The Canada Revenue Agency Wants To Be Paid ASAP

If you have been assessed harmonized sales tax (HST) (or goods and services tax (GST)) and/or interest and penalties by a Canada Revenue Agency (CRA) auditor (that is, you have received a Notice of Assessment), you owe money to the Government of Canada and the CRA wants to collect that money as soon as possible.  The bad news is that the Excise Tax Act (Canada) does not suspend or delay collections actions when a taxpayer files a Notice of Objection within the 90 day limitation period or appeal (after a denial of the objection).  An assessed taxpayer (or supplier in the case of an assessment of a penalty for failure to collect tax) must still respond to the requests made by CRA Collections.  Collections will request (1) payment in full ASAP, (2) you enter into a collections/payment arrangement with the CRA, or (3) you post security satisfactory to the Minister of Revenue (actually the CRA Collections officer).

I have been asked many times in my career if there is anything that can be done to stop CRA Collections. The answer is 'Not Really".  I have discussed the payment obligations with many clients over the years.  The GST/HST laws are different from income tax laws and do not stop the Collections clock when the taxpayer disputes the CRA's assessment.  Sorry to be the one to tell you this.

CRA Collections has a number of mechanisms at their disposal to collect any GST/HST assessment.  They may garnish wages,  They may intercept monies owed by an assessed taxpayer by other persons (called garnishments).  They may place liens on real property and/or tangible personal property.  They may issue writs to the sheriff to seize and sell certain of your assets.  The authority for these actions are contained in the Excise Tax Act.

Even when you have a legitimate legal argument to dispute the GST/HST assessment, the debt is still due and owing.  Actually, the moment the Notice of Assessment is issued and sent to the assessed taxpayer, the CRA Collections department can start collections actions.

As a result, the assessed taxpayer must consider whether they can pay the amount in full.  The upside with this option is that CRA Collections does not take control over your cash flow and there can be no surprises.  The downside is that if the taxpayer has a legitimate legal argument to dispute the assessment and files a notice of objection/appeal, the dispute resolution process may be slower because the Government of Canada has the money and little incentive to give it back quickly (except that it must pay minimal interest when they are wrong).

Alternatively, the assessed taxpayer may enter into a payment arrangement with CRA Collections (usually the CRA wants their money within 18 months) or may post security (such as a irrevocable letter of credit).  When an assessed taxpayer wishes to engage in such discussions with the CRA, it may be helpful to work with a lawyer.  Often CRA Collections asks for information about the assessed taxpayer's ability to pay (and may request information about a spouse's ability to pay when the assessed taxpayer is an individual or the directors' and officers' ability to pay when the assessed taxpayer is a corporation or the partners' ability to pay when the assessed taxpayer is a partnership) before accepting any payment arrangement.  The CRA may go on a fishing expedition to get information in order to make directors' liability assessments or consider more serious tax evasion criminal charges. 

The arrangement often is put into contract form and the failure to make a payment may void the agreement and cause all amounts to be payable immediately.  As a result, it is important to negotiate an realistic arrangement.

Each situation is unique to the taxpayer and parties involved.  What is the same in all cases is that when the CRA issues an assessment of GST/HST (even when the auditor knows the assessment is incorrect), CRA Collections job is to collect the money ASAP.

Taxpayers' Ombudsman Issues Report "The Right to Know"; Hope CRA Acknowledges Key Points

On November 9, 2010, the Taxpayers' Ombudsman, Paul Dube, issued a report entitled "The Right to Know" concerning the rights of taxpayers to know why they have been assessed and why their objections and appeals are being denied.  Mr. Dube concluded "that when the CRA's Appeals Branch does not provide reasons for its decision on a taxpayer's appeal or objection, it fails to fulfill its commitments to fairness, openness, and accountability."

This an important document about fair treatment of taxpayers and how taxpayers are not being treated fairly in all cases by the Canada Revenue Agency, Appeals Branch.

Whether individual CRA officers will take the report to heart and change their ways in order to improve communication is yet to be seen.  What is significant is that the Taxpayers' Ombudsman will be watching.  Someone has spoken for the many whose voices cannot be heard (or whose concerns and complaints have been ignored).

Canadian Federal and Provincial Sales Tax Rates

I have been asked many times in the last week (primarily by businesses that sell goods and deliver the goods across Canada) for the Canadian/provincial sales tax rates. Here they are:

 Province/Territory

PST Rate

GST/HST

Rate

GST Included

In PST Tax Base?

Combined Rate

British Columbia

N/A

12%

N/A

12%

Alberta

Nil

5%

N/A

5%

Saskatchewan

5%

5%

No

10%

Manitoba

7%

5%

No

12%

Ontario

N/A

13%

N/A

13%

Quebec

7.5%

5%

Yes

12.875%

New Brunswick

N/A

13%

N/A

13%

Newfoundland

N/A

13%

N/A

13%

Nova Scotia

N/A

15%

N/A

15%

Prince Edward Island

10%

5%

Yes

15.5%

Northwest Territories

Nil

5%

N/A

5%

Yukon

Nil

5%

N/A

5%

 

Notes that may help:

  • British Columbia – 12% HST (5% federal component and 7% provincial component)
  • Ontario – 13% HST (5% federal component and 8% provincial component)
  • New Brunswick and Newfoundland – 13% HST (5% federal component and 8% provincial component)
  • Nova Scotia – 15% HST (5% federal component and 10% provincial component)
  • Quebec – QST rate will rise to 8.5% on January 1, 2011 and to 9.5% on January 1, 2012

Comments:

1. It is important to note that the tax rates can change (often in the Spring at the time budgets are tabled).

2. If a supplier is registered for GST purposes, they will have to charge (1) GST in respect of taxable sales in Canada and (2) HST at the applicable HST rate if the HST place of supply rules deem a supply to be made in a participating province.

3. The rules may be different on when a vendor must register for provincial sales tax purposes (in Quebec, Prince Edward island, Manitoba or Saskatchewan) and charge provincial sales tax on a sale of goods in a province or on services in respect of tangible personal property.

NOTE: I acknowledge that assistance of Allan Gelkopf in the preparation of this piece.  I wrote an article on The HST Blog and Allan and I modified the article for publication by the Canadian Bar Associaiton, National Sales Tax, Customs and Trade Section in the newsletter.  I have modified it again for this post.
 

HST Library

Agreements

Canada – Department of Finance

Canada- Canada Revenue Agency

2010-06-29

Ontario

British Columbia

Miscellaneous