Tax collections policies

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Tax collections policies

This version is only available electronically.
This document cancels and replaces Information Circular IC98-1R4, Collections Policies, dated May 1, 2013, concerning collections policies.

Table of contents

Introduction

This information circular gives you a general overview of many of the collections policies that the Canada Revenue Agency (CRA) has for individuals, businesses, and organizations that owe money to the Crown. It will help you understand your rights and responsibilities when you deal with us. Additional information on CRA's tax collection policies can be found on our website at www.cra.gc.ca/collections

The CRA has an obligation to uniformly and fairly apply the provisions of the acts and regulations that we administer. We also have to ensure that all persons pay the required amount of taxes, duties, fees, penalties, and other amounts owing to the Crown.

We have to modify our collections policies periodically since legislative provisions and requirements can change at any time. We make every effort to provide updates in a timely manner. However, if a discrepancy arises between information circular IC98-1R5, Tax Collections Policies, and current legislation or our most recent policies, the legislation and policies will take precedence.

If you have questions about policies not covered in this circular, would like confirmation of specific aspects of those discussed, or need more information, please contact your collections officer. If you do not have a collections officer or cannot reach them, call us at 1-888-863-8657. For self-serve options, go to www.cra.gc.ca/contact.

In this circular, we use the term “person” to include (as applicable):

  • individual and corporate taxpayers;
  • partnerships;
  • employers and remitters of source deductions;
  • GST/HST registrants;
  • individuals and corporations that receive GST/HST rebates;
  • licencees;
  • importers/exporters;
  • customs brokers; and
  • international travellers.

Please see publication IC13-2R1, Government Programs Collections Policies for information on the CRA government programs.

Filing and payment obligations

Tax deductions at source

Employees who file an income tax return each spring will likely have paid part or all of their taxes through amounts their employers deducted from their income. The amount an employer deducts depends on the credits employees claimed on Form TD1, Personal Tax Credits Return. If an employee's situation changes during the year, or if the information on the form is out-of-date, the employee should complete a new TD1 form so that the employer can deduct the proper amount of tax from the employee's income. If the employer makes regular deductions, it is less likely that the employee will have to pay a large tax balance when it is time to file an income tax return. Employees who have more than one employer should only show each tax credit on the TD1 form given to one of the employers. The other employers should calculate source deductions without applying a tax credit.

Instalments

Self-employed and other individuals whose income tax is not payroll or source deducted, or only partially so, may have to make instalment payments. By making these payments, it will help them avoid a large balance owing when it's time to file their income tax return. Please see Paying your income tax by instalments to find out if you should be making instalment payments for your current tax year. We charge interest, and in some cases a penalty, on late or insufficient instalments.

Most corporations have to make monthly income tax instalment payments throughout the year for their current tax year or fiscal year. This helps ensure that any balance owing at the end of a corporation's fiscal year will be minimal. We charge interest on late or insufficient corporation income tax instalments. For more details on corporation income tax instalments, please see Guide T4012, T2 Corporation – Income Tax Guide and Guide T7B-CORP, Corporation Instalment Guide.

Making a payment

Any amount you owe is payable in full immediately when you're assessed or reassessed. If you do not pay the outstanding debt or contact us to discuss payment of your debt, we may take legal action to collect the unpaid amount.

Please be advised that we charge compound daily interest at the prescribed rate on any amount owing until the balance is paid in full.

To make your payment, or to get more information about the payment methods available to you, please go to www.cra.gc.ca/payments.

Important dates

For a listing of important dates including tax return filing due dates, balance owing due dates, and instalment payment due dates, go to www.cra.gc.ca/importantdates.

