Collection of tax debts in jeopardy

Defining jeopardy

There are collections restrictions on certain types of assessments. These restrictions apply to personal income tax accounts and corporate income tax accounts. This gives you the chance to challenge a tax assessment you think is incorrect. If you file an objection with the Canada Revenue Agency (CRA) or an appeal to the Tax Court of Canada during the 90 days after the CRA issues a notice of assessment or a notice of reassessment, the CRA cannot normally collect your assessed tax debt.

However, the CRA may determine that there is a risk to not collecting (danger of loss) all or part of your assessed tax debt. This determination may occur prior to your assessment being issued, during the initial 90 day collection restriction period, or after you have field an objection or an appeal. If there is a risk, the CRA can apply for a jeopardy order to the Federal Court or to the superior court of a province to secure your assets or collect your tax debt right away.

If you are a large corporation (as defined in the Income Tax Act) and you have filed an objection with the CRA or an appeal with the Tax Court of Canada, the CRA can start collecting 50% of your assessed income tax owing right away.

Collections restrictions do not apply to employers’ payroll accounts or to GST/HST accounts.

However, for GST/HST debts, if there are reasonable grounds to believe the CRA will not be able to collect the GST/HST for a future reporting period, the CRA can ask for a jeopardy order from the Federal Court. This jeopardy order would allow the CRA to issue a notice of assessment before the end of the reporting period and start collecting the assessed GST/HST liability right away.

Purpose of a jeopardy order

A jeopardy order helps the CRA:

• reduce the risk of being unable to collect your tax debt
• protect and preserve any assets the CRA can use to collect your tax debt

A jeopardy order allows the CRA to take immediate collections action, such as but not limited to the following:

• starting legal proceedings against you
• certifying your assessed tax debt in the Federal Court of Canada
• garnishing your bank accounts or wages
• placing a lien against your land and/or personal property at the provincial registry
• seizing and selling your property

Identifying a danger of loss

The CRA reviews tax assessments to make sure the CRA’s ability to collect the amount owing will not be at risk during the collection restriction periods, as well as during the time your assessment is in dispute.

The CRA would get a jeopardy order in these circumstances, when it has reasonable grounds to believe:

• you are in the process of selling or have already sold some of your assets before or after being assessed a tax debt, or while your assessment is in dispute
• you are transferring assets to friends or family members
• your assets could potentially lessen in value, deteriorate, or perish if there is a delay in collection
• you have a history of not paying the taxes you owe
• other creditors are taking collection action against you
• you are involved in criminal activity
• you are moving your assets out of the country

Getting a jeopardy order

After the CRA has identified a danger of loss with collecting your tax debt, the CRA has to apply to the court to get a jeopardy order. The CRA must:

• fully disclose to the court all the relevant facts it has
• present evidence that shows there is a danger of loss
• identify any indicators that show there is no danger of loss
• disclose any facts that might reasonably be seen as known weaknesses in its case
• present to the court any relevant court decisions dealing with jeopardy orders

Under the Income Tax Act, the CRA can apply for a jeopardy order without telling you. As a result, you are not present in court when the CRA’s application is heard.

The court will decide, based on the evidence the CRA presents, whether it should grant a jeopardy order.

If the court decides there is enough evidence to prove that delaying collection action will put collecting the tax debt at risk, it will grant a jeopardy order. This will allow the CRA to take immediate action to collect your tax debt.

Serving a jeopardy order

The CRA must serve you with a jeopardy order within 72 hours of it being granted, unless the court issuing the order gives the CRA more time.

As soon as the jeopardy order is granted by the court, the CRA can take immediate collection action against you, unless you:

• pay any amounts outstanding
• provide the CRA with voluntary security, such as a bank letter of guarantee or a standby letter of credit

Challenging a jeopardy order

You can ask the court that issued the jeopardy order to review it within 30 days of being served with the order, or within a particular time frame set by the judge. You must give the CRA at least one week’s notice to advise that you will be asking for a review by the court that issued the jeopardy order.

However, as the jeopardy order is still in effect, the CRA can continue to collect your debt during the time that the review is taking place.

After the court has reviewed the jeopardy order, it can confirm, set aside, or change it. The court’s decision is final. No further objections or appeals of the jeopardy order are allowed, by you or by the CRA.

Jeopardy order for return of amounts paid

When you receive a notice of assessment or a notice of reassessment, you can make voluntary payments, provide voluntary security instead of payment for the assessed amount and challenge the assessment by filing an objection with the CRA or a notice of appeal with the Tax Court of Canada. Even though you may be challenging the assessment, the CRA has the authority to apply any available refundable credits you may have to your outstanding tax debt.

If you ask the CRA to return your voluntary payment or the voluntary security you provided for the assessed tax debt while your challenge of the tax assessment is being considered, the CRA may ask for a jeopardy order allowing it to keep the payment or the security.

The criteria described under Identifying a danger of loss above still apply. The CRA will tell you in advance when it asks for a jeopardy order under these circumstances. You will be served with a notice of the court hearing. The hearing can go ahead whether or not you attend. There is no review of a jeopardy order and the court’s decision is final.

A jeopardy order issued in this circumstance allows the CRA to keep any voluntary payments or security you provided. It does not allow the CRA to take other collection actions against you without getting another jeopardy order.

If the CRA already has a jeopardy order to allow it to take immediate collection action against you, the CRA does not have to apply for another jeopardy order to keep the voluntary payments or security you provided.

Circumstances where the CRA does not need to get a jeopardy order

The CRA does not need a jeopardy order to set off your income tax refunds, GST/HST credits, GST/HST refunds, Canada Pension Plan payments, employment insurance payments, or any other amounts the Government of Canada pays or has to pay you if you have an assessed tax debt. This is true whether or not you have filed an objection or a notice of appeal to your assessment or reassessment.

As noted above, collections restrictions do not apply to payroll deductions and GST/HST amounts owing. The CRA can take collections action on these accounts as soon as the notice of assessment or reassessment is issued without having to ask for permission from the courts. The CRA can continue to collect amounts assessed on these accounts even if you filed an objection or an appeal to the Tax Court.

Date modified:

2016-11-16