Canadian tax collection provisions.

• Author: Murray, Blake

The Expert: Blake Murray

A Canadian income tax assessment or GST/HST assessment triggers an immediate payment obligation and is subject to collection action by the Canada Revenue Agency (CRA), notwithstanding that the taxpayer is formally disputing the assessed amounts. It is important for taxpayers facing large Canadian tax assessments or negotiating indemnification provisions in respect to Canadian taxes to understand the operation of the collection provisions and what payment arrangements may be available.

Question: What are the ground rules on payment arrangements for unpaid assessments of Canadian income tax or GST/HST?

Answer: The basic ground rule is that an assessment of income tax or GST/HST creates a debt that is immediately payable to the Canadian government. Collection action may be suspended if the taxpayer posts security that is acceptable to the CRA, but the rules vary as to when the CRA must accept security.

HOW MUCH OF THE ASSESSMENT IS SUBJECT TO COLLECTION ACTION?

There are significant differences in the collection provisions applicable for Canadian federal income tax purposes and GST/HST purposes, although the regimes are substantially similar.

For Canadian income tax purposes, subject to reaching an arrangement with the CRA to post acceptable security, a "large corporation" (i.e., a corporation with more than $10 million of capital) must pay fifty percent of the amount assessed as owed by it in respect to corporate income tax, interest, and penalties that are in dispute under a valid notice of objection and one hundred percent of any amount assessed as owing in respect to the nonresident withholding tax that are subject to an objection.

For GST/HST purposes, subject to reaching an arrangement with the CRA to post acceptable security, the taxpayer must pay one hundred percent of any amount assessed by CRA as owed by the taxpayer as GST/HST.

WHEN CAN A TAXPAYER POST SECURITY?

The rules with respect to accepting security apply only to amounts that are being disputed under a notice of objection. The Income Tax Act (ITA) requires the CRA to agree to "acceptable security" in lieu of payment of an assessment of nonresident withholding tax. Similarly, the Excise Tax Act requires the CRA to agree to "acceptable security" in lieu of payment of an assessment of GST/HST. However, the CRA has discretion as to whether to agree to accept security for an unpaid assessment of corporate income tax, interest, and penalties. CRA's...