Tax collections policies

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Tax collections policies

From: Canada Revenue Agency

This document is only available electronically. It cancels and replaces Information Circular IC98-1R7, Tax Collections Policies, dated, April 16, 2017.

Table of contents

Introduction

This information circular (circular) gives you an 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. This circular will help you understand your rights and responsibilities when you deal with the CRA. For more information on CRA tax collection policies, go to “When you owe money- Collections at the CRA”.

The CRA has a duty to consistently and fairly apply the provisions of the acts and regulations that we administer. We also have to make sure that all persons pay the required amount of taxes, duties, fees, penalties, and other amounts owing to the Crown.

Since legislative provisions and requirements can change at any time, we modify our collections policies accordingly and we make every effort to provide updates in a timely manner. However, if a discrepancy arises between this circular 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, want confirmation of the policies we discuss, or need more information, contact your collections officer. If you do not have a collections officer or cannot reach the collections officer, contact us to discuss your options.

In this circular, we use the term persons to include:

  • individual and corporate taxpayers
  • partnerships
  • employers and remitters of source deductions
  • goods and services tax / harmonized sales tax (GST/HST) registrants
  • individuals and corporations that receive GST/HST rebates
  • licensees
  • importers/exporters
  • customs brokers
  • international travellers

For information regarding other collections policies that we administer, see information circulars IC13-2R1 Government programs collection policies. and IC13-3 Customs collections policies.

Please also refer to Collection of COVID-19 Overpayments for information on the collection of overpayments of individual benefits and business subsidies relating to COVID-19.

Payment obligations

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 amount owing when it's time to file their income tax return. To find out if you should be making instalment payments for your current tax year, see Paying your income tax by instalments. 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 or fiscal year. This helps to make sure 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, 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 as soon as your return is assessed or reassessed. If you do not pay your outstanding debt or contact us to discuss payment of the debt, we may take collection action to recover the unpaid amount.

Until an amount is paid in full, we will continue to charge interest at the prescribed annual interest rate. Interest is compounded daily, and applied to tax and penalties.

To make your payment, or to get information about the payment methods available to you, go to Payments to the CRA.

Payment arrangements

If you cannot pay the full amount you owe and you can explain your financial situation to us, one of our collections officers will work with you to develop a plan to help you pay your debt. We will consider mutually satisfactory payment arrangements, based on your ability to pay. We will consider this when you have tried all reasonable ways of getting the necessary funds, either by borrowing or rearranging your financial affairs, and you still cannot pay the balance in full. To discuss a payment arrangement, contact us to discuss your options.

To help us determine your ability to pay, you will have to give us supporting documentation as proof of your income, expenses, assets, and liabilities. A collections officer may verify the information you provide before we accept a payment arrangement. Call us if your financial situation changes while your payment arrangement is ongoing.

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 give you the supervisor's name and telephone number on request.

If your debt remains unpaid with no acceptable payment arrangement, we may take collection action to recover the amount you owe.

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 penalties that apply will continue to be added to your debt.

In some instances, the CRA may accept security in addition to or instead of payment until you can pay your debt in full. For more information, go to the section of this circular titled Requirement and acceptance of security.

Collection Actions

Legal action to collect

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

  • garnishing wages or other income sources by issuing a Requirement to Pay
  • seizing and selling your assets
  • using other means under any applicable statutes or laws

Garnishment action allows us to intercept and take funds otherwise payable to you by a third party, such as wages, other income sources or other amounts, including amounts you hold in bank accounts.

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

You have to pay all reasonable costs and charges that we have incurred to collect a certified amount. After costs and charges are paid, any remaining proceeds from a sale will be applied to your debt.

Once we issue a Requirement to Pay, or start other legal proceedings, we will usually not stop or withdraw these actions until the account is paid in full, or when it can be shown that the action is causing financial hardship. For more information on garnishment, go to Understanding a requirement to pay.

Set off of other amounts payable from the Crown

When you owe money to a federal agency or department and the same or another federal agency or department owes you money, these funds may be applied against your debt. This can include but is not limited to amounts such as income tax refunds and/or goods and services tax (GST) / harmonized sales tax (HST) credits, as well as benefit payments or other applicable credits you may be entitled to receive from the Crown. We can set these amounts off even if the amounts you owe are the subject of an objection or appeal.

Collections restrictions

There are certain types of legal action that we cannot normally start until 90 days after we send a notice of assessment or reassessment. These include:

Exceptions to collections restrictions

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

Under the Income Tax Act:

