*** Transcriber's note: Please set your voice synthesizer to read most punctuation. *** Canada Revenue Agency INFORMATION CIRCULAR Number: 98-1R3 DATE: February 12, 2008 SUBJECT: Collections Policies This document cancels and replaces Information Circular 98-1R2, Collection Policies, dated December 3, 2006 concerning collection policies. This circular gives you a general overview of many of the collections policies that we at Canada Revenue Agency (CRA) have for individuals, businesses, and organizations that owe money to the Crown. It will help you understand your rights and responsibilities when dealing with us. However, it does not provide in-depth details of the topics it discusses. Therefore, if you have questions about policies not covered in this circular, would like confirmation of specific aspects of those discussed, or need any additional information, please contact the Revenue Collections Division of your tax services office. For the telephone number of your tax services office, see the listing in the government section of your telephone book. We have to modify our collections policies periodically since legislative provisions and requirements can change at any time. We make every effort to provide updates in a timely manner. However, if a discrepancy should arise between Information Circular 98-1R3, Collections Policies, and current legislation or our most recent policies, the latter shall take precedence. The circular describes collections policies for taxes, duties, charges, contributions, and premiums that you are required to pay or remit under the Income Tax Act, Excise Tax Act, Excise Act 2001, Air Travellers Security Charge Act, Excise Act, Customs Act, Softwood Lumber Products Export Charge Act, 2006, Canada Pension Plan, Unemployment Insurance Act, and Employment Insurance Act. Please note that this circular only deals with those aspects of the Canada Pension Plan, Unemployment Insurance Act, and Employment Insurance Act most directly related to collections. You can get more information about payroll deductions in the employers' guide T4001, Payroll Deductions and Remittances, or by contacting your tax services office. This circular discusses the following topics: 1. Payment and other obligations 2. Collection and enforcement 3. Taxpayer Relief Provisions 4. Disagreement with an amount owing 5. Acceptance of security 6. Legal action to collect 7. Collection restrictions 8. Exceptions to collection restrictions 9. Objections and appeals 10. Repayment of disputed amounts 11. Refunds applied to other debts 12. Special provisions 13. Amounts owing by estates of deceased persons 14. Confidentiality 15. Trust funds 16. Customs 17. A final word Sections 1 to 14 of this circular describe general policies on amounts owing under the Income Tax Act, the Excise Tax Act, the Excise Act 2001, the Air Travellers Security Charge Act, the Excise Act, the Softwood Lumber Products Export Charge Act, 2006, the Canada Pension Plan, the Unemployment Insurance Act and the Employment Insurance Act. Some requirements related to source deductions are also discussed. Section 15 discusses collections policies regarding payroll and other source deductions, Goods and Services Tax/Harmonized Sales Tax (GST/HST) and charges on air transportation (Air Travellers Security Charge Act). These are amounts that are deemed to be held in trust, under either the Income Tax Act, the Excise Tax Act or the Air Travellers Security Charge Act. These amounts, deducted from employees' wages and other individuals, GST/HST that registrants collect on supplies of goods and services and charges in respect of air transportation service, are treated differently from other amounts owing. Also discussed is the possible liability of directors for amounts owing under the Income Tax Act, the Excise Tax Act, and the Air Travellers Security Charge Act. Furthermore, although amounts owing under the Excise Act 2001 and the Softwood Lumber Products Export Charge Act, 2006, are not considered trust funds, directors can be held liable. Section 16 deals only with the collection of amounts owing under the Customs Act and other legislation related to goods imported into Canada. While you can get more information about collection of such amounts from your tax services office, you should direct questions on any other issues related to the importation of goods to your nearest customs office. Section 17 provides a final word and explains how to get more information. In this circular, we use the term person to include, as applicable, individual and corporate taxpayers, partnerships, employers and remitters of source deductions, GST/HST registrants, individuals and corporations that receive GST/HST rebates, licencees, importers/exporters, customs brokers, and international travellers. 1. Payment and other obligations Employees who file an income tax return each spring will likely have paid part or all of their taxes through amounts their employers deducted from their income. The amount an employer deducts depends on the credits employees claimed on Form TD1, Personal Tax Credits Return. If an employee's situation changes during the year, or if the information on the form is out-of-date, the employee should fill out a new TD1 form so that the employer can deduct the proper amount of tax from the employee's income. If the employer makes regular deductions, it is less likely that the employee will have to pay a large tax balance when it is time to file an income tax return. Self-employed and other individuals whose income tax is not payroll or source deducted, or only partially so, may have to make instalment payments. Doing so will help them avoid a large balance owing when it is time to file their income tax return. Please see the pamphlet P110, Paying Your Income Tax by Instalments, to determine if you should be making instalment payments for your current tax year. We charge interest and in some cases a penalty, on late or insufficient instalments. Most corporations have to make monthly income tax instalment payments throughout the year for their current tax year or fiscal year. This measure helps ensure that any balance owing at the end of a corporation's fiscal year will be minimal. We charge interest on late or insufficient corporation income tax instalments. For more details on corporation income tax instalments, please see publications T4012, T2 Corporation - Income Tax Guide, T7B-CORP, Corporation Instalment Guide. Effective April 1, 2007, a new penalty applies when a person fails to file a return for a reporting period as and when required under the Excise Tax Act, the Excise Act 2001, the Softwood Lumber Products Export Charge Act, 2006 and the Air Travellers Security Charge Act. The amount of the penalty payable by the person is