Payment arrangements

  • If you can't pay the full amount you owe, you may be able to make a payment arrangement. If the Canada Revenue Agency (CRA) determines that you are unable to make a full payment, an agent can work with you to develop a plan to help you pay your taxes. Please call us at 1-888-863-8657 to discuss a payment arrangement. Our agents are available Monday to Friday (except holidays) from 7 a.m. to 11 p.m., Eastern standard time.
  • To help us determine your ability to pay, you will have to make full disclosure and give evidence of your income, expenses, assets, and liabilities. A collections officer may verify the information you provide before we accept a payment arrangement. Your ability to pay is subject to periodic review.
  • If you do not agree with a collections officer's decision, you have the right to discuss the matter with the officer's supervisor. The collections officer will provide you with the supervisor's name and telephone number on request.
  • However, if your debt remains unpaid with no acceptable payment arrangement, we may take legal action to collect the outstanding debt. See the Legal action to collect section for more information.
  • If you cannot make a payment on your debt due to circumstances beyond your control, we may allow you to postpone payment until your financial situation improves. During that time, any interest and/or penalties that apply will continue to accrue on the debt.

Taxpayer relief provisions

There may be exceptional situations when we waive or cancel penalties and interest under the taxpayer relief provisions.

Taxpayer relief provisions apply to penalties and interest only.

We may waive or cancel part, or all, of the penalties and interest charged on amounts owing, for 10 calendar years after:

You can make a request to have penalties and interest waived or cancelled by completing Form RC4288, Request for Taxpayer Relief, and sending it to the tax centre where you file your returns or to the tax services office serving your area.

For more information about taxpayer relief provisions, go to www.cra.gc.ca/fairness.

Legal action to collect

If you do not pay an amount voluntarily, we may take legal action to:

  • garnish wages or other income sources;
  • seize and sell assets; or
  • use any other means under any applicable statutes or laws to collect an amount owing.

Garnishment action allows us to intercept funds payable to you by a third party, such as wages or other income sources.

Similarly, if any other federal government department owes you money, we can issue a statutory set-off to that department to have all or part of that money sent to us. We will then apply this amount against your outstanding balance. We will notify you by mail of the garnishment or set-off action.

The Income Tax Act, Excise Tax Act, Excise Act 2001, Softwood Lumber Products Export Charge Act, 2006, and Air Travellers Security Charge Act provide for the registration of a certificate in the Federal Court of Canada for unpaid amounts. Once registered, the certificate has the same force and effect as a judgment obtained in the Court. When the debt is certified, we will usually notify you by mail. If you still do not pay the amount, we may obtain a writ or memorial and seize assets and/or property, and have it advertised and sold by the sheriff.

You have to pay all reasonable costs and charges incurred to collect the amount certified, and are still liable for any remaining balance. All proceeds from the sale remaining after costs and charges are paid will be applied to the debt.

Once we undertake set-offs, garnishments, or other legal proceedings, we will not usually withdraw them until the account is paid in full, or it can be shown that the action is causing undue hardship. For more information on garnishments (requirements to pay), go to www.cra.gc.ca/collections and select "Questions and answers on requirement to pay" in the Related links section.

Collections restrictions

There are certain types of legal action that we cannot normally initiate until 90 days after the day we mail the notice of assessment or notice of reassessment. These include:

The collections restrictions do not apply on deductions or statutory set-offs, which can be sent following the issuance of the notice of assessment or notice of reassessment under the Income Tax Act , the Excise Tax Act, the Excise Act 2001, the Softwood Lumber Products Export Charge Act, 2006, and the Air Travellers Security Charge Act.

Exceptions to collections restrictions

The restrictions to our ability to take legal action, outlined in the Collections restrictions section of this circular, do not apply to assessments issued for the items listed below.