  • Assessments or reassessments raised on payroll deduction accounts except for:
    • T4 Information Return late filing penalty (LFP) assessments
    • failure to deduct or withhold amounts assessed before June 14, 2001
  • 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, which has not been paid
  • Large corporations –There are special provisions that govern collection of large corporation assessments. For more information, go to Large corporations, as well as the section of this circular Special collections provisions - Large corporations.
  • Tax owing as a result of a tax shelter donation, for the 2013 and later tax years, for an amount claimed under section 110.1 or 118.1 of the Income Tax Act. We may take action to collect half of the amount assessed and owing as a result of a tax shelter donation at any time during the 90 day period after the notice of assessment or reassessment is sent and regardless of whether an objection or appeal has been filed
  • A reassessment with the taxpayer's consent under subsection 152(4.2) of the Income Tax Act
  • A reassessment after the disposition of an appeal with consent in writing from the taxpayer under subsection 169(3) of the Income Tax Act
  • A reassessment after the waiver of penalty and/or interest under subsection 220(3.1) of the Income Tax Act
  • 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, a regulation made under those acts, and where provisions of the Income Tax Act apply to the Canada Pension Plan and the Employment Insurance Act.
  • Interest – Any interest payable under a provision of the Income Tax Act, the Canada Pension Plan, and the Employment Insurance Act for an amount referred to in any of the above items in this list, and where provisions of the Income Tax Act apply to the Canada Pension Plan and Employment Insurance Act.

Under the Excise Tax Act :

There are no collection restrictions provisions within the Excise Tax Act (GST/HST)

Under the Excise Act, 2001 and the Greenhouse Gas Pollution Pricing Act:

When the total of all amounts assessed and unpaid exceeds $1,000,000, we may take action to collect up to half of the total amount at any time during the 90 day period after the notice of assessment or reassessment is sent, regardless of whether an objection or appeal has been filed.

Under the Air Travellers Security Charge Act:

There are no collection restrictions provisions within the Air Travellers Security Charge Act

Effect of collections delay

The collection 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 collection provisions section of this circular, which discusses collections in jeopardy.

Trust funds

The collection restrictions do not apply to trust funds described in this section.

As an employer, partnership, corporation, or a business operating as a sole proprietor, you are deemed to hold the amounts below in trust. For more information, go to Information on deemed trust.

Under the Income Tax Act:

Amounts that are deducted from employees and other individuals for:

  • income tax
  • Canada Pension Plan (CPP) contributions
  • 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 for charges on air transportation service

You have to send us these amounts as the legislation requires.

For payroll amounts, in addition to the trust amounts noted above, you must also include the employer's portion of CPP and EI when you send us source deductions.

For GST/HST amounts, you can deduct allowable input tax credits before you send the amounts you collect. However, along with the amounts of GST/HST that you collect, you must also send the GST/HST amounts charged to your clients within each reporting period even if you have not yet collected the amounts from them.

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 start collection action as described in under Collection actions. These actions can occur even if you file a notice of objection or appeal to the Tax Court of Canada.

Fines and offences

It is an offence to withhold amounts and not send them to the Receiver General for Canada, or to willfully fail to pay, collect, or send 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 you are 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 send 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 related penalties or interest.

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

For more information about the rights and obligations of directors of a corporation, see Information Circular IC89-2R3, Directors' Liability.

Objections and appeals

If you disagree with an assessment or a reassessment issued by Collections and you have new information to share with us, call the number on your assessment. If you cannot resolve the matter, you have the right to a formal dispute. Go to Service feedback, objections, appeals, disputes, and relief measures for more information.

Repayment of disputed amounts (Income Tax Act)

You can apply in writing for the return of all amounts paid towards the amounts in dispute, or the release of any security provided for tax in dispute. If the Appeals Division has not confirmed or varied an income tax assessment within 120 days of the date a notice of objection being served, the amounts paid or security provided could be returned or released. 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, as defined in subsection 225.1(8) of the Income Tax Act, is entitled to a repayment or return of security of one half of a disputed amount. The same applies for tax owing as a result of a tax shelter donation, for an amount claimed under section 110.1 or 118.1 of the Income Tax Act (for the 2013 and later tax years).

However, repayment of amounts paid or release of security provided will not occur in the following situations:

  • The CRA determines that the collection of all or part of your assessed amount would be at risk if repaid or the security is released. In that case, the CRA will ask the court to allow it to keep the amounts paid or the security provided.
  • 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.
  • For debts that are not subject to collection restrictions.

For more information, go to CRA publication P148 Resolving your dispute: Objection and appeal rights under the Income Tax Act.

Requirement and acceptance of security

We may accept security instead of payment, or security combined with a payment arrangement, under some circumstances. In other circumstances, security may be required pursuant to legislation.

For example, if the Tax Court of Canada or the Canadian International Trade Tribunal dismisses your appeal and you decide to appeal to a higher court, we will ask you to immediately pay the full amount owing regardless of your rights to appeal. However, we will accept security instead of payment.

Under the Excise Act, 2001, we may require security instead of payment for outstanding amounts that are over $10 million. You must provide the security within 60 days from the date that we require it. If security is not provided, we can take action to collect an amount equal to the required amount of security.

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

We may also accept security in situations where you cannot pay your debt in full.

Acceptable forms of security

Some types of security we may accept include bank letters of guarantee, standby letters of credit, or mortgages. Bank letters of guarantee or standby letters of credit should be provided by a Schedule I or Schedule II Canadian financial institution as defined in the Bank Act. Other forms of security can be accepted in certain circumstances. Acceptability of other forms of security is determined on a case by case basis, subject to the Minister’s discretion to accept security under subsection 220(4) of the Income Tax Act.