based on the total of all amounts required to be paid for a reporting period that were not paid on the day on which the return was required to be filed and the number of complete months that the return remains oustanding. Specifically, the amount of penalty that becomes payable will first be calculated by taking 1 per cent of the total of all amounts, each of which was required to be paid for the period and which were not paid on the day on which the return was required to be filed. To that amount an additional amount will be added, equal to one quarters per cent of the total of all amounts determined above multiplied by the number of complete months, not exceeding 12, that the return remains outstanding. A person shall pay a failure to file penalty if the person misses a due date for filling a return required under the Act. The Minister of National Revenue is not required to first serve the person with a demand for a return. This new penalty is modelled after the failure to file penalty under the Income Tax Act, although the rates applied under these Acts are lower. Balances owing under the Income Tax Act are payable no later than: - April 30 of the following tax year, for individuals; - 90 days after the end of the tax year, for a trust (T3); - April 30 of the following year, for a deceased person who has died within the period of January 1 to October 31; - six months after the date of death, for a deceased person who has died within the period of November 1 to December 31. (For greater detail, see publication T4011, Preparing Returns for Deceased Persons.) - two months or, in some cases, three months from the end of the fiscal period, for corporations (even though they have up to 6 months to file their T2 return); and - the fifteenth day of the month after the month they were deducted (must be received on or before the fifteenth) for payroll deductions, except for: (i) accelerated remitters who must remit more frequently; or (ii) small business employers who are notified by us that they qualify for quarterly remittances of payroll deductions. (For greater detail, see the employers' guide T4001, Payroll Deductions and Remittances ) Balances owing for GST/HST under Part IX of the Excise Tax Act are payable no later than: - the end of the month following the end of the reporting period, for a GST/HST registrant who is a monthly or quarterly filer; or - the end of the third month following the end of the reporting period, for a GST/HST registrant who is an annual filer. (For greater detail, see publication RC4022, General Information for GST/HST Registrants.) Balances owing under Parts I to VII of the Excise Tax Act for other taxes are payable as follows: - not later than the last day of the month following the end of the reporting periods. Balances owing under the Excise Act 2001 are payable as follows: - not later than the last day of the first month after each fiscal month of the person; - differently for duties on tobacco (see sections 42 and 43 of the EA 2001). Balances owing under the Air Travellers Security Charge Act are payable as follows: - not later than the last day of the first month after each fiscal month of the carrier. Balances owing under the Excise Act are payable as follows: - no later than the second to last business day of the month following the month during which the beer was produced. Balances owing under the Softwood Lumber Products Export Charge Act, 2006 are payable as follows: - not later than the last day of the first month after each fiscal month of the person. Under the Income Tax Act, on any unpaid amount assessed, we charge interest that is compounded daily from the date the amount is due until it is paid. Also, where a person fails to deduct, withhold, remit or pay an amount deducted or withheld, the person is liable to a penalty of 10% of the amount. If the failure was made knowingly or under circumstances amounting to gross negligence the penalty is 20% of the amount. Under the Excise Tax Act, we charge interest on unpaid GST/HST and these are also compounded daily until the amount owing is paid. For taxes other than GST/HST, we charge interest that is compounded daily from the date the amount is due until the day the amount owing is paid. Under the Excise Act 2001, we charge interest that is compounded daily from the date the amount is due until the day the amount owing is paid. Under the Air Travellers Security Charge Act, we charge interest that is compounded daily from the date the amount is due until the day the amount owing is paid. Under the Excise Act, we charge penalty and interest that is compounded daily from the date the amount is due until the day the amount owing is paid. Under the Softwood Lumber Products Export Charge Act, 2006, we charge interest that is compounded daily from the date the amount is due until the day the amount owing is paid. 2. Collection and enforcement Except for the types of assessments listed in section 8 of this circular, "Exceptions to collection restrictions," we will not usually start legal action until 90 days after the day we mail a Notice of Assessment or a Notice of Reassessment. Effective April 1, 2007, the 90 day collection restriction does not apply anymore on deductions or Set-offs which can be sent following the issuance of the Notice of Assessment or Notice of Reassessment except for the Softwood Lumber Products Export Charge Act, 2006, which still has the 90- day collection restriction. Any amount you owe is payable immediately when assessed or reassessed. If you do not agree with the assessment or reassessment, see Section 9 of this circular. If you cannot pay the total amount owing immediately, please contact the Revenue Collections Division of your Tax Services Office to discuss a mutually satisfactory short-term payment arrangement based on your ability to pay. We will consider payment arrangements when you have tried all reasonable ways of getting the necessary funds, either by borrowing or rearranging your financial affairs, and you still cannot pay the balance in full. To help us determine your ability to pay, you will have to make full disclosure and give evidence of your income, expenses, assets, and liabilities. Collection officers may verify the information you provide before accepting an arrangement. Should you not agree with the decision made by a collections officer, you have the right to discuss the matter with his or her supervisor. Officers will provide you with their supervisor's name and telephone number on request. However, if your debt remains unpaid with no mutually acceptable payment arrangement, we may take legal action such as garnisheeing your income (i.e., we may intercept funds payable to you) or initiate other legal actions such as issuing a set-off or directing a sheriff to seize and sell your assets. (See section 6 of this circular, "Legal action to collect.") If you cannot make a payment on your liability, we may allow you to postpone payment until your financial situation improves. During that time, any interest and/or penalties that apply will continue to accrue on the liability. There may be exceptional situations when we may waive or cancel penalties and interest under the Taxpayer Relief Provisions. (See section 3 of this circular for greater detail.) 