Under the Income Tax Act:

  • Assessments raised on payroll deduction accounts.
  • Scientific research and experimental development tax credits—an amount payable under Part VIII of the Income Tax Act.
  • Non-resident tax—an amount of tax required to be paid under section 116, or under a regulation made under subsection 215(4) of the Income Tax Act, that has not been paid.
  • Penalties—the amount of any penalty payable for failure to remit or pay a deemed trust amount, as and when required by the Income Tax Act, the Canada Pension Plan, the Employment Insurance Act, or a regulation made under those acts.
  • Interest—any interest payable under a provision of the Income Tax Act , the Excise Tax Act, the Canada Pension Plan, and the Employment Insurance Acton an amount referred to in any of the above paragraphs.
  • Large corporations—for income tax purposes only, where a large corporation as defined in subsection 225.1(8) of the Income Tax Act has been assessed, we may take action to collect half of the amount assessed at any time during the first 90 days after the amount is assessed, regardless of whether an objection or appeal has been filed. After this 90-day period, if there is no objection or appeal, we can collect the outstanding balance. After the 90-day period, where an objection or appeal is filed, we can collect up to half of the amount under dispute and any balance not in dispute. For more information, please see income tax interpretation bulletin IT-532, Part I.3 – Tax on Large Corporations.
  • A reassessment with the taxpayer's consent under subsection 152(4.2).
  • A reassessment after the disposition of an appeal with the consent in writing from the taxpayer under subsection 169(3).
  • A reassessment after the waiver of penalty and/or interest under subsection 220(3.1).

Under the Excise Tax Act:

  • There are no collections restriction provisions within the Excise Tax Act.

Under the Excise Act 2001:

  • 50% of the total, if the total of all amounts assessed that remains unpaid exceeds $1,000,000.

Under the Air Travellers Security Charge Act:

In addition, the collections restrictions outlined in this circular, do not apply if collection of all or part of an assessed amount would be jeopardized if there were a delay in collecting it. See the Special collections provisions section of this circular, which discusses collections in jeopardy.

Unfiled returns and refunds

A refund will not be paid to a person until the person has filed all returns and other records that the person is required to file under the Income Tax Act, the Excise Tax Act, the Excise Act 2001, the Softwood Lumber Products Export Charge Act, 2006, and the Air Travellers Security Charge Act.

Refunds applied to other debts

We can offset (apply against another debt) your repayment or refund to debts for which you are liable. However, for debts that relate to the Income Tax Act, we will not usually offset a refund against an outstanding amount, other than a deemed trust debt, if the amount owing is the subject of an objection or appeal on which neither the CRA's Appeals Division nor the court has made a decision.

Trust funds

The collections restrictions outlined above do not apply to trust funds described in this section.

You are deemed to hold the amounts below in trust. For more information on deemed trust, go to www.cra.gc.ca/collections and select "Information on deemed trust" in the Related links section.

Under the Income Tax Act:

  • Amounts that are deducted from employees and other individuals for:
    1. income tax;
    2. Canada Pension Plan (CPP) contributions; and
    3. employment insurance (EI) premiums.

Under the Excise Tax Act:

  • Amounts collected as or on account of GST/HST under Part IX, less allowable input tax credits.

Under the Air Travellers Security Charge Act:

  • Amounts collected as or on account of charges on air transportation service.

You have to send us these amounts as the legislation requires. You must also include the employer's portion of CPP and EI when you remit source deductions. For a GST/HST amount, you can deduct allowable input tax credits before you remit it.

If you do not comply with the legislation that applies, we will assess the amount owing and ask you to immediately pay the full balance, including any penalties and interest that apply.

If you do not pay the balance owing, we may, at the time we issue a notice of assessment, begin legal action as described in the section Legal action to collect. These actions can occur even when a notice of objection or appeal to the Tax Court of Canada has been filed.

Fines and offences

It is an offence to withhold amounts but fail to remit them to the Receiver General for Canada, or to willfully fail to pay, collect, or remit GST/HST, or net tax. Under the Income Tax Act and the Air Travellers Security Charge Act, if you are convicted, you are liable to a fine of between $1,000 and $25,000, or both a fine and imprisonment for up to 12 months. Under the Excise Tax Act, if convicted, you are liable to a fine of $1,000 plus 20% of the GST/HST or net tax that you should have paid, collected, or remitted, or both a fine and imprisonment for up to six months.

