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The CRA Couldn't Collect $3 Billion - But It Can Still Go After You

07/31/2015 05:31 EDT | Updated 07/31/2016 05:59 EDT
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Canadian dollar bills are arranged for a photograph in Toronto, Ontario, Canada, on Tuesday, Feb. 26, 2013. Canada’s dollar traded at almost the weakest level in eight months versus its U.S. counterpart amid political turmoil in Europe and before data this week that may show the nation’s economy stalled. Photographer: Pawel Dwulit/Bloomberg via Getty Images

Believe it or not, even the long arm of the taxman can come up empty-handed from time to time. According to the latest federal public accounts, the Canada Revenue Agency wrote off $3.4 billion in uncollectible tax debts between January 12, 2013 and October 10, 2014.

The debts in question were deemed uncollectible because the people who owed had either died, gone bankrupt, could not be located or lived outside of Canada. In some cases, officials deemed it not worth the expense to track down the money owing or they had reached a compromise to settle with the taxpayer. So if you owe the taxman a large amount, moving out of the country and not leaving a forwarding address seems to be one approach.

Though I can reconcile that some of the debt is not collectible, what I found unbelievable is the $306 million worth of uncollectible tax debt was accredited to only 700 accounts. When you do the math, it means 700 individuals had an average outstanding balance of nearly half a million dollars each. In fact, two of the accounts owed more than $10 million each. When you are paying your fair share of taxes, it is painful to read.

If it makes you feel better, just because the CRA has written off the debt does not mean the taxpayers don't have to pay. Tax debt can come back to haunt you even when you think it is over. But with all of that being said, it's also important to understand the lengths that the CRA can go to in their attempt to recover those funds before they were forced to deem them uncollectible.

A tax debt can still mean serious legal and financial repercussions. The CRA can garnish your wages or register an encumbrance against your property, making it difficult or even impossible to sell. Although they infrequently exercise the option seize and resell your assets, they are well within their power to do so. Once they decide to seize your belongings, very few things are off limits. They can take your car, boat, art, cottage, rental property or home. Not only will you lose your assets, but you'll be required to pay any fees incurred from seizing the assets, and you'll still be liable for any outstanding balance.

But the buck doesn't always stop with the taxpayer who owes. The CRA might hold a third party jointly responsible for your debt if you have transferred property to that person in order to avoid paying your tax bill. This could apply to your husband or wife, your business partner or even a related corporation. So while spouses file individual returns and a wife's tax refund cannot be used to pay the husband's tax debt, if they become a party to evasion of tax debt payment, it becomes an issue.

The CRA can even move to have your debt certified in the Federal Court of Canada. This holds the same weight as a judge's ruling, making your debt a matter of public record.

Having a tax debt is serious and you should deal with the problem rather than ignoring it. The CRA may have written off $3 billion but it was not without some collection effort. They can keep your future tax refunds and GST/HST payments to pay down your debt.

Ultimately, doing nothing is not a solution when it comes to the taxman. It's not just letters in your mailbox -- they have real power to make your life very difficult.

Be proactive and reach out to the CRA. There might be a way to arrange a solution with them that could prove to be less costly in the long run. You may be able to make payment arrangements though the CRA does usually require you to exhaust all other forms of funding before that is an option.

As the old proverb goes, nothing is certain but death and taxes. And when you owe the taxman, even death may only serve to divert your tax burden to somebody else.

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