3. Taxpayer Relief Provisions The "taxpayer relief provisions" apply to interest and penalty only. We may waive or cancel part or all of penalty and interest charged on amounts owing, for ten calendar years after: - the end of a taxation year under the Income Tax Act; - the end of a reporting period for GST/HST under the Excise Tax Act; - the end of a reporting period under Parts I to VII of the Excise Tax Act; - the day an amount was required to be paid under the Excise Act 2001; and - the end of a fiscal month under the Air Travellers Security Charge Act. - the end of a reporting period under the Softwood Lumber Products Export Charge Act, 2006, We may consider these actions when you are prevented from making a payment when due, or otherwise complying with the above acts because of circumstances beyond your control. Such circumstances include: - natural or man-made disasters, such as a flood or fire; - civil disturbances or disruptions in services such as a postal strike; - a serious illness or accident; and - serious emotional or mental distress caused by a death in the immediate family. We may also cancel or waive interest or penalty charges if such charges were mainly the result of our own actions, such as if material available to the public contained errors which led taxpayers to file returns or make payments based on incorrect information. Also, we may waive or cancel all or part of interest and/or penalty charges where there is an inability to pay beyond your control. For example: - collection has been suspended because of an inability to pay caused by the loss of employment and the person is experiencing financial hardship; or - a person is unable to conclude a reasonable payment arrangement because the interest and penalty charges absorb a significant part of the payments. In such a case, we may consider waiving interest and penalties in full or in part, for the period from when payments start until amounts owing are paid, provided the agreed payments are made on time in accordance with your ability to pay. You, or your authorized representative, can make a written request to your tax services office to cancel or waive interest and penalties. You can get more details in Information Circular IC07-1, Taxpayer Relief Provisions, and in GST Memorandum 500-3-2-1, Cancellation or Waiver of Penalties and Interest. We can usually finalize a taxpayer relief request within four to six weeks, if we have all the supporting information. 4. Disagreement with an amount owing If you disagree with, or if you do not understand an assessment or a reassessment, you should contact the Client Services Division of your tax services office immediately for an explanation. If you cannot resolve the matter in this manner, you can file an objection. In section 9 of this circular, we discuss objections and appeals. 5. Acceptance of security We will accept adequate security instead of payment under some circumstances. For example, if the Tax Court of Canada or the Canadian International Trade Tribunal dismisses your appeal and you exercise your right to appeal to a higher court, we will ask you to immediately pay the full amount owing regardless of your further rights to appeal. However, we will accept adequate security instead of payment, such as a Bank Letter of Guarantee (Letter of Credit). In addition, for certain elections under the Income Tax Act, you have to provide adequate security for us to accept the election. You or your representative should contact the Revenue Collections Division of your tax services office for more information about security, such as mandatory clauses for Bank Letters of Guarantee or Mortgages. 6. Legal action to collect If you do not pay an amount voluntarily, we may take legal action to: - garnishee wages or other income sources; - seize and sell assets; or - use any other means under any applicable statutes or laws to collect an amount owing. Garnishment action allows us to intercept funds payable to you by a third party, such as wages or other income sources. Similarly, if any other federal government department owes you money, we can issue a requirement for set-off to that department to have all or part of that money sent to us. We will then apply this amount against your outstanding balance. We will notify you by mail of the garnishment or set-off action. The Income Tax Act, the Excise Tax Act, the Excise Act 2001, the Softwood Lumber Products Export Charge Act, 2006 and the Air Travellers Security Charge Act provide for the registration of a certificate in the Federal Court of Canada for unpaid amounts. Once registered, the certificate has the same force and effect as a judgment obtained in the Court. When the debt is certified, we will usually notify you by mail. If you still do not pay the amount, we may obtain a writ or memorial and seize assets and/or property, and have it advertised and sold by the sheriff. You have to pay all reasonable costs and charges incurred to collect the amount certified, and are still liable for any remaining balance. All proceeds from the sale remaining after costs and charges are paid will be applied to the debt. Once we undertake set-off, garnishment, or other legal proceedings, we will not usually withdraw them until the account is paid in full, or it can be shown that the action is causing undue hardship. 7. Collection restrictions Except as outlined in section 8 of this circular, we cannot normally initiate the following types of legal action until 90 days after the day we mail the Notice of Assessment or Notice of Reassessment: - begin legal proceedings in a court; - certify the amount in the Federal Court under section 223 of the Income Tax Act, section 83 of the Excise Tax Act, section 88 of the Softwood Lumber Products Export Charge Act, 2006 or section 288 of the Excise Act 2001; - require a third party who owes a person money to make a payment under subsection 224(1) of the Income Tax Act, subsection 84(1) of the Excise Tax Act, subsection 89(1) of the Softwood Lumber Products Export Charge Act, 2006 or subsection 289(1) of the Excise Act 2001; - require an institution or other third party who is lending or advancing a person money to make a payment under subsection 224(1.1) of the Income Tax Act, subsection 84(3) of the Excise Tax Act, subsection 89(2) of the Softwood Lumber Products Export Charge Act, 2006 or subsection 289(2) of the Excise Act 2001; - require a person to turn over money under subsection 224.3(1) of the Income Tax Act, subsection 92(1) of the Softwood Lumber Products Export Charge Act, 2006 or subsection 292(1) of the Excise Act 2001; and - give a notice, issue a certificate, or make a direction under subsection 225(1) of the Income Tax Act, subsection 93(1) of the Softwood Lumber Products Export Charge Act, 2006 or subsection 293(1) of the Excise Act 2001. 