Directors' liability

We may hold the directors of a corporation jointly and severally liable if the corporation fails to deduct, withhold, or remit amounts deemed to be held in trust, and we are unable to collect from the corporation. In addition, the directors are jointly and severally liable, with the corporation, to pay any penalties or interest that have accrued or will accrue on outstanding amounts.

Once we have issued assessments against directors, the collections policies in this circular apply.

For more information about the rights and obligations of directors of a corporation, see information circular IC89-2R3, Directors' Liability – Section 227.1 of the Income Tax Act and Section 323 of the Excise Tax Act.

Objections and appeals

If you disagree with, or do not understand, an assessment or a reassessment, you should contact or write to the tax centre that processed your return to discuss the matter. If you are not able to resolve the matter, you have the right to a formal review. Our review process differs according to what is in disagreement or dispute. Go to www.cra.gc.ca/resolvingdisputes for details about the review processes that are available.

Repayment of disputed amounts (Income Tax Act)

If the Appeals Division has not confirmed or varied an income tax assessment within 120 days of the date a notice of objection is served, you can apply in writing for the return of all amounts paid relating to the amounts in dispute, or the release of any security provided for the tax in dispute. Similarly, if you appeal an income tax assessment to the Tax Court of Canada, you can request for the return of any disputed amount that has been paid, or the return of any security provided for the amount in dispute.

A large corporation, within the meaning assigned by subsection 225.1(8) of the Income Tax Act, is entitled to a repayment or return of security of one half of the disputed amount. However, if making a repayment or surrendering security could jeopardize collection of the disputed amount, we may apply for a judicial order to permit us to retain the payment or the security.

This does not apply to security provided or amounts paid by non-resident persons for amounts in dispute regarding the disposition of particular types of taxable Canadian properties and Canadian resource properties.

Under the other acts, there is no requirement to reimburse any amount paid or to return security pledged on a disputed assessment.

Acceptance of security

We will accept adequate security instead of payment under some circumstances.

For example, if the Tax Court of Canada or the Canadian International Trade Tribunal dismisses your appeal and you exercise your right to appeal to a higher court, we will ask you to immediately pay the full amount owing regardless of your further rights to appeal. However, we will accept adequate security instead of payment, such as a bank letter of guarantee, a bank letter of credit, or mortgages.

In addition, for certain elections under the Income Tax Act, you have to provide adequate security for us to accept the election.

You or your representative should contact your assigned collections officer for more information about security, such as mandatory clauses for bank letters of guarantee or mortgages. If you are unable to reach your collections officer, call us at 1-888-863-8657.

Special collections provisions

It is our policy to approach tax compliance consistently and responsibly. There are cases when we must use the enforcement provisions of the Income Tax Act, the Excise Tax Act, the Softwood Lumber Products Export Charge Act, 2006, or the Excise Act 2001 because our ability to collect taxes has been, or is likely to be, defeated by the transfer, sale, loss, relocation, or other disposition of a person's assets.

Collections in jeopardy

When we have reasonable grounds to believe that the collection of all or part of an amount we have assessed would be jeopardized if there were a delay in collecting it, we can take action. Under the Income Tax Act, the Softwood Lumber Products Export Charge Act, 2006, and the Excise Act 2001, a judge of a superior court of a province or of the Federal Court of Canada can authorize us to take collections action immediately. When we are granted such an authorization, you have the right to apply to a court for a judicial review. Since we are not restricted from taking collections action for payroll or other source deduction amounts (trust funds), we do not have to apply to the courts before we take such action.

