Case Study: The self-employed tax debtor
Don (not his real name) was in a real pickle. He was a gentleman in his late 50s supporting a family of three, consisting of his stay at home wife and young niece. He was the sole income earner in the household, which was stressful enough, but he also was in trouble with the Canada Revenue Agency. You see, Don was a self-employed consultant in the construction industry. Although he earned very good money (almost $120,000 per year), he hadn’t put any money away in the last few years to pay his annual tax bill to the Taxman. As a result, he owed about $180,000 in personal income tax. Well,…
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…
Bankruptcy and personal income tax debt
Despite beliefs to the contrary, personal income tax debt is treated no differently than most other types of debt under Canadian bankruptcy law. However, this statement comes with a caveat, which we’ll examine later later in this post. Here is a typical scenario that I’ve come across frequently: The debtor is self-employed and for one reason or another, has not filed personal income tax returns for a number of years; She eventually has her earnings garnished by the Canada Revenue Agency. She calls CRA to find out what’s going on, and is told that they performed an arbitrary assessment of the income taxes that she owes, since she never filed…
