Business or individual, the CRA has the authority to seize and place liens on assets when taxpayers fail to fulfill their tax obligations. The CRA’s primary goal in asset liens and seizures are to recover the owed taxes and encourage compliance with tax laws.
In most cases, the CRA will only resort to placing liens and seizures on a person or business’s assets after other collection efforts, like sending reminders, demands for payment, or attempting to negotiate payment arrangements, have failed.
If the CRA has contacted you regarding overdue tax payments, the right Toronto tax accountant can buy you time, help you get back in compliance before your assets are seized, and may even be able to reduce any penalties or fines.
Understanding the CRA’s Powers
To seize assets, the CRA must follow a legal process that involves providing notice to the taxpayer and giving them an opportunity to address their outstanding tax debt. They do, however, also have the power to seize assets without court approval in certain circumstances, such as when a taxpayer is deemed a flight risk or when their assets are at risk of being dissipated or hidden.
Types of Assets Subject to Seizure by the CRA
A. CRA Liens and Seizures of Real Estate
The CRA has the power to place a lien on real estate properties owned by a taxpayer who has significant outstanding tax debts. In a nutshell, the CRA has “super priority” over other interests, meaning they get paid first when the property is sold, even before a mortgage is repaid.
If the taxpayer fails to pay their tax debt or make arrangements with the CRA, the lien can eventually lead to the seizure and sale of the property to satisfy outstanding taxes.
The CRA can seize primary residences, rental properties, vacant land, or commercial properties.
The process of property seizure usually involves the CRA obtaining a writ of execution from the court, which gives them legal authority to seize and sell the property to recover the owed taxes. The proceeds from the sale are used to satisfy the tax debt, and any remaining funds may be returned to the taxpayer.
Because of the severity of this action, the CRA generally tries to work with you to find alternative solutions before seizing and selling someone’s home – except in extreme cases of repeated non-compliance or deliberate tax evasion.
B. Bank Accounts and Wages
The CRA can freeze and seize bank accounts to collect unpaid taxes, meaning the taxpayer can’t access their funds until the tax debt is resolved.
Before freezing an account, the CRA must provide a requirement-to-pay notice, followed by a notice of intention to freeze the account (and subsequently, notice of the action taken.) This gives taxpayers an opportunity to pay their outstanding taxes or make arrangements with the CRA.
The CRA will also typically provide notice and give taxpayers an opportunity to address their tax debt before implementing wage garnishment.
When the CRA garnishes a person’s wages, a portion of their earnings or salary can be withheld directly by their employer and remitted to the CRA to satisfy the outstanding tax debt.
This can create a Catch-22 for taxpayers who are already in poor financial health, as it significantly reduces the amount of income they rely on and expect.
Vehicles and Personal Property
The CRA also has the authority to seize vehicles, including cars, boats, motorcycles, and other valuable personal property.
The CRA will issue a notice of intention to seize before doing so. Taxpayers have a limited time to respond, either by paying the tax debt or negotiating a resolution with the CRA.
Seized vehicles, like real estate and other personal property, are typically sold at auction, with the proceeds going toward the outstanding tax debt.
Investments and Securities
Investments such as stocks, bonds, mutual funds, and other securities can also be seized to recover unpaid taxes.
To seize investments, the CRA must obtain a writ or certificate from the court, similar to the process for seizing real estate. The seized investments are liquidated, and the proceeds are applied toward the tax debt.
On the plus side, registered retirement savings plans (RRSPs) and tax-free savings accounts (TFSAs) are generally protected from seizure – except in cases involving prohibited transactions or fraudulent activities.
The CRA will also seize business assets in appropriate situations, including equipment, inventory, accounts receivable, and other business-related property, to collect unpaid taxes.
Because the seizure of business assets can have a significant impact on operations and can jeopardize the continuity of the business, the CRA, as it does with individuals, usually explores other options, like negotiating a payment plan or working out an arrangement before resorting to business asset seizure.
Exemptions and Limitations
Certain assets may be exempt from seizure to help individuals and businesses maintain a basic standard of living or continue their operations. Exemptions vary depending on the province or territory in which you reside.
Some common exemptions from asset seizure by the CRA include essential personal items like clothing, furniture, and household appliances. Tools necessary for employment, up to a certain value, may also be exempt.
To understand your rights regarding exemptions and limitations that apply to your situation, always consult with a tax professional. They can help you fix mistakes on your tax return, avoid common reasons a taxpayer is audited, and provide guidance based on relevant laws and regulations in your jurisdiction to help you protect your assets.
Consequences of CRA Liens & Asset Seizures Plus Potential Remedies
It’s crucial to know that ignoring or avoiding the CRA’s attempts to collect taxes can worsen your situation and lead to more severe consequences. Aside from liens or the loss of assets, taxpayers can also face legal action from the CRA, including lawsuits.
There are a few remedies available for taxpayers facing asset seizure. One option is to negotiate with the CRA and establish a payment plan or seek a reduction in the outstanding tax debt.
Another recourse is filing an objection to the CRA’s decision, challenging the assessment or seizure action. It is strongly recommended, however, that you hire a licensed tax professional to help you navigate these options, find the best course of action for your unique circumstances, and negotiate on your behalf.