8. Exceptions to collection restrictions The restrictions to our ability to take legal action, outlined in section 7 of this circular, do not apply to assessments issued for the following items: - Amounts deemed to be held in trust, (see section 15 of this information circular, "Trust funds.") including: (i) an amount deducted or withheld, and required to be remitted or paid under the Income Tax Act, the Canada Pension Plan, Unemployment Insurance Act, Employment Insurance Act, or a regulation made under those Acts (i.e., payroll and other source deductions); (ii) GST/HST collected as or on account of tax under Division II, Part IX of the Excise Tax Act; and (iii) charges collected under the Air Travellers Security Charge Act. The restrictions also do not apply to the following: Under the Income Tax Act: - Scientific research and experimental development tax credits - an amount payable under Part VIII of the Income Tax Act. - Non-resident tax - an amount of tax required to be paid under section 116, or under a regulation made under subsection 215(4) of the Income Tax Act, that has not been paid. - Penalties - the amount of any penalty payable for failure to remit or pay a deemed trust amount, as and when required by the Income Tax Act, Canada Pension Plan, Unemployment Insurance Act, Employment Insurance Act, or a regulation made under those Acts. - Interest - any interest payable under a provision of the Excise Tax Act, Income Tax Act, Canada Pension Plan, Unemployment Insurance Act, and Employment Insurance Act on an amount referred to in any of the above paragraphs. - Large corporations - for income tax purposes only, where a large corporation as defined in subsection 225.1(8) of the Income Tax Act has been assessed, we may take action to collect half of the amount assessed at any time during the first 90 days after the amount is assessed, regardless of whether an objection or appeal has been filed. After this 90-day period, if there is no objection or appeal, we can collect the outstanding balance. After the 90-day period, where an objection or appeal is filed, we can collect up to half of the amount under dispute and any balance not in dispute. - A reassessment with the taxpayer's consent under subsection 152(4.2). - A reassessment after the dispostion of an appeal with the consent in writing from the taxpayer under subsection 169(3). - A reassessment after the waiver of penalty and/or interest under subsection 220(3.1). Under the Excise Tax Act: - Any penalties or fines imposed pursuant to a conviction for an offence under the act. - A reassessment issued following an objection pursuant to subsection 81.15(4) or an appeal pursuant to subsection 81.38(1). - Amounts payable after the dispostion of an appeal or further appeal under subsection 81.39(2) and (3). Under the Excise Act 2001: - If the total of all amounts assessed that remain unpaid exceeds $1,000,000, 50% of the total amounts. In addition, the collection restrictions, outlined in section 7 of this circular, do not apply if collection of all or part of an assessed amount would be jeopardized if there were a delay in collecting it. Section 12 of this circular, "Special provisions," discusses collections in jeopardy. 9. Objections and appeals If you do not agree with an income tax assessment, you can file an objection by either writing a letter or by completing Form T400A, Objection - Income Tax Act, and sending it to the Assistant Director, Appeals, in your tax services office or tax centre. To file an objection to a CPP or EI assessment for the premiums that we indicate you owe, either write a letter or complete Form CPT100, Appeal Under the Canada Pension Plan and/or Employment Insurance Act, and send it to the Assistant Director, Appeals, in your tax services office. If you do not agree with a GST/HST assessment or determination under Part IX of the Excise Tax Act, you can file an objection by completing Form GST159, Notice of Objection (GST/HST), and sending it to the Assistant Director, Appeals, of your tax services office. Form E413, Notice of Objection (Excise Tax Act), must be used for objections to other taxes assessed under the Excise Tax Act. If you do not agree with an assessment under the Excise Act 2001, you can file an objection by completing Form E680 Notice of Objection (Excise Act 2001) and send it to the Assistant Director, Appeals, at your tax services office. If you do not agree with an assessment under the Air Travellers Security Charge Act, you can file an objection by completing Form E676 Notice of Objection (Air Travellers Security Charge Act) and send it to the Assistant Director, Appeals, at your tax services office. If you do not agree with an assessment under the Softwood Lumber Products Export Charge Act, 2006, you can file an objection by completing Form Notice of Objection (Softwood Lumber Products Export Charge Act, 2006) and send it to the Assistant Director, Appeals, at your tax services office. The time limit for individuals (other than trusts) and testamentary trusts to object to income tax assessments is the later of the following two dates: one year from the return's filing due date or 90 days after the date of the mailing of the assessment or reassessment notice. The time limit to object to an income tax assessment in all other cases and to an assessment made under the Excise Tax Act (including GST/HST), the Excise Act 2001, the Softwood Lumber Products Export Charge Act, 2006 and the Air Travellers Security Charge Act is 90 days after the date of mailing of the Notice of Assessment or Notice of Reassessment. Under the Income Tax Act, the Excise Tax Act, the Excise Act 2001, the Softwood Lumber Products Export Charge Act, 2006 and the Air Travellers Security Charge Act you may request in writing an extension of time to file an objection. You can get more information from your tax services office. For income tax purposes: - When you file an objection, we normally do not take any legal action on the disputed balance until 90 days after the date the Appeals Division mails a notice confirming or varying the assessment under objection. If you appeal the decision to the Tax Court of Canada or the Canadian International Trade Tribunal, we do not