Introduction – GST/HST Limits on CRA Collections
Canada’s Excise Tax Act gives sweeping powers to the Canada Revenue Agency (“CRA”), and by extension its tax collection officers, to collect the tax debts of taxpayers. In many cases, taxpayers are taken by surprise when their bank accounts are frozen, assets liened or seized and wages garnisheed. However, there are certain limitations on when the CRA can legally take action to collect GST/HST tax debt, which are both situational and based upon strict timeframes. Unlike most debts under the Income Tax Act, there is no initial 90-day period where collection action is barred after a GST/HST assessment. There is however a 10-year limitation period that applies to GST/HST tax debts. This limitation period is ‘restarted’ whenever the CRA takes action to collect the debt or the taxpayer acknowledges the tax debt, which can mean that a GST/HST debt more than 10 years old is still collectible. If you need help dealing with CRA tax collectors, one of our expert Canadian GST/HST tax accountants can help.
No Initial Limitation on GST/HST Tax Collections
When a taxpayer is assessed or reassessed in the normal course, a tax debt to the CRA is legally created if there are taxes owing as a result of the tax assessment. Unlike for income tax debts, the CRA can proceed with collections actions for GST/HST tax debts immediately after sending a notice of assessment or notice of reassessment to the taxpayer. If you have been reassessed for GST/HST, our top Canadian GST/HST tax accountants can help.
10 Year Limitation Period for Tax Collections
The Excise Tax Act at subsection 313(2.1) provides that the CRA may not commence or continue an action to collect a tax debt after the end of the limitation period for the collection of the debt. The prescribed limitation period in the Excise Tax Act is 10 years; this means that after 10 years, the Canada Revenue Agency is legally prevented from collecting on a tax debt. If your GST/HST debt is less than 10 years old, our experienced Canadian GST/HST tax accountants can help you deal with the CRA tax collections officer assigned to your case.
However, the Excise Tax Act also specifically allows for the Minister to extend the limitation period by virtue of subsection 313(2.3); the limitation period of 10 years is “reset” if the tax department carries out any action to collect the tax debt, such as sending out a demand to pay letter. Also, if the Minister assesses any third-party in respect of the tax debt, for example a spouse or relative by way of derivative assessment, then the limitation period is reset. In addition, if the taxpayer (or the taxpayer’s legal tax representative) acknowledges the debt, the 10 year limit will again reset. If you are unsure if the limitation period applying to your tax debt has been reset, please contact one of our accountants at [email protected] or by phone at 905-836-8755.
For a more complete example of how the limitation period works, if a tax debt is assessed in 2005, and the CRA takes consistent collections action against the taxpayer until 2015, the Minister has 10 more years from the last date of collection action in 2015 to attempt to collect upon the debt. Essentially, every time that the tax collectors continue with collections action, the 10 year limitation period ‘restarts’. If there is no collection action for a period of 10 years plus one day, no taxpayer (or taxpayer’s legal representative) acknowledging the debt in the past 10 years, and no derivative assessment is issued against a third-party, the CRA will be statute barred by the 10 year limitation period to continue or restart collection action.
However, quite confusingly, all tax debts owed to the CRA before March 3, 2004 were ‘awakened’ by virtue of the addition of subsection 313(2.8) of the Excise Tax Act. This means that all the tax debt owed to the Minister before March 3, 2004, at the very earliest, may expire on March 3, 2014. If any action was commenced during this period before March 3, 2014 for the debt owed before March 3, 2004, then the 10 year limitation period will have been reset.
What Constitutes Collection Action?
Defined by section 313(1) of Canada’s Excise Tax Act, a collections action means any action taken to collect a tax debt of a taxpayer. This can include a proceeding in a Court and any action taken by the Canada Revenue agency collectors under Division VIII of Part IX of Canada’s Excise Tax Act. Examples of actions taken by CRA which would constitute a collection action include issuing a demand to file under section 282 of Excise Tax Act or issuing a demand for the taxpayer to keep records under section 286 of the Excise Tax Act. If you unsure about if a collection action has been taken to collect your HST tax debt, contact one of our expert Canadian GST/HST tax accountants.
Acknowledging Tax Debts
The only thing that a tax debtor can do to avoid prolonging the period of collection as much as possible is to avoid acknowledging or paying the debt. Defined in subsection 313(2.4) of Canada’s Excise Tax Act, the taxpayer can acknowledge the debt in one of three ways:
- A promise to pay the debt in writing;
- Making a written acknowledgement of the debt; and
- Making a payment or purported payment that was dishonoured such as a “bounced cheque”.
Any of these three actions by the taxpayer will result in a “reset” of the limitations period, and the taxpayer will be back to square one. This is another good example of why taxpayers with debts to CRA would be well served to seek professional tax advice from one of our Canadian GST/HST tax accountants before communicating directly with tax collections officers.
If you owe a debt to Canada Revenue Agency and you are unsure whether the limitation period has passed, get in touch with our expert Canadian GST/HST Tax accountants. Our tax law firm can assist you with dealing with Canada Revenue Agency collectors who can be very aggressive with their collection actions. Effective planning and strategy is necessary at all stages of the tax dispute process. Our Canadian tax law firm can give you the counsel and representation that you need to be successful in your dispute, negotiation and settlement with the CRA at each stage of the process, and help ensure you are not paying the CRA more than it is legally entitled to.