CRA COLLECTIONS: Potential Impact on Business

Posted on May 12th, 2022 in Domestic Tax

As some businesses struggle with cash flow, they may be motivated to prioritize suppliers and other creditors ahead of CRA. A recent court case demonstrates CRA’s power to collect tax arrears and the impact of CRA exercising this power on a business.

In a June 11, 2021, Court of Queen’s Bench of Alberta case, the taxpayer had fallen into arrears in respect of both GST/HST and payroll remittances. Payment arrangements were entered into with CRA to assist in meeting the obligations. However, after failing to meet the agreed-upon terms, requirements to pay (RTPs) were issued to several of the taxpayer’s clients.

RTPs are legal documents that require recipients (the taxpayer’s clients in this case) to submit payment to CRA rather than the taxpayer. The RTP gives priority to CRA over most other creditors.

After the taxpayer had renegotiated a new payment plan, all RTPs were cancelled except for the one to its largest client. After struggling to meet the new payment plan and facing a new withholding liability, CRA once again issued RTPs. Shortly after, the taxpayer lost its largest client (the one that the sole RTP had been issued to previously).

The taxpayer advised CRA that it was considering receivership, which led to the seizure of assets and issuance of more RTPs. One client sent a letter to the taxpayer that noted that CRA had visited them personally to serve the RTP and implied that the taxpayer could be out of business or shut down. Further, the client noted that they were asked by CRA whether they could get their parts from alternate suppliers, and the client indicated that they were now considering doing so.

Taxpayer loses

The court found that CRA and its agents did not owe a duty of care to the taxpayer, that there was no negligence, and that the government’s actions did not unlawfully interfere with the economic relations of the taxpayer.

ACTION ITEM: CRA can collect your tax liability by requiring your clients to pay them rather than you. To limit the business and operational issues arising from an RTP, steps should be taken proactively to communicate with CRA collections.

Download

Article originally published in: Tax Tips & Traps 2021 Third Quarter – Issue 135