normally take any legal action until the court mails its decision or you discontinue the appeal. (See section 8 of this circular for exceptions.) - If the court dismisses your appeal or you discontinue it, we will ask you to immediately pay the full amount owing regardless of any further rights of appeal or judicial review you may have or wish to exercise. If you do not pay or provide acceptable security, we may initiate legal action to collect the debt. However, under the Income Tax Act we will refund to you what you have paid on disputed amounts for which you have been successful in subsequent appeals, with applicable interest. (See section 5 of this circular, "Acceptance of security.") - If, under subsections 225.1(5) of the Income Tax Act, 286(7) of the Excise Act 2001, 86(5) of the Softwood Lumber Products Export Charge Act, 2006 or 86(8) of the Excise Tax Act, you file an objection or appeal to the Tax Court of Canada, the Canadian International Trade Tribunal or the Federal Court of Appeal, and you agree in writing to delay proceedings until judgment has been given in a similar action before the Tax Court of Canada, Federal Court of Appeal, or the Supreme Court of Canada, we cannot take legal action until we notify you in writing of the Court's decision. - When a large corporation, as defined in subsection 225.1(8) of the Income Tax Act, has been assessed, we may take action to collect under subsection 225.1(7) of the Income Tax Act half of the amount assessed at any time during the first 90 days after the amount is assessed, regardless of whether the assessment is under dispute. Where an objection or appeal is filed, we can collect up to half of the amount under dispute and any balance not in dispute. - When an assessed amount is under dispute and a delay would jeopardize its collection, there are provisions to permit us to take immediate collection action. (See section 12 of this circular, "Special provisions.") Interest under the Income Tax Act, the Excise Tax Act, the Excise Act 2001, the Air Travellers Security Charge Act, the Softwood Lumber Products Export Charge Act, 2006 and the Excise Tax Act is charged at the prescribed rate on all amounts owing, regardless of whether they are disputed or not. We can take action to collect amounts owed as a result of assessments listed in section 8 of this circular even if you file an objection or an appeal. 10. Repayment of disputed amounts (Income Tax Act) If the Appeals Division has not confirmed or varied an income tax assessment within 120 days of the date a notice of objection is served, you can apply in writing for the return of all amounts paid with respect to amounts in dispute, or the release of any security provided for the tax in dispute. A disputed amount may include taxes, interest, penalties, or other amounts payable. Similarly, if you appeal an income tax assessment to the Tax Court of Canada, you can request the return of any disputed amount which has been paid, or the return of any security provided for the amount in dispute. This does not apply to security provided or amounts paid by non-resident persons for amounts in dispute regarding the disposition of particular types of taxable Canadian properties and Canadian resource properties. A large corporation, within the meaning assigned by subsection 225.1(8) of the Income Tax Act, is entitled to a repayment or return of security of one half of the disputed amount. However, if making a repayment or surrendering security could jeopardize collection of the disputed amount, we may apply for a judicial order to permit us to retain the payment or the security. Under the other acts, there is no requirement to reimburse any amount paid or return security pledged on a disputed assessment. 11. Refunds applied to other debts A refund will not be paid to a person until the person has filed with the Minister all returns and other records of which the Minister has knowledge that the person is required to file under the Income Tax Act, the Excise Tax Act, the Excise Act 2001 and the Air Travellers Security Charge Act. We can offset (apply against another debt) your repayment or refund to debts for which you are liable. However, for debts that relate to the Income Tax Act, we will not usually offset a refund against an outstanding amount, other than a deemed trust debt, if the amount owing is the subject of an objection or appeal on which neither CRA's Appeals Division nor the Court has made a decision. 12. Special provisions It is our policy to approach tax compliance consistently and responsibly. There are cases when we must use the enforcement provisions of the Income Tax Act, the Excise Tax Act, the Softwood Lumber Products Export Charge Act, 2006 or the Excise Act 2001 because our ability to collect taxes has been, or is likely to be, defeated by the transfer, sale, loss, relocation, or other disposition of a person's assets. a) Collection in jeopardy When we have reasonable grounds to believe that the collection of all or part of an amount we have assessed would be jeopardized if there were a delay in collecting it, we can take action. Under the Income Tax Act, the Softwood Lumber Products Export Charge Act, 2006 and the Excise Act 2001, a judge of a superior court of a province or of the Federal Court of Canada can authorize us to take collection action at once. When we are granted such an authorization, you have the right to apply to a court for a judicial review of it. Since we are not restricted from taking collection action for payroll or other source deduction amounts, we do not have to apply to the courts before taking such action. A similar provision is available under the Excise Tax Act for amounts other than Part IX (GST/HST) amounts, with the exception that the Minister of National Revenue or a delegated authority may approve the action. For GST/HST amounts under Part IX, we do not have to apply to the courts before taking such action on amounts that have already been assessed. However, for the net tax of a reporting period that is remittable but not yet payable, the agency can apply to a judge of the superior court of a province or the Federal Court to obtain judicial authorization to assess the amount determined by the Minister to be remittable by a registrant at the time the application is heard and to take action to recover that amount. If we believe that you have left or are about to leave Canada, we can require you to immediately pay all amounts owed, whether or not due at the time. If you do not make the payment, we can seize your goods and chattels. b) Property transfers If you have an amount owing under the Income Tax Act, Part IX (GST/HST) of the Excise Tax Act, the Softwood Lumber Products Export Charge Act, 2006 or the Excise Act 2001 for the tax year or reporting