Often we come across clients who have been sitting with a known (to them) tax debt for several years but ignoring it in the hopes that the Canada Revenue Agency will never uncover it. Others are complacent but get hit with a surprise reassessment years after the fact. The Canadian government gives the CRA virtually unlimited powers when it comes to assessing and collecting tax debts – but there are limits. They are today’s focus: the CRA Statue of Limitations.
Conducting an audit or reassessment. In most cases, the CRA has four years after the date of your tax year assessment to audit your returns. This means that if you receive the assessment for your 2010 tax year in June 2011, the CRA has until June 2015 to review your 2010 return. That being said, if there is a suspicion of fraud, there is no time limit, and the CRA can audit a return as far back as the records will allow.
Collecting a tax debt. The CRA Statue of Limitations does create certain parameters within which the CRA must remain when it comes to collecting a debt. According to subsection 221(3) of the Income Tax Act, the CRA may not commence or continue to collect a tax debt after the end of the limitations period for the collection of the debt, which is 10 years. This means that, after 10 years, the CRA is legally prohibited from collecting a tax debt.
However, this only pertains to those cases where no action has been taken during that 10-year period. While a CRA debt becomes virtually uncollectable if action has not been taken during the limitation period, any correspondence (i.e. a Requirement to Pay letter) resets the clock as outlined in subsection 221(5). For example, if a tax debt is assessed in 2005, and the CRA takes collection action against the taxpayer periodically over the next 10 years, each action, whatever it may be, restarts the clock. If that action has continued steadily through to 2015 (when the 10-year period would originally run out) the CRA would still have an additional 10 years to collect.
The Income Tax Act is meant to protect both the taxpayer and the government, and the CRA Statute of Limitations is one example of this – giving the CRA power to collect, but not an unreasonable amount. That being said, if you are facing a tax debt that seems insurmountable, the above fact may be of little use.
If you are concerned that the CRA is getting ready to commence collection action, or if it has already been leveraged and you need to know more about your options for repayment, call Tax Solutions Canada today. 1-888-868-1400.