Can CRA collect old debts? - Collections Limitation Period

The period in which tax debts can be collected from taxpayers is generally referred to as the CLP (Subsection 222(4)). The CLP begins on the 91st day after the last notice of assessment or reassessment is sent (certain other notices may also be relevant where a taxpayer leaves Canada; Subsection 226(1)). Where there was a tax debt on March 4, 2004, and no subsequent notice of assessment or reassessment was sent, the CLP begins on March 4, 2004. The CLP ends 10 years after the day on which it began, but can be restarted or extended. CRA has a webpage (link to: https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/when-you-money-collections-cra/collections-limitation-period.html) dedicated to the CLP.

The CLP is restarted on the day that (Subsection 222(5)):

• the taxpayer acknowledges the tax debt;
• the Minister commences an action to collect the tax debt; or
• the Minister assesses a person in respect of the debt (under Subsections 159(3), 160(2) or Paragraph 227(10)(a)). These provisions primarily target legal representatives who have made distributions without clearance certificates, directors of corporations who have failed to remit source deductions, others who have failed to withhold, and those who have made transfers to non-arm’s length parties at a time when a debt is owed.

 “when CRA last attempted to collect the debt”

The CLP may be extended for days in which (Subsection 222(8)):

• CRA is unable to take collection action because the taxes are under objection or appeal;
• CRA is prevented from taking collection action due to certain bankruptcy, insolvency or similar restructuring proceedings;
• CRA accepts and holds security; or
• the taxpayer becomes a non-resident after the (re)assessment is issued.

In a July 21, 2020 Federal Court case (Harrison vs. M.N.R., T-868-19), the taxpayer sought to have amounts refunded which the taxpayer argued were collected by CRA outside the CLP. The timeline was as follows:

• The taxpayer had originally claimed several losses and expenses related to investments in two limited partnerships (LP1 and LP2) in respect of the 1988 taxation year. Both investments were subsequently audited.
• A settlement agreement in respect of LP1 was processed in 1995, which left a balance owing for the 1988 tax year in excess of the taxes related to the LP2 dispute.
• Around the same time, a reassessment of the taxpayer’s 1988, 1989 and 1990 tax years occurred in respect of LP2. These reassessments were also objected to, and were finally confirmed in 2010. They were then appealed to the Tax Court in 2011.
• In 2014, the LP2 issues were resolved by consent judgement. Also, while aspects relating to LP1 were also appealed, they could not be considered by the Court because they had already been closed with the settlement agreement. The consent judgment resulted in a refund due to the taxpayer for 1989 and 1990, which CRA appropriated, applying it to the 1988 tax debt still payable from the LP1 settlement agreement.

Taxpayer wins – was the appeal to the Tax Court an acknowledgement of the debt?

The Court determined that the filing of a notice of appeal to the Tax Court (January, 2011) did not constitute an acknowledgement of debt (which would restart the CLP), only that the taxpayer had acknowledged that the Minister deems a debt to be valid. The Court then noted, however, that the contents of the appeal could constitute acknowledgement of a debt. Upon examination of the submission, the Court found that it only disputed the validity of the assessments and did not admit or confirm the debt. Therefore, the action of appealing, and the contents of the appeal, did not trigger a restart of the CLP.

an appeal in itself does not constitute acknowledgement of debt, but the contents of the appeal may 

Taxpayer wins – did the appeal to the Tax Court extend the CLP?

The Court found that the denied losses from the first reassessment (related to LP1) were the subject of a binding settlement agreement and, as such, could not be appealed to the Tax Court. Only the denied deductions from the second reassessment (related to LP2) could be considered. Even though the LP1 issues were appealed, they did not extend the CLP because the taxpayer had no right to appeal them.

whether CRA was prevented from trying to collect

Editors’ comment

Since the LP1 amounts could not properly be appealed, it appears as if the Court is saying that CRA should have taken collection action, and not waited for the issues to be decided by the Courts.

Taxpayer wins – did the third reassessment initiate a new CLP?

Since the debt from the first assessment (related to LP1) was outstanding on March 4, 2004, the start of the CLP was also March 4, 2004 (Paragraph 222(4)(a)). Without restarting or extension it would expire on March 4, 2014. The third reassessment (relating to the LP2 consent judgment) occurred on December 19, 2014, several months after the initial CLP for LP1 had ended. The Court found that a new assessment which occurred outside of the CLP could not extend or restart the expired limitation period.

As nothing caused the CLP to be restarted or extended before it expired on March 4, 2014, a subsequent reassessment could not restart the CLP. Therefore, the Court found that CRA’s decision to reappropriate the refund, rather than return it, was unreasonable and not justified.

Editors’ comment

The rules in the respect of the CLP for GST/HST purposes (Excise Tax Act Section 331) effectively mirror those in the Income Tax Act. The CLP for payroll deductions is six years.

Tax debts on which CRA took no collections action for over 10 years could not later be collected due to the collection limitation rules, even though other issues related to the tax year were still under dispute.