Acceptable security must be liquid (easily convertible to cash), equivalent or near equivalent to cash, and realizable on demand without defense or claim from third parties. Provisions under the Income Tax Act , the Excise Tax Act, the Excise Act, 2001, the Greenhouse Gas Pollution Pricing Act, the Softwood Lumber Products Export Charge Act, 2006, and the Air Travellers Security Charge Act determine when the CRA may, or must, accept security depending on your circumstances. For more information about the process to provide security for your debt, contact your collections officer. If you do not have a collections officer or cannot reach the collections officer, call us to discuss your options.

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 Excise Act, 2001, the Greenhouse Gas Pollution Pricing Act or the Softwood Lumber Products Export Charge Act, 2006, 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 or reassessed would be jeopardized if there were a delay in collecting it, we can take action. Where collection restrictions apply, a judge of a superior court of a province or of the Federal Court of Canada can authorize us to take collection action immediately. When we are granted such an authorization, you have the right to apply to a court for a judicial review.

A similar provision is available under the Income Tax Act and the Excise Tax Act, where the CRA has reasonable grounds to believe that collection of an amount not yet assessed would be jeopardized by a delay in collecting it, we can apply to a judge of the superior court of a province or the Federal Court to obtain judicial authorization to assess that amount, and to take immediate action to recover that amount. When we are granted such an authorization, you have the right to apply to a court for a judicial review.

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 and sell your goods and chattels.

For more information, see Collections of tax debts in jeopardy.

Property transfer

If you transfer property at a time that you owe tax, whether this tax has been assessed or not, the following rules apply under section 160 of the Income Tax Act, section 325 of the Excise Tax Act, section 297 of the Excise Act, 2001, section 161 of the Greenhouse Gas Pollution Pricing Act, and section 96 of the Softwood Lumber Products Export Charge Act, 2006.

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
  • a person with whom you were not dealing at arm's length

the person to whom you transferred the property becomes liable for the lesser between:

  • the amount you owe, and
  • the value of the property, minus any consideration you gave for the property.
  • This rule does 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).

Large corporations

When a large corporation as defined in subsection 225.1(8) of the Income Tax Act has been assessed, the corporation must immediately pay half of the amount assessed (the enforceable balance). Under subsection 225.1(7) of the Income Tax Act, if the corporation does not pay, we may take action to collect the enforceable balance at any time after the notice of assessment or reassessment is sent, regardless of whether an objection or appeal has been filed. This may include immediately offsetting any refundable credits to the enforceable balance.

If an objection or appeal has been filed on the assessment at the end of the 90 day appeal period, we can still take collection action on the amount of the enforceable balance that remains unpaid or unsecured. If at the end of the 90 day period an objection or appeal has not been filed, we can then take collection action on the full amount of the large corporation assessment which remains unpaid or unsecured.

If a large corporation assessment has been raised and it is determined that payment of the enforceable balance is not possible, the corporation can provide acceptable security for one half of the amount assessed.

Acceptance of security for the enforceable balance is subject to the following conditions:

  1. The large corporation is disputing the tax, interest, and penalty of the assessment; and
  2. The security or payment arrangement is acceptable to the Minister.

For more information, go to Acceptable forms of security, or speak with your collections officer.

Amounts owing by estates of deceased persons

If a deceased person's estate has amounts payable the executor, administrator, or any other legal representative of the estate should contact us about any delays in paying the amounts. Failure to pay or to contact us may lead to legal actions to collect the debt.

Applicable to the 2016 and later tax years, where an election has been filed under subsection 104(13.4) of the Income Tax Act, the trust is jointly liable with the deceased person’s estate for the tax resulting from the election. As a result, we can issue a joint liability assessment to the trust for this tax.

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 at or before the time of distribution, have been paid or secured by the estate. If the legal representative distributes some of the assets of the estate before they get a clearance certificate, and without keeping sufficient assets to pay the debt, 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. The clearance certificate is proof that the taxpayer or registrant has paid all outstanding amounts owed to the Crown, or that the CRA has accepted security for the payment. Legal representatives who do not obtain a certificate can be held personally responsible for amounts the deceased might owe the CRA. For more information, go to What to do when someone has died.

Tax Treaties – assistance in collection

If you leave Canada without resolving your tax debts, the CRA may request collection assistance to recover your outstanding tax debts from a country with which Canada has negotiated a tax treaty containing a bilateral Assistance in Collection agreement. Countries with which Canada has negotiated an Assistance In Collection agreement can also provide assistance to the CRA in recovering your Canadian tax debts if it is determined that you hold assets in that country, but you still reside in Canada. The CRA can also pursue the collection of tax debts in Canada on behalf of the countries with which a tax treaty containing a bilateral Assistance in Collection agreement exists.

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 your information. However, if it is necessary for us to take legal action, the related 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. It 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 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 federal taxpayers' ombudsman.

To get more information about these two redress initiatives go to Submit service feedback and the Office of the Taxpayers' Ombudsperson web site.


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Date modified:
2023-07-19