A similar provision is available under the Excise Tax Act for amounts other than GST/HST amounts under Part IX, with the exception that the Minister of National Revenue or a delegated authority may approve the action. We do not have to apply to the courts before we take such action on GST/HST amounts under Part IX that have already been assessed. However, for the net tax of a reporting period that is remittable but not yet payable, the CRA can apply to a judge of the superior court of a province or the Federal Court to obtain judicial authorization to assess the amount determined by the Minister to be remittable by a registrant at the time the application is heard and to take action to recover that amount.

If we believe that you have left or are about to leave Canada, we can require you to immediately pay all amounts owed, whether or not they are due at the time. If you do not make the payment, we can seize your goods and chattels.

Property transfers

If you owe an amount for the tax year or reporting period in which you transfer property, or previous tax years or reporting periods, the following rules under section 160 of the Income Tax Act, section 325 of the Excise Tax Act, section 96 of the Softwood Lumber Products Export Charge Act, 2006, and section 297 of the Excise Act 2001 apply.

Under the above conditions, if you transfer property to:

  • a spouse or a person who has since become your spouse;
  • a person under 18 years of age; or
  • a person with whom you were not dealing at arm's length;

the person to whom you transfer property becomes liable for the lesser of the amount you owe, or the excess of the fair market value of the property over the consideration given for the property.

These rules do not apply to a transfer of property between you and your spouse under a decree, order, or judgment of a competent tribunal, or under a written separation agreement where, at the time of transfer, you and your spouse were separated and living apart as a result of the breakdown of your marriage (including a common-law relationship).

Prosecution for failing to file a return

If you fail to file a return when required under the Income Tax Act, Part IX (GST/HST) of the Excise Tax Act, or the Air Travellers Security Charge Act, you are guilty of an offence. If you are convicted, you are liable to a fine of between $1,000 and $25,000, or both a fine and imprisonment for up to 12 months. For failure to file returns other than GST/HST returns, the Excise Tax Act provides for a fine of between $10 and $100. Under the Excise Act 2001, the liability on summary conviction to a fine is not more than $100,000 or to imprisonment for a term of not more than 12 months, or both.

Amounts owing by estates of deceased persons

If a deceased person's estate has amounts payable or remittable, we will contact the executor, administrator, or other legal representative of the estate and ask for payment of the outstanding amounts. If the executor or administrator does not comply, we may take legal action to collect the debt.

Before distributing the assets of an estate, the executor or administrator must get a clearance certificate from us. The certificate will state that all amounts assessed or liable to be assessed have been paid or secured by the estate.

If executors or administrators distribute some of the assets of the estate before they get a clearance certificate, they will be liable, to the extent of the value of the assets distributed, for any amounts that have not been paid or are assessed later. For more information, go to www.cra.gc.ca/deceased.

Confidentiality

To preserve the right to confidentiality, we will only release your confidential information to your authorized representatives, or as the law authorizes us. It is our policy to confirm the identity and authorization of all parties concerned before we release confidential information. However, if it is necessary for us to take legal action, the legal documents will contain certain aspects of a person's tax liability, such as the amount and type of debt owed.

Taxpayer Bill of Rights

The Taxpayer Bill of Rights is a set of 16 rights confirming that the CRA will serve taxpayers with a high degree of accuracy, professionalism, courteousness, and fairness. The Taxpayer Bill of Rights will make it easier for you to understand what you can expect in your dealings with us, that you will be treated fairly under clear and established rules, and that you can look forward to high standards of service in all your interactions with us.

The CRA is committed to respecting your rights. If you are not satisfied with the service you receive from us, you can file a complaint with the CRA Service Complaints and we will provide you with an explanation of our findings. If you are not satisfied with the outcome of our review, you can file a complaint with the Taxpayers' Ombudsman.

You can find more information about these two redress initiatives by visiting the CRA Make a service complaint page and the Taxpayers' Ombudsman Web site.

Comments

If you have any comments about this circular, please write to us at:

Canada Revenue Agency
Collections and Verification Branch
Collections Directorate
395 Terminal Avenue, 6th floor
Ottawa ON K1A 0L5

Date modified:
2016-02-03