Recently, I was contacted by a small business owner who had an unpleasant conversation with a Canada Revenue Agency (“CRA”) collections officer about an outstanding goods and services tax/harmonized sales tax (“GST/HST”) assessment against his small company (of which he was a director). The CRA collections officer had threatened to send the sheriff to his house that very day to seize personal assets. When I called the CRA collections officer, she suggested to me that she merely discussed the director’s liability process to the small business owner. What became clear to me is that the CRA was not clear in what was said because the lack of clarity could result in payments against the outstanding debt. The CRA collections officer was deliberately attempting to make the small business owner fearful.
However, what was actually happening is that the CRA collection officer had completed a direction to the sheriff to determine the assets of the reassessed corporation. If the sheriff prepares a “No Assets” report, then the CRA could issue a director’s liability assessment under section 323 of the Excise Tax Act. Only after the CRA issues a director’s liability assessment against the small business owner could the CRA ask the sheriff to seize personal assets. The problem in this case was that the address provided by the small business owner for the business was his home address. It was for that reason that the sheriff would come to the home to determine if the corporation has assets that could be seized.
What needed to be done was satisfactorily resolve the corporation’s GST/HST reassessment issues. The following are tips to keep the CRA collections officer happy and away from personal assets from the small business owner.
1. Do not use your home address as your business address. If you have an operating business and a business location that is not your home, use that address for communications with the CRA. If the CRA collections officer issues a direction to the sheriff to prepare an assets report, the sheriff would go to the business address.
2. See if you can enter into a payment arrangement with the CRA to satisfy the corporation’s debt. The best way to avoid a director’s liability claim is to make sure there are sufficient assets in the corporation. The payment arrangement usually will be acceptable is it covers 6-24 months (that is you give post-dated cheques to pay the debt over time).
3. If you have a payment arrangement and have provided cheques to the CRA collections officer, you may provide proof of such arrangement to the sheriff. The sheriff usually takes this into consideration when preparing an assets report. If the assets report does not state that there are no assets, the CRA may not be able to issue a director’s liability claim (depends on the facts).
4. If you enter into a payment arrangement, ensure there are sufficient funds in the account to pay the cheques. If a cheque is returned NSF (not sufficient funds), then the CRA collections officer will look at other options to get the money.
5. During the period of the payment arrangement, make sure you are up-to-date on all CRA filings and payments (including GST/HST, income tax, payroll taxes, etc). CRA collections officers are nervous fellows and gals and they will get concerned if the debts of the corporation start increasing. This means that the cheques they have no longer cover the outstanding liability and that the outstanding liability will not get paid.
6. While the company is paying off the debt, apply for interest relief. If the CRA accepts your interest relief request, your outstanding debt will decrease. Every little bit helps.
7. While the company is paying off the debt, if you are able to make a significant payment, do so. This stops the interest clock on the amount you paid.
8. If you have nothing to hide (and even if you do have something to hide), be honest with the CRA collections officer. Things you say may cause the CRA collections officer to become concerned.
9. Along the same lines, provide the information that is requested by the CRA collections officer. If the CRA collections officer trusts you, he/she will be more likely to exercise discretion.
10. Always remember to be civil. The CRA collectinos officer has a job to do. It does not become personal unless you make it personal. Know that they have a supervisor that wants to see results. Help them to their job.
Bonus tip: If you cannot make it work with a CRA collections officer because of a personality conflict between you and her/him, ask to meet with the CRA collections officer and his/her supervisor. Do not use this opportunity to rant at the supervisor because you will only show the supervisor that the CRA collections officer is right about you. Take the opportunity to press the reset button of the relationship. You need a positive resolution to your GST/HST problems.