Can CRA Issue an Assessment and Immediately Collect GST/HST? Yes, Even During an Audit

The CRA Does Not Need To Wait To Initiate Collections For GST/HST

Subsection 315(2) of the Excise Tax Act grants the CRA extensive authority to immediately collect tax debts from taxpayers, including penalties and interest. Many taxpayers find themselves surprised when their bank accounts are frozen, assets are liened or seized, and wages are garnisheed.

However, there are some specific limitations on the CRA’s ability to take action for collecting GST/HST tax debts, which depend on situational factors and strict timelines. Unlike most debts under the Income Tax Act, there is no initial 90-day period during which collection actions are prohibited after a GST/HST assessment.

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 with 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. Even if the taxpayer objects to the assessment, the collections actions are not barred from proceeding. There is, however, a 10-year limitation period for these debts. This period can be reset if the CRA takes collection action or if the taxpayer acknowledges the debt, meaning that a GST/HST debt older than 10 years could still be collectible.

If you need assistance navigating issues with CRA tax collectors, our experienced Canadian GST/HST tax lawyers are here to help.

 The CRA Has Been Fast-Tracking GST/HST Collection During An Active Audit

Recently, the CRA has been issuing assessments to taxpayers for GST/HST during an active audit. This means that despite the ongoing audit, the taxpayer is still liable to pay the GST/HST immediately after the assessment is issued. The taxpayer may be eligible for a refund at the conclusion of the audit if the audit results in a reassessment that lowers the GST/HST owed. If your business is undergoing a GST/HST audit, contact one of our top Canadian tax lawyers for assistance.

Types of Collection Actions

A CRA collection action refers to the various measures the CRA can take to recover outstanding tax debts from taxpayers. These actions may include demands on third parties and redirection of receivables payable to the taxpayer, such as:

• Garnishment of Wages: The CRA can require employers to withhold a portion of a taxpayer’s wages to pay off tax debts.
• Freezing Bank Accounts: The CRA can issue a demand to pay letter to a taxpayer’s bank, which will redirect incoming payments to that account, and the bank will usually freeze the account as a matter of internal policy.
• Redirection of Receivable Collection: The CRA has the ability to redirect payment of third-party debts that are payable to the taxpayer. This includes seizing Accounts Receivable and seizing money directly from your bank account as well as any new payments that are deposited, since the balance on a bank account is essentially a loan payable to the taxpayer from the bank.
• Seizure of Assets: The CRA can seize and sell personal assets, such as vehicles or property, to recover owed taxes.
• Liens on Property: The CRA can place a lien on a taxpayer’s property, which can complicate or prevent the sale or refinancing of the property until the debt is paid.
• Collection Calls and Letters: The CRA may contact taxpayers directly through phone calls or letters to demand payment.
• Court Action: In some cases, the CRA may take legal action to collect debts, which can result in court judgments against the taxpayer.

These actions can occur without prior notice, especially if the CRA believes the taxpayer may not pay voluntarily. The CRA typically employs these methods in the order of increasing severity, meaning they will begin with calls and letters, and escalate to more aggressive means if the taxpayer does not respond in kind. Taxpayers facing collection actions should seek the assistance of an expert Canadian tax lawyer.

Pro Tax Tip: Taxpayers Themselves Can Reset The Debt Collection Limitation Period

To avoid extending the collection period as much as possible, a tax debtor should refrain from acknowledging or paying the debt. According to subsection 313(2.4) of the Excise Tax Act, a taxpayer can acknowledge the debt in one of three ways:

• By providing a written promise to pay the debt.
• By making a written acknowledgment of the debt.
• By making a payment or attempting to make a payment that is subsequently dishonoured, such as a bounced cheque.

Any of these actions will “reset” the limitation period, placing the taxpayer back at the starting point. This underscores the importance of seeking professional tax advice from experienced Canadian GST/HST tax lawyers before communicating directly with CRA tax collections officers.

FAQ

Can I dispute a GST/HST assessment?

Yes, you can dispute a GST/HST assessment by filing an objection with the CRA. You typically have 90 days from the date of the assessment to submit your objection, outlining your reasons for disputing the amount. Once this 90-day window has expired, you may still be able to file a notice of objection one year later if you file an extension of time request with it. The decision to grant the extension of time is discretionary, and you should have a good reason for not filing the objection within the 90-day window. It is important to note that an objection in the GST/HST context does not stop collections actions. If you need assistance filing an objection, our top Canadian tax lawyers are available to help.

 How will I know if the CRA is taking collections actions?

When the CRA starts taking collections actions, they will usually send collections letters to the mailing address on file, and attempt to call the phone number on file. It is important to ensure that your personal contact information is up to date, as you may miss these communications from the CRA. You can check your personal contact information through your MyCRA online account.

Disclaimer: This article just provides broad information. It is only up to date as of the posting date. It has not been updated and may be out of date. It does not give legal advice and should not be relied on. Every tax scenario is unique to its circumstances and will differ from the instances described in the article. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.