period in which you transfer property, or previous tax years or reporting periods, the following rules under section 160 of the Income Tax Act, section 325 of the Excise Tax Act, section 96 of the Softwood Lumber Products Export Charge Act, 2006 and section 297 of the Excise Act 2001 apply. Under the above conditions, if you transfer property to - a spouse or a person who has since become your spouse, - a person under 18 years of age, or - a person with whom you were not dealing at arm's length, the person to whom you transfer property becomes liable for the lesser of the amount you owe, or the excess of the fair market value of the property over the consideration given for the property. These rules do not apply to a transfer of property between you and your spouse under a decree, order, or judgment of a competent tribunal, or under a written separation agreement where, at the time of transfer, you and your spouse were separated and living apart as a result of the breakdown of your marriage. For transfers occurring after 1992, marriage includes a common-law relationship. c) Prosecution for failing to file a return If you fail to file a return as and when required under the Income Tax Act, Part IX (GST/HST) of the Excise Tax Act or the Air Travellers Security Charge Act, you are guilty of an offence. If you are convicted, you are liable to a fine of between $1,000 and $25,000, or both a fine and imprisonment for up to 12 months. For failure to file returns other than GST/HST returns, the Excise Tax Act provides for a fine of between $10 and $100. Under the Excise Act 2001 the liability on summary conviction to a fine is not more than $100,000 or to imprisonment for a term of not more than 12 months, or both. 13. Amounts owing by estates of deceased persons If a deceased person's estate has amounts payable or remittable, we will contact the executor or administrator of the estate and ask for payment of the outstanding amounts. If the executor or administrator does not comply, we may take legal action to collect the debt. Before distributing the assets of an estate, the executor or administrator must get a clearance certificate from us. The certificate will state that all amounts assessed or liable to be assessed have been paid or secured by the estate. If executors or administrators distribute some of the assets of the estate before they get a clearance certificate, they will be liable, to the extent of the value of the assets distributed, for any amounts that have not been paid or are assessed later. For more information, contact your tax services office. (For greater detail, see publication T4011, Preparing Returns for Deceased Persons.) 14. Confidentiality To preserve the right to confidentiality, we will only release your confidential information to your authorized representatives, or as the law authorizes us. It is our policy to confirm the identity and authorization of all parties concerned before we release confidential information. However, if it is necessary for us to take legal action, the legal documents will contain certain aspects of a person's tax liability, such as the amount and type of debt owed. 15. Trust funds The collection restrictions outlined in section 7 of this circular do not apply to trust funds described in this section. You are deemed to hold the following amounts in trust: Under the Income Tax Act - amounts that are deducted from employees and other individuals for: (i) income tax; (ii) Canada Pension Plan (CPP) contributions; and (iii) Employment Insurance (EI) premiums. Under Part IX of the Excise Tax Act - amounts collected as or on account of GST/HST, less allowable input tax credits. Under the Air Travellers Security Charge Act - amounts collected as or on account of charges on air transportation service. You have to send us these amounts as the legislation requires. You must also include the employer's portion of CPP and EI when remitting source deductions. For a GST/HST amount, you can deduct allowable input tax credits before remitting it. If you do not comply with the legislation that applies, we will assess the amount owing and ask you to immediately pay the full balance, including interest and any penalties that apply. If you do not pay the balance owing, we may, at the time we issue a Notice of Assessment, garnishee your sources of funds (including trade receivables, bank deposits, loans, advances, and other income), or we may begin to seize and sell assets. Any assets we seize will be sold by sheriff's auction, unless the account is promptly paid in full, including any costs resulting from this action. We may hold the directors of a corporation jointly and severally liable if the corporation fails to deduct, withhold, or remit amounts deemed to be held in trust, and we are unable to collect from the corporation. In addition, the directors are jointly and severally liable, with the corporation, to pay any penalty or interest that has accrued or will accrue on outstanding amounts. Once we have issued assessments against directors, we will not usually start legal action against them before 90 days have passed from the day we mail the Notice of Assessment, or while the assessments are under objection or appeal. When these limitations do not apply, we may without delay garnishee the personal income of the directors that have been held liable, or we may seize and sell their personal assets if they do not voluntarily remit the amounts the corporation failed to deduct or remit. For more information about the rights and obligations of directors of a corporation, contact your tax services office. Information Circular 89-2R2, Directors' Liability - Section 227.1 of the Income Tax Act, Section 323 of the Excise Tax Act, Section 81 of the Air Travellers Security Charge Act and subsection 295(1) of the Excise Act 2001, also gives more information on this topic. It is an offence to withhold amounts but fail to remit them to the Receiver General for Canada or willfully fail to pay, collect, or remit GST/HST, or net tax. Under the Income Tax Act and the Air Travellers Security Charge Act, if convicted, you are liable to a fine of between $1,000 and $25,000, or both a fine and imprisonment for up to 12 months. Under the Excise Tax Act, if convicted, you are liable to a fine of $1,000 plus 20% of the GST/HST or net tax that you should have paid, collected, or remitted, or both a fine and imprisonment for up to six months. 