You need to know this: What the CRA can and can’t do to your business

Is the taxman knocking at your door? There’s good reason to feel anxious when the Canada Revenue Agency (CRA) writes or calls about your company’s tax debt. The CRA wields a lot of power and in recent years has adopted more aggressive collection tactics.

What exactly is the CRA empowered to do under Canadian tax laws? Here are just a few examples of what the country’s most feared authority can do to you and your business:

• Freeze and seize your funds: Did you know the CRA can order your bank to freeze your account and hand over your money to cover an outstanding tax debt? They may already have your banking details from previous cheque or online payments, or it may compel you to provide this information. Once they freeze an account, they can continue to withdraw funds, including payments sent to the account electronically by your clients.
• Take your accounts receivables: Even monies your company has not received yet can be claimed by the CRA. To do this, the agency typically sends a letter to the debtor to learn more about the business, including the names of its customers. Armed with this information, the CRA can contact these customers directly with a requirement to send outstanding payments to the agency.
• Go after your board members: Corporate directors can be held personally liable for unremitted HST or source deductions such as employee income taxes, employment insurance and Canada Pension Plan contributions. If your company is unable to pay its tax debt, the CRA has the legal authority to collect from your directors.
• Change payment arrangements: A new CRA manager or collector could arbitrarily change or refuse to honour a verbal payment arrangement approved previously by another CRA personnel. If the agreement isn’t in writing, they have the power to revoke it.

But here’s something the CRA can’t do

Outside a formal insolvency (i.e. Proposal or Bankruptcy), the CRA does not have the legal authority to lower or erase the principal amount of your debt. They may be able to reduce interest and penalties through the Taxpayer Relief Program, which involves a comprehensive application process and a waiting period of up to several months. Taxpayer relief is approved only under special circumstances, such as in cases where a return was filed late because of a serious illness or major catastrophe.

What you can and should do when the taxman comes calling

Ignoring the CRA’s letters and calls is never a good idea. This will only trigger more intense collection efforts and make them less receptive to an affordable payment plan. To give your business a better chance of dealing successfully with the CRA, you should:

• Know your rights and obligations: Make sure you understand the protections and requirements that apply to you under the country’s tax laws before you respond to any questions or requests from the CRA. For instance, if a CRA agent asks for your banking information or a list of your customers, ask for time to comply with this request and immediately seek the help of a tax professional, such as the people at Farber Tax Solutions, with deep experience in tax disputes, litigation and collections.
• Get everything in writing: Keep all correspondence and make sure payment plans and other arrangements are approved in writing by the appropriate CRA collector or manager. It’s also a good idea to have any agreement with the CRA reviewed and negotiated by a tax expert before you sign off on it.
• Consider all your options: If your tax debt has become too large to manage, it may be time to look at other options for your business. Get help from a Licensed Insolvency Trustee who can talk about small business bankruptcy or a Proposal, or who can guide you through corporate restructuring and refinancing.

It all starts with the right steps and speaking to the right tax professionals

It’s easy to feel powerless when the CRA collectors target you and your company. By taking the right steps and getting help from the right tax professionals, you can resolve your tax problems more effectively and get back to running your business.