CRA Collections - Tax Shelters & Large Corporations
CRA Collection Restrictions pursuant to Section 225.1 of the Income Tax Act
Pursuant to section 225.1 (subsection 7) of the Income Tax Act, RSC 1985, c 1 (5th Supp), Canada Revenue Agency (“CRA”) can collect 50% of the disputed amount in respect of a tax shelter or large corporation. Under normal circumstances CRA is restricted from collecting certain tax debts if the amount is in dispute (e.g., a Notice of Objection has been filed). These collections restrictions are outlined in paragraphs 225.1(1)(a) – (g) of the Income Tax Act.
(a) commence legal proceedings in a court,
(b) certify the amount under section 223,
(c) require a person to make a payment under subsection 224(1),
(d) require an institution or a person to make a payment under subsection 224(1.1),
(e) [Repealed, 2006, c. 4, s. 166]
(f) require a person to turn over moneys under subsection 224.3(1), or
(g) give a notice, issue a certificate or make a direction under subsection 225(1).
Collections cannot continue collections until 90 days past the Notice of Reassessment/Confirmation issued following the resolution of the Notice of Objection. Of course, if the taxpayer’s issues have not been resolved at the objection stage and a Notice of Appeal is filed with the Tax Court of Canada, collections action will continue to be blocked. Similarly, if CRA has, for example, already garnished a bank account for a corporate income tax debt, they must lift the garnishment once the taxpayer disputes the tax debt (e.g., files a Notice of Objection).
The aforementioned collection restrictions do not apply to amounts considered to be held in trust by the taxpayer for the government, such as GST/HST and payroll deductions (CPP/EI). CRA can and will aggressively attempt to collect those amounts despite the taxpayer’s objection or appeal.
Partial Collection Restriction on Tax Shelter & Large Corporation Tax Debt
In June of 2013, the Federal Parliament passed various amendments to the Income Tax Act targeting charitable donation tax shelters and large corporations. Pursuant to the amended section 225.1 (subsection 225.1(7)) and for amounts assessed in the 2012 and subsequent taxation years, CRA can collect 50% of the disputed amount in respect of a tax shelter and large corporations despite an objection or appeal:
(7) One-half collection — If an amount has been assessed under this Act in respect of a corporation for a taxation year in which it was a large corporation, or in respect of a particular amount claimed under section 110.1 or 118.1 where the particular amount was claimed in respect of a tax shelter, then subsections (1) to (4) do not limit any action of the Minister to collect…
(a) at any time on or before the particular day that is 90 days after the day of the sending of the notice of assessment, 1/2 of the amount so assessed; and…
CRA Collections & Tax Disputes - Section 225.1 (subsection 7)
Dealing with an inaccurate/inflated tax assessment and debt is difficult under normal circumstances. When there are no, or partial restrictions, on CRA’s ability to collect, taxpayers face the unenviable position of having to dispute the facts underlying CRA’s assessment while at the same time limiting the damage from collections action.
For instance, CRA may garnish your business’s bank accounts making it difficult to continue operations. Note, they will do this, and are legally obligated to, even if the tax debt is clearly inflated as a result of a CRA audit. Accordingly, expert assistance is recommended to successfully navigate the fine line between appeasing CRA and the complete destruction of your personal and/or business finances.
SpenceDrake Tax Law