Tax Audit vs Tax Collection

December 13, 2016

CRA’s tax auditors and tax collectors serve very different functions. Tax auditors from CRA gather information to determine whether your tax returns fully reflect your obligations under the Canadian Income Tax Act. CRA tax collectors take your tax debts as given and use every means they have available to collect money from taxpayers. Tax auditors and tax collectors have different powers at their disposal.

Tax Audits

Every taxpayer is required to file a tax return, and a tax assessment based on that income tax return is issued by CRA. Some tax returns are subjected to additional scrutiny in the form of a tax audit. An income tax audit could involve CRA tax auditors reviewing their existing files to check your return, or it could involve tax auditors showing up at your place of business to view your records. No matter what the scale of the tax audit is, the objective is to determine whether your tax return reflects your full obligations under the Canadian Income Tax Act. If it is determined that you did not meet your full income tax obligations, the CRA tax auditor will issue a tax reassessment requiring you to pay the tax liability that CRA says that you owe. Since the purpose of a tax audit is to gather the information to check whether a taxpayer’s tax return is accurate, the powers granted to CRA auditors under the Canadian Income Tax Act all deal with compelling taxpayers to provide CRA with information and documents. The CRA is entitled to enter into any place where business is carried on in order to do this and does not require a warrant so long as they place they are entering is not a dwelling-house. Tax Act allows CRA auditors to compel taxpayers to produce any information that they have for any purpose related to the administration or enforcement of the Canadian Income Tax Act.

CRA Tax Collections

Once you have been issued a tax assessment or reassessment, you owe money to CRA. Even if you have been assessed taxes incorrectly, the tax debt will exist at law until the CRA or the tax court vacates the tax assessment. The tax collections department of the CRA takes the tax amount for which you were assessed as correct and owing, and uses the powers it is granted under the Income Tax Act to collect the full amount of all outstanding assessed tax amounts, including any interest or penalties The Canadian Income Tax Act gives CRA tax collectors a number of different powers to assist them in their mandate of collecting all outstanding tax debts, all without having to go to court. The Canadian Income Tax Act gives CRA tax collectors the power to garnish debts owed to a taxpayer with an outstanding tax debt. Debts owed to a taxpayer include money held in a bank account, wages owed to an employee, and receivables owed to a business by its customers.

The Canadian Income Tax Act gives CRA tax collectors the power to seize goods owned by the taxpayer for sale at public auction to cover the outstanding tax debt. Prior to exercising this power, the CRA must give the taxpayer 30 days notice via registered mail addressed to the taxpayer’s last known address. If the taxpayer still has not paid after 30 days, the CRA may issue a certificate of failure and direct for the taxpayer’s goods to be seized. If you are receiving letters from CRA indicating that they may decide to seize your goods, you should immediately contact us.

For most tax debts arising under the administration of the Canadian Income Tax Act, the debt is not collectible for 90 days following the issuance of the assessment or reassessment that gave rise to the tax debt. This means that the CRA cannot exercise its tax collection powers until that 90 day period is over. This non-collectible period can be extended if you file a formal Notice of Objection to the tax assessment. If you have a tax issue it is essential to act quickly to avoid collection action being taken by CRA. Tax debts arising from source deductions or GST/HST do not receive the 90 grace day period and are collectible immediately.