16. Customs - Canada Borders Service Agency (CBSA) This section deals only with certain general aspects of the customs collection policy that applies to any duty, tax, fee, penalty, charge, or other amount owing to the Crown related to goods imported into Canada. These amounts may be owing under the Customs Act, Customs Tariff, Excise Tax Act, Special Import Measures Act, and/or related regulations, referred to as the applicable Acts. For further information on collection policy, contact your tax services office. For information on any other customs issue, contact the nearest customs office. Payment obligations A person must present a complete entry document to customs for goods imported. Such a document includes declarations on the value for duty, origin, and tariff classification of those goods. The person must also pay any duties and taxes owing, or post security where applicable, when goods enter Canada. Customs will not release goods for which these amounts are not paid or secured at the time of arrival. More information about security can be found in CBSA Memorandum D17-1-5, Importing Commercial Goods. Re-determination CBSA may re-determine the origin, tariff classification, or value for duty of the goods. As a result, the person may owe additional duties, taxes, or other charges such as interest back to the thirty-first day after the person should have paid the duties and taxes. The person must normally pay these amounts within 30 days of CBSA decision. Interest Where authorized by the applicable Acts, we will charge daily compound interest at either the prescribed or specified rate, from the day after the amount was owed to the Crown up to and including the day the amount owing is paid. Where authorized by the Special Import Measures Act, we will charge simple monthly interest at the prescribed rate up to and including the day the amount owing to the Crown is paid. Under the Special Import Measures Act, any fraction of a month is considered to be a full month. More information on interest provisions can be found in CBSA Memorandum D11- 6-5, Interest and Penalty Provisions: Determinations/Re-Determinations, Appraisals/Re-Appraisals and Duty Relief, or CBSA Memorandum D14-1-6, Liability for Payment of Provisional Duty, Anti-dumping Duty and Countervailing Duty Under the Special Import Measures Act. Enforcement When goods are not reported, or are reported falsely to customs, the Customs Act allows CBSA to seize the goods. In cases where the goods are not available for seizure or are impractical to seize, section 124 of the Customs Act allows for the issuance of a Notice of Ascertained Forfeiture, assessing an amount of money in lieu of a seizure. A Notice of Penalty Assessment may also be issued under section 109.3 for a contravention of the Customs Act. Any amount of money demanded in a Notice of Ascertained Forfeiture or a Notice of Penalty Assessment becomes payable on the day the notice is served on the person. That person is in default and subject to collection action unless the person pays the amount owing or, within 90 days after the date of service of the notice, requests a decision of the Minister under section 131 of the Customs Act. Notice of Arrears If a person does not pay the amounts owing within 30 days of the date the amount was due, CRA will issue a Notice of Arrears. Collection and legal action If you do not pay an amount voluntarily, we may take legal action to: - garnishee wages or other income sources; - seize and sell assets; or - use any other means under the applicable statutes or laws to collect an amount owing. Garnishment action allows us to intercept funds payable to you by a third party, such as wages or other income sources. Similarily, if any other federal government department owes you money, we can issue a requirement for set-off to that department to have all or part of that money sent to us. We will then apply this amount against your outstanding balance. We will notify you by mail of the garnishment or set-off action. The Act provides for the registration of a certificate in the Federal Court for unpaid amounts. Once registered, the certificate has the same force and effect as a judgment obtained in the Court. When the debt is certified, we will usually notify you by mail. If you still do not pay the amount, we may obtain a writ of memorial and seize assets/or property, and have it advertised and sold by the sheriff. You have to pay all reasonable costs and charges incurred to collect the amount certified, and are still liable for any remaining balance. All proceeds from the sale remaining after costs and charges are paid will be applied to the debt. Once we undertake set-off, garnishment, or other legal proceedings, we will not usually withdraw them until the account is paid in full, or it can be shown that the action is causing undue hardship. We may suspend your importation privileges as well as take lien action against goods imported by or reported for exportation by you. These goods may be detained and sold to satisfy the amount demanded in the notice. We will continue to detain and sell imported and exported goods or continue other legal proceedings against you, until the amount owing to the Crown is paid in full, unless other acceptable payment arrangements are made to suspend these actions. Collection restrictions If a person is liable for the payment of an amount under this Act, if an amount is demanded in a notice served under section 109.3 or 124, or if an amount is demanded under paragraph 133(1)(c) or subsection 133(1.1) in a notice served under subsection 131(2), we will not take the following actions until the ninety-first day after the day the notice is given to the debtor: - begin legal proceedings in court; - certify the amount under section 97.24 of the Customs Act; - garnishee a person's wages; and - require the retention of an amount the federal government owes to a person by way of deduction or set-off under section 97.26 of the Customs Act. Alternative payment arrangements We will consider alternative payment arrangements when you have tried all reasonable ways of getting the necessary funds, either by borrowing or rearranging your financial affairs, and you still cannot pay the balance in full. In this situation, you should contact the Revenue Collections Division of your tax services office, or the office shown on the Notice of Arrears, to discuss a mutually satisfactory short-term payment arrangement based on your ability to pay. When determining ability to pay, we will expect you to make a full disclosure and give tangible evidence of your income, expenses, assets, and liabilities. Collections officers may verify the information you provide before accepting an arrangement. However, if your debt stays outstanding with no mutually acceptable payment arrangement, we may take legal action such as garnisheeing your income (i.e., we may intercept funds payable to you) or directing a sheriff to seize and sell your assets. If you cannot make a payment for your liability, we may allow you to defer payment until your financial situation improves. During that time any