As we’ve come to the end of the first stage of tax filing season for most Canadians, people breathe a sigh of relief that their annual tax nightmare is over. But unfortunately for many, the real ordeal is just getting cued up.
Fighting City Hall
The Canada Revenue Agency (CRA) can, and does, demand proof of payment by way of invoices and receipts that you must legally keep for six years. It can challenge entitlements that you’re within your right to claim. And, CRA has extraordinary powers of seizure without court orders, to ensure that taxpayers who owe money to the government do pay up.
Although there is a Taxpayer Bill of Rights, CRA misbehaviour is not curtailed by those rights. Fighting the CRA when they dig in their heels — or when they are flat wrong on assessments — really is like fighting proverbial City Hall.
If you have minor children, you’re entitled to receive the Canada Child Benefit (CCB) [formerly Child Tax Benefit]. However, if you’re a single parent, it’s common for the CRA to challenge your CCB entitlement.
The usual approach is for the CRA to ask for proof that you’re separated, and that the child is living with you. All too often, the CRA rejects documentary proof and denies the CCB, which is $6,400 or $5,400 (depending on the age of the child) and is reduced if family income is more than $30,000.
I have seen this scenario a number of times: if several years are disallowed, for a single parent with three children and three years of disallowed claims, the CRA will be asking for over $60,000 back, once interest is charged. This forces a low-income person to pay professional fees to a tax lawyer to prove a claim to which they’re fully entitled.
The CRA is good (sort of) at collecting money owed. When it comes to administering programs that pay money out, not so much.
What happens if the CRA says you owe money to them, even if they’re wrong?
Unlike anyone else who claims a debt against you, the CRA, without court authorization, can seize your assets. They can and will go into your bank account and withdraw all of your money. If your alleged tax debt is greater than your bank balance, the bank will freeze your bank account.
Even worse, if your paycheque is direct-deposited into your bank account, you won’t be able to pay your rent or mortgage (or credit cards or utilities). CRA collections officers can and will garnish your wages or lien your home.
If you challenge a CRA income tax assessment within the 90-day timeframe available, collection action is suspended until the tax appeal is resolved. If you miss the 90-day window, you’ll be subjected to the full pain of CRA collections actions.
And that’s not all. If you’re assessed with GST/HST owing, you have to pay the amount in full, even if you challenge the assessment
Even more delightful is the CRA habit of assessing a spouse for the tax liabilities of their partner, if any funds or assets have been transferred by the tax debtor to their spouse.
If someone owes money to the taxman, they shouldn’t be able to avoid their debt by transferring assets to their spouse. The problem is, your definition of transferring assets is not the same as that of a CRA collection officer.
Say you and your spouse have shared bank accounts, and deposit your salaries that are used to pay household expenses. The CRA will say those deposits by the tax debtor are a transfer to the spouse.
Another common scenario is that a spouse, or the spouse’s parents, have loaned funds to the partner who later repays them. CRA collection officers will claim those repayments are a transfer, and will assess the recipient spouse. Again, tax professionals have to be retained to handle CRA tax collections officers, who are too often unreasonable in their approach.
Remember, Canadian taxpayers have rights. If you need to deal with the CRA about a tax adjustment, a restatement or take issue with your Notice of Assessment, it’s a good idea to hire a professional to help you, especially if the taxes owing are five-figures or six-figures. There is also a world of difference between tax lawyers, who retain client-solicitor privilege, and accountants who do not, including that accountants can have files seized by the CRA, to the detriment of their clients.