CANADA REVENUE AGENCY COLLECTIONS POLICIES AND PROCEDURES
Note:
When dealing with un-remitted trust funds (that is: GST/HST, payroll deductions or Air Travellers Security Charges) that persons owe, the CRA’s policies vary.
What “trust funds” means is money that you collect to remit to the tax department. This is an important distinction.
CRA is ruthless in collecting what they consider trust funds. They will often move quickly before the 90 waiting period is over.
CRA will move especially quickly if they think there is some reason to protect their interests.. things such as the taxpayer hinting that they may have to go bankrupt. CRA simply does not care about anything except getting their money.
If you have been placed in Collections, understand that CRA thinks that they, “can do pretty much whatever they want.”
This is pretty much true, unless you know the ropes. We are able to negotiate payment plans, but you really have to know how to overlook “NO” as an answer. CRA will ask for tons of information so you can prove that you cannot pay more. The collections people will really put you through the ropes, to ensure that you cave in and pay.
Your Obligation as a Tax Debtor
Once you have filed your income tax return and it has been processed, the CRA will send you a notice of assessment which will explain the details of your assessment, indicate the refund amount or the amount you owe and the requirements you must follow to pay this amount. The CRA charges interest at a prescribed rate on any unpaid balance and compounds the interest on a daily basis.
So what this means to you is, CRA sees your debt as your obligation. A notice of assessment makes the debt real, and you have 90 days to challenge their assessment.
Be very careful in not expecting CRA to wait the 90 days before they initiate collection actions.
Collection Procedures
Payment in Full is expected immediately
Most tax debtors whose assessments result in a balance owing pay these balances promptly with no intervention on the part of the CRA. However, to reinforce the fairness and equity of the self-assessment system for those tax debtors who pay their taxes on time, the CRA will take a firm and efficient approach when collecting outstanding accounts from tax debtors who do not pay their taxes.
The CRA requires that these amounts be paid and makes all efforts to ensure that they are. In most cases, if balances are not paid within 30 days of the date a notice of assessment/reassessment is issued, a second request for the balance owing will be made either by mail or by telephone.
If your balance remains outstanding and you have not been in contact with them to discuss payment of your debt, they may send you a final letter. The letter will notify you that if you do not make full payment or other satisfactory arrangements within 90 days after the notice of assessment/reassessment, they may take legal action such as garnisheeing your income (that is: they may intercept funds payable to you) or initiate other legal action (that is: directing the sheriff to seize and sell your assets). Interest charges will continue to accumulate on any unpaid balances.
What this means to you is: CRA is pushing hard for collections to keep CRA income forecasts on target. Collecting the money is important.
Collections is the arm of CRA where you can not expect any sympathy. Our experiences is that CRA collections believe they can do anything they want to. Until such time as CRA is taken to task on this, you cannot expect that they will show you any quarter.
This is not about fairness and equity, such a statement is hog wash. This is about collecting the money NOW!
I can tell you for certain, that if you receive an assessment, you better be in touch with CRA or a Tax Representative very quickly. If you are going to dispute the amount, you need to make sure CRA collections knows, so that they know that they have to wait 90 days before they can proceed and then they have to wait pending the results of your objection.
Collections takes their job very seriously. Collections will bulldoze in every way they can. If you want to get any concessions, you will need professional help.
Under the Income Tax Act, every individual who has to pay tax for a calendar year must, by April 30 of the following year:
- file an income tax return; and
- pay any outstanding balance owing.
Self-employed individuals must file by June 15 of the following year.
Self-employed individuals who have a balance owing also have to pay their outstanding balance on or before April 30 of the following year. The balance due date is the same for both self-employed and individuals.
The Canadian income tax administration is a self-assessment system. Under this system, taxpayers must file their returns and voluntarily report all income and expenses, and calculate any amounts they may owe. Under the Income Tax Act, every individual who has to pay tax for a calendar year must, by April 30 of the following year.
Talk about an oxymoron: The filing is voluntary but you must do it? How is it voluntary if you must do it?
Pretty silly, I would say. However on another bent, consider that there is something to this voluntary issue… otherwise CRA would not say it is voluntary. Self assessing… yes that is true. Voluntary, not true. Just ask those who get fined for not filing their tax returns when they get a demand to file from CRA.
Arrangements to Pay
The Canada Revenue Agency will accept payment arrangements when you have exhausted all reasonable possibilities of obtaining the necessary funds by borrowing or re-arranging your financial affairs.
If you cannot pay the balance in full, you should contact the Revenue Collections Division at your tax services office to discuss a mutually satisfactory payment arrangement based on your ability to pay. They will require evidence from you comprised of full income disclosure, living expenses, and assets and liabilities which will be verified before they accept any proposed payment arrangement.
What this means, is that if you can prove that you can not beg borrow or steal the funds and you can not pay within 12 months, CRA can and will take very serious heartless actions against you. Bankruptcy? No problem in CRA’s view.
The straight goods answer in terms of CRA collections is. Don’t bother offering a payment plan if it is not going to be paid off in 12 months or less. If you are truly insolvent, can’t pay your taxes, then you need some serious advice on your situation. And you really need some heavy duty help and guidance.
A Managerial Review of Decision
Should you not agree with the decision made by a CRA employee, you have the right to discuss the matter with the employee’s supervisor. The employee will provide you with the supervisor’s name and telephone number if requested, and you also have the right to go above the supervisor’s head. However they all circle the wagons and protect each other. So you better be one determined person. CRA knows full well most people eventually fold.
Legal Action
If the previous steps have not resulted in a payment solution, legal action could follow 90 days after the notice of assessment/reassessment. Once a garnishee or other legal action is started, it will not usually be withdrawn unless you settle the debt by paying the full balance or providing evidence that the action is creating undue financial hardship. CRA will notify you by mail of the garnishment action usually after the fact, of course.
These actions can be set aside, but you really have to know how to wage the war on this one. It is no easy task for the faint at heart.
Inter-departmental Set-Off
If you are entitled to a payment from any other government department (for example: Canada Pension Plan) CRA may request the other government department to retain, by way of deduction or set-off, the payment and apply it against your income tax debt.
CRA will request the funds, you can count on that.
Offset of Refund
If you are entitled to a refund from any other statute administered by the CRA (for example: a proprietorship GST/HST account) during the period you owe taxes, The Revenue Agency may take it and apply your refund to your income tax debt and refund any balance to you.
The operative word here is “may”… what you need to know is change the word from “may” to “will.”
A Final Word
Theoretically CRA collection policies exist to ensure the law is fairly applied to all tax debtors. These procedures allow us to consider each individual’s financial situation. This is an obligation we have to Canadian taxpayers, the vast majority of whom are salaried and do pay their taxes in full and on time.
My final word on this topic.
CRA does not give concessions they do not have to give. They do not treat all taxpayers the same. Each case is different and is evaluated on their own.
In the old days you had to worry about annoying the auditors or the collections staff. Today it does not matter, they will go for what they want and derailing them requires a huge effort.
This opinion of mine is not hearsay… this is what I know from being in the trenches with CRA on a daily basis.
Our staff works hard fighting wrong doings by CRA every day of the week.
There are nice people in CRA… but not many of them are in the collections department. Even if they are nice people the pressure to collect the toll is huge on them.
So don’t think CRA Collections just wants what you owe, they want what they say you owe, and for that matter, they want what any third party says you owe too. Third party information in CRA favour is treated as a “truth.”
Taxpayers beware. If you are not keeping audit ready books up to now, you better do an immediate course correction. If you need help on this let us know.