Income tax debt, recovery options, interests and penaltiesChantal Gingras
As a Licensed Insolvency Trustee, year after year I see firsthand how much income tax debt come to represent a heavy burden for many Quebeckers and Ontarians. Furthermore, given the firm determination displayed by the Canada Revenue Agency (CRA) and Revenu Québec to recover the money they are entitled to, such debt may cause a considerable stress. Righteously, since the CRA and Revenu Québec have several means to get repaid.
Canada Revenue Agency and Revenu Québec recovery options
If you have income tax debts with the CRA or Revenu Québec, these organisations can take actions against you. They are not the only creditors to be entitled to recourses, but CRA and Revenu Québec are sometime the first ones to pursue their rights in this matter. This applies particularly to garnishments of wages (see the section on this subject below).
These organisations can also issue formal demands requiring an individual to produce various types of documents, including tax returns, reports and statements of account.
The following actions may be taken against the debtor if tax debt isn’t paid back.
Garnishment of wages
If you have income tax debt, the CRA and Revenu Québec can garnish your wages. Unlike the majority of creditors, they do not have to get an order from the court to garnish wages. They don’t have to send you an ultimatum either. To do so, they just have to provide your employer with a requirement to pay notice. Such a legal notice compels your employer to remit to CRA and Revenu Québec a part of the wages you would normally be entitled to. The requirement to pay remains in force until the income tax debt is completely reimbursed, or until further notice.
Being self-employed does not shield you against such an action. The CRA and Revenu Québec can in fact seize your accounts receivable. As in the case of a garnishment of wages, they will send a requirement to pay notice to your customers. They will then be required to remit to CRA and Revenu Québec any amount they would have paid you for work you did.
Seizure of property and assets
Your salary is not the only thing that can be seized by CRA and Revenu Québec. They may also recover the amounts due by obtaining a writ of seizure or a memorial of judgement from the court to seize your property and assets, including:
- recreational vehicles
- works of art
- electronic products
- registered retirement savings plans (RRSP)
- bank accounts
- other assets
In Ontario, the CRA can also register a lien on a property with a land registry office. In Québec, the CRA and Revenu Québec may use a similar method by obtaining a legal hypothec on a house or on a secondary residence such as cottage.
Other recourses available to the Canada Revenue Agency and Revenu Québec
The CRA and Revenu Québec have some other means to recover outstanding amounts. In specific instances, they can hold another party jointly responsible for your debt. Other parties include:
- the spouse or another related person
If you transferred or sold property to a related person, this individual may be required to reimburse the difference between the market value of this property and the amount paid for it.
- the directors of a related company
If a company still owes the GST and HST or QST it perceived or if it has not remitted its payroll deductions, the CRA and Revenu Québec may hold the directors jointly responsible for the debt of the company.
To reduce your income tax debts, the CRA can also seize your GST/HST credit if you are entitled to it. Revenu Québec may, on the other hand, seize your solidarity tax credit (STC). Both organisations can also issue a statutory set-off to seize monies other government department may owe you, including tax refunds.
Interests and penalties for income tax debt
Clearly, if you carry income tax debt, you are well advised to get rid of them promptly. By doing so, you will avoid recovery actions against you.
It is worth mentioning here that income tax debt should be paid within the prescribed time to avoid an accumulation of the interest charges. The CRA and Revenu Québec can impose penalties for various motives, including the following two most frequent reasons:
- Late filing penalty
A 5% penalty is automatically added to any amount due at the tax return filing deadline. Moreover, a penalty of 1% will be calculated for every successive full month of delay.
- Interest rates on income tax debt
Not surprisingly, the CRA and Revenu Québec impose penalties for income tax and other fiscal debts outstanding on the due date. The interest rates used to determine these penalties are reviewed every three months. They are listed on the CRA and Revenu Québec sites.
If you reimburse your income tax debt within the prescribed time, you will avoid penalties and other legal and financial actions.
If you are unable to reimburse your income tax debt, do not ignore the problem. Just consider that there are solutions. Remember also that, contrary to popular belief, income tax debt can be included in a bankruptcy or a consumer proposal.
For any question on income tax debt or on the means to make it through, do not hesitate to contact a Licensed Insolvency Trustee. The first meeting is always free and without obligation. Discretion is assured.
P.S.: The specific operational procedures of the CRA and Revenu Québec governing recourses and penalties are explained here together for the sole purpose of simplifying the reading. Any text referring to Revenu Québec evidently applies only to Québec residents.