.  In other words the CRA will continue to have the same rights regarding the property as any other secured creditor such as a mortgagee.  In fact the CRA in some cases can step in front of mortgages on sale or disposition of the property.

People who have problems with debts often become apathetic and stop opening bills and correspondence from their creditors including the CRA, as a result they may not even realize that the CRA has registered on the property.  Some people have tried to get ahead of the CRA and transfer their interest in property to their spouse or other relatives.  However, Section 160 of the Income Tax Act allows the CRA to pursue the recipient of the property transferred to extent of the value transferred.

For example:  If you transferred your half interest in a matrimonial home to your spouse at a time when you owed an equal or greater value to the CRA for tax debts they may deem that to be Section 160 conveyance and collect that value form your spouse.  So if you owed CRA $50,000 and the value of your half of the equity was $40,000 which was transferred to your spouse the CRA will deem your spouse to owe them $40,000 and collect accordingly. 

At the end of the day once the CRA does register on title of your house they will continue with their usual collection activities including garnishees of accounts and incomes and offsets of future refunds. However, it is highly unusual for the CRA to force a sale of a home.  For that reason their registration may sit on title for a long time, it will prevent adding new money to an existing mortgage but not necessarily prevent renewal, and it will ensure that should you sell the CRA will be paid.  So all the time you are paying down your mortgage, perhaps blissfully unaware, you may effectively be “renting your own property” from the CRA.

If you are business owner or anyone else struggling with tax, or any other debt issues give our office a call, come in for a free confidential consultation and find out what options you have to deal with the problem before it deals with you!