Introduction: CRA’s Limitations on Collecting Old Tax Debt
If you have an unpaid tax liability that’s over 10 years old, the Canada Revenue Agency (CRA) may no longer be able to collect it, especially if they haven’t contacted you for collection purposes. The Income Tax Act grants the CRA extensive powers to collect tax debts, such as freezing bank accounts, garnishing wages, and placing liens on assets—all without a court order.
However, there are limitations on how long the CRA can pursue these actions.
This article explains the typical limitation periods for CRA collections and when tax debts over 10 years old may no longer be enforceable.
Initial Tax Collections Limitation
When a taxpayer is assessed or reassessed and owes taxes, the CRA must wait before initiating collection actions. Under Section 225.1 of the Income Tax Act, the CRA can only begin collecting 90 days after sending the notice of assessment or reassessment. There are exceptions to this waiting period, but they are outside the scope of this article.
The 10-Year Limitation Period
According to subsection 222(3) of the Income Tax Act, the CRA cannot start or continue collection actions once the 10-year limitation period expires. This period is reset if the CRA takes any collection action, such as sending a demand to pay letter or issuing a derivative assessment to a third party (e.g., a spouse, relative, or related corporation). The limitation period also resets if the taxpayer or their legal representative acknowledges the debt.
Example:
If a tax debt was assessed in 2012 and the CRA pursued collection actions until 2015, the 10-year limitation period resets in 2015. The CRA would then have until 2025 to collect the debt.
If there’s been no collection action, no debt acknowledgment, and no derivative assessment for 10 years plus one day, the CRA cannot legally collect the debt.
Impact of Older Tax Debts
For debts incurred before March 3, 2004, the 10-year limitation period began on March 3, 2004, meaning those debts could have expired by March 3, 2014, unless the CRA took collection action before that date.
What Counts as Collection Action?
The Income Tax Act defines collection actions broadly, including:
- Applying Refunds to Debt: Under subsection 164(2), if the CRA applies a tax refund to your outstanding debt, the 10-year period resets.
- Court Certificates: Under subsection 223(2), the CRA can register a certificate in Federal Court to secure the debt. This creates a lien or charge on your assets.
- Garnishments and Seizures: The CRA can garnish wages (subsection 224(1)) or seize assets (subsection 225(1)).
If any of these actions occur, the 10-year period resets.
How to Avoid Resetting the Limitation Period
To avoid resetting the limitation period, do not:
- Acknowledge the Debt in Writing: Avoid written promises to pay.
- Make Partial Payments: Even a small payment can reset the clock.
- Issue a Payment That Fails: For example, a bounced cheque resets the period.
Consulting an accountant before interacting with the CRA is crucial to avoid inadvertently resetting the limitation period.
Frequently Asked Questions (FAQ)
I Have a 15-Year-Old CRA Debt and Was Contacted by a Collections Officer. What Should I Do?
Do not respond immediately. Consult an accountant to determine if the 10-year limitation period applies to your case. Speaking with the CRA or acknowledging the debt can reset the limitation period.
This article is written for educational purposes.
Should you have any inquiries, please do not hesitate to contact us at (905) 836-8755, via email at [email protected], or by visiting our website at www.taxpartners.ca.
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