interest or penalty that apply will continue to accrue on the liability. There may be exceptional situations when we may consider waiving or canceling interest or penalties under the interest and penalty provisions. Interest and penalty provisions We may waive or cancel part or all interest or penalty charges payable under the Customs Act and the Customs Tariff. We may consider these actions when you are prevented from making a payment when due, or otherwise complying with the Customs Act or Customs Tariff because of circumstances beyond your control. Such circumstances include: - natural or human-made disasters, such as flood or fire (which destroy the records of the importer); - civil disturbances or disruptions in service, such as a postal strike; - death or incapacity of the person who is directly responsible for ensuring the importer's compliance; - errors proven to have been committed by employees of the CRA or CBSA which resulted in incorrect information being supplied to the importer; and - material published by the CRA or CBSA, directed to the importing public, which contained errors that resulted in the importer's actions giving rise to the interest or penalty. It may also be appropriate to waive or cancel all or part of interest and penalty charges where there is an inability to pay beyond your control. For example: - when collection action has been suspended due to an inability to pay; or - when an importer is unable to conclude a reasonable payment arrangement because the interest charges absorb a significant portion of the payments. In such cases, we may consider waiving interest and penalties, in whole or in part, for the period when payments start until the amounts owing are paid. However, the agreed payments have to be made on time. You, or your authorized representative, can make a written request to the tax services office or the office shown on the Notice of Arrears for a waiver or cancellation of interest and/or penalties. More information about the guidelines for canceling and waiving interest and penalties can be found in CBSA Memorandum D11-6-5, Interest and Penalty Provisions: Determinations/Re- Determinations, Appraisals/Re-Appraisals and Duty Relief. Under the Special Import Measures Act, there is no authority to cancel or waive any interest payable. Disputes and appeals Appeals of Notices of Arrears Section 97.23 of the Customs Act provides that a person to whom a Notice of Arrears is sent or delivered under subsection 97.22(1) may appeal the notice up to 30 days after the notice is sent or delivered by way of an action in the Federal Court, if no appeal is or was available under section 67 or 68 of the Customs Act. This, therefore, excludes assessments resulting from CBSA decisions concerning the origin, tariff classification, or value for duty of imported goods. Seizures and forfeitures appeal process Where a contravention of the Customs Act has been alleged and a seizure made or a Notice of Ascertained Forfeiture or a Notice of Penalty Assessment issued, you may request a decision of the Minister under section 131 of the Customs Act within 90 days of the date of the seizure or the service of the notice. Where you have requested a decision of the Minister and the decision rendered demands payment of an amount of money, you may within 90 days after being notified of the decision, appeal the CBSA decision by way of an action in the Federal Court. For more information on the appeal process or request for a CBSA review, write to the following address: Recourse Directorate Adjudications Division Admissibility Branch Canada Border Services Agency Ottawa ON K1A 0L5 Disputes and appeals concerning origin, tariff classification, or value for duty If you are not satisfied with a CBSA decision about the origin, tariff classification, or value for duty of goods (and its related determination or re-determination), you may dispute that decision by filing Form B2, Canada Customs - Adjustment Request, within 90 days of that decision. Before doing so, you must pay any amounts owing or post security satisfactory to the Minister. More information about the dispute resolution process can be found in CBSA Memorandum D11-6-7, Importers' Dispute Resolution Process for Origin, Tariff Classification, and Value for Duty of Imported Goods. You may subsequently appeal a CBSA dispute decision with which you are not satisfied to the Canadian International Trade Tribunal within 90 days after the date the notice of dispute decision was given. A further appeal is available to the Federal Court of Appeal on any question of law. For more information on the CBSA dispute resolution process or your rights of appeal, contact the Recourse section of your regional customs office. Appeals under the Special Import Measures Act Under the Special Import Measures Act, an appeal will not be accepted unless the amounts owing are paid in full. For information on this appeal or request for a re-determination process, write to the following address: Trade Programs Directorate Anti-dumping and Countervailing Program Admissibility Branch Canada Border Services Agency Ottawa ON K1A 0L5 More information can be found in CBSA Memorandum D14-1-3, Procedures for Filing an Appeal or to Make a Request for Re-Determination of Goods Under the Special Import Measures Act. 17. A final word Our collection policies help us apply the law fairly. Our procedures are designed to allow us to consider each person's financial situation. At the same time, we have an obligation to uniformly and fairly apply the provisions of the Income Tax Act, Excise Tax Act, Excise Act 2001, Air Travellers Security Charge Act, Excise Act, Customs Act, Softwood Lumber Products Export Charge Act, 2006, Customs Tariff, Special Import Measures Act, and other acts and regulations, such as the Canada Pension Plan and the Employment Insurance Act, that we administer for other government departments. We have to ensure that all individuals, corporations, employers, licensees, registrants, importers/exporters, customs brokers, international travellers, and all other persons pay the required amount of tax, duties, fees, penalties, and other amounts owing to the Crown. You can obtain copies of this information circular and other related forms and publications by calling or visiting the forms area of your tax services office. If you have access, you can also find similar information by accessing our Internet site at www.cra-arc.gc.ca. If you have any comments or suggestions that would help us improve the information in this circular, we would like to hear from you. Please send your comments to: Taxpayer Services and Debt Management Branch Revenue Collections Operations Directorate Canada Revenue Agency Tenth floor, Tower C 25 McArthur Road Ottawa ON K1A 0L5