How CRA collects income tax debt

The Canada Revenue Agency (“CRA”) has significant powers under the Income Tax Act (“ITA”) to collect personal income tax debt. This post examines the collection procedures most commonly used.

Charge over real property

Under Section 223 of the ITA, the CRA can register a lien over a debtors home (or any other real estate owned by the debtor). It does so through the following steps:

• The Ministry of Revenue issues a certificate which certifies an amount owing by the tax debtor

• This certificate is registered with the Federal Court and when so registered, it has the same effect as if the certificate were a judgment obtained against the debtor for the amount owing plus interest until the amount is paid

• The certificate shall be deemed to be a judgment of the Court against the debtor for a debt due to Her Majesty in Right of Canada

• Evidence of the certificate registered with the Court and a writ issued by the Court are filed with the land registry where the debtor’s property located. This creates a lien in favour of Her Majesty for the tax debt owed.

Once this lien is registered, it effectively functions as a charge on the property and can only be removed once the tax debt is paid in full. Not even a proceeding under the Bankruptcy and Insolvency Act (such as a bankruptcy or consumer proposal) can remove this lien, as bankruptcy is only effective if it is filed before the lien is created.

Garnishment

Under Section 224(1) of the ITA, the CRA can issue a “Requirement to Pay” to a debtor’s bank or employer (the “Garnishee”), requiring it to remit proceeds to the CRA in order to satisfy the tax debt. If the Garnishee fails to comply, it is personally liable to the CRA for the amount that should have been remitted.

Such a garnishment can be stopped by filing a proceeding under the Bankruptcy and Insolvency Act, such as a personal bankruptcy or a consumer proposal.

If you are being garnished by the Canada Revenue Agency for unpaid income taxes, please contact one of our associates, who will be more than happy to discuss your situation with you.

This post should not be interpreted as legal advice or a legal opinion. Please consult your Fong and Partners Inc. advisor to review your own particular circumstances.

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