A READER ASKS:
Hello, we are 37 F+M married in Ontario for 17 years. Teenage kids. I make $70k in a government job with pension. He owns a contracting business that he opened about 15 years ago. We are well known. He is very successful with several great employees and we get a lot of business. After expenses and wages he might clear $100k. We have $109,000 in the bank combined, today.
Through our entire relationship he has paid for everything in cash. Even multiple vehicles. Trips. He saves for what he wants and buys it. He has never had a credit card. All our finances are separate and we have no joint accounts.
After years of pressure to buy a house he caved. We were refused a mortgage of $300k based on his $350k tax debt with CRA. I had no idea this was a thing. He says his old accountant stole from him. Did all his paperwork wrong to hide it. They did have a big falling out years ago and the guy left the province. He has been making payments to CRA. My husband is street smart but not book smart and somehow I believe this.
I’m furious. It was clear he had been hiding this for years with convincing me to rent long term and not having credit cards, keeping our accounts separate. I’m stewing the idea of leaving over something like this but know I need to stay by his side.
My questions are:
What is my responsibility if anything toward this debt, now or if something happens to him and it still exists? Is there any hope for us to own property? Is a private lender going to give us a mortgage?
His explanation for his tax debt (his old accountant stole from him) doesn’t ring true. It’s likely he just never bothered paying taxes on his income, which is very common in the trades.
Based on the information you’ve disclosed, you’d have no responsibility for his income tax debt unless he transferred or gifted you assets at a time he was in arrears with his income tax obligations. In that situation, you may be assessed by the Canada Revenue Agency for the fair market value of the gift or asset transferred. For example, if your husband purchased a car for you as a birthday gift valued at $30,000 at a time when he owed taxes that he couldn’t pay, you could be assessed $30,000 by the Canada Revenue Agency. This is called a Section 160 assessment under the Income Tax Act.
Assuming you still want to stand by him, have him read this post with you and ask him to confirm if he’s addressed the following issues with an accountant:
- Is it just personal income taxes that he owes? If he runs a business and earns more than $30,000 per year, then he needs to charge GST to his customers. If he failed to do this, then he’ll be liable for this as well after CRA performs an audit of his business records. He’ll be personally liable if he’s a sole proprietor or he’ll be personally liable as a director if he incorporated his business.
- You mentioned that he has employees – in which case he’s personally liable for any unremitted income taxes, CPP and EI withheld from his employees at source as well as the employer portion of EI and CPP. If never bothered withholding payroll taxes from his employees, then the CRA will calculate the payroll taxes that he’s on the hook for if they ever perform an payroll audit. Again, as for the GST, he’ll be personally liable if he’s a sole proprietor or he’ll be personally liable as a director if he incorporated his business.
- He may have also been required to pay WSIB premiums for the employees he has on staff. This would be discovered by a WSIB audit and he’d be personally liable for this if he’s a sole proprietor (however if he’s incorporated, he wouldn’t be personally be liable as a director).
So the question is this: does the $350,000 he owes to CRA encapsulate GST and payroll taxes as well as personal income tax? If not, then your husband needs to sort out with the assistance of an accountant what he may owe in addition to the $350k.
Assuming your husband does the right thing and retains an accountant to bring his personal income tax, GST, payroll tax and WSIB filings current, and that there’s no foreseeable way that he’ll be able to pay this debt in full, he can attempt to make a settlement with CRA and WSIB by filing a proposal with the assistance of a Licensed Insolvency Trustee. A proposal filed under the Bankruptcy & Insolvency Act would allow him to repay a portion of what he owes (say 50%) over a 5 year period. If he can generate enough money from his business (after paying his business taxes as described above) to make monthly payments towards the proposal, this might be a solution for him.