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Federal revenue agency writes off billions in 'uncollectible' tax debts

Canadian Press THE CANADIAN PRESS

OTTAWA - The federal revenue agency has written off at least $4 billion in debts in the last two years - including accounts worth more than $10 million, newly released records show.

Debts were declared uncollectible because those owing had died, gone bankrupt, could not be located or lived outside Canada, according to Canada Revenue Agency records obtained under the Access to Information Act.

In other cases, officials considered it not worth the expense to track down the money owing, or they reached a compromise settlement with the debtor.

The revenue agency says it makes every effort to collect all tax debts from those who do not pay voluntarily.

Murray Rankin, the NDP's deputy revenue critic, questioned whether the government is doing enough to collect the substantial sums owed to the federal treasury.

“They are not going after international tax debt the way they should be,'' Rankin said in an interview after reviewing the newly disclosed documents.

The outstanding balance in undisputed, unpaid taxes was $29 billion as of March 31, 2012, the federal auditor general reported in a 2013 examination of the issue.

According to the latest federal public accounts, the Canada Revenue Agency wrote off $3.4 billion in debts in 2013-14, representing the lion's share of $3.7 billion in total federal write-offs.

The newly disclosed revenue agency records do not align neatly with fiscal years, but span the period from Jan. 12, 2013, through Oct. 10, 2014, when just over $4 billion was written off.

Names and other identifying information have been stripped from the records for privacy reasons. However, they provide insight into the scope, nature and frequency of the revenue agency's decisions.

A January 2015 memo to revenue commissioner Andrew Treusch covered just one segment of the write-offs during the 2014-15 fiscal year, involving 700 accounts totalling more than $306 million.

Magali Deussing, a federal revenue agency spokeswoman, declined to make anyone available for an interview about the figures.

A decision on whether an account is uncollectible and can be written off is based on rules set out in the Financial Administration Act and other legislative authorities such as the Bankruptcy and Insolvency Act, Deussing said in an emailed statement.

Under the law, an account may be submitted for write-off only if “there is no reasonable prospect of recovery,'' she said.

The heavily censored revenue agency records say the department's Uncollectible Debts Committee examined all relevant documents in coming to their decisions.

The records indicate that between July and October last year, there appeared to be at least two cases in which the write-offs exceeded $10 million apiece.

The emphasis a government places on debt collection is “all about political priorities,'' Rankin said. “Are they going after them as aggressively as they might in other countries?''

Allowing debtors that owe more than $10 million off the hook with “a stroke of the pen appears to be disturbing,'' he added.

Concerns surrounding international tax evasion and aggressive tax avoidance using offshore accounts are not exclusive to Canada – they are worldwide problems, Deussing said.

The government's latest budget included additional monies to address tax avoidance by large organizations as well as offshore non-compliance, she noted.

When a debt is declared a write-off, it does not eliminate the taxpayer's obligation to pay, Deussing added.

The revenue agency “has the right to collect the debt in the future, if and when the taxpayer is located or the taxpayer's financial situation improves.''

Toronto tax lawyer David Rotfleisch says, "Bankruptcy (or a Consumer Proposal or a regular Commercial Proposal) is a common technique that I use for clients with large tax debts. 

"While many taxpayers are surprised that they can eliminate their debts under the Bankruptcy and Insolvency Act (BIA), tax and insolvency professionals are of course aware of this and make use it on behalf of their clients all of the time," says Rotfleisch, founding tax lawyer at Rotfleisch & Samulovitch Professional Corporation. "So it does not surprise me at all that there are large write-offs of tax debt.  It is entirely normal for people to be unable to pay debts including tax debts."

Rotfleisch notes that CRA collection officers are "already extremely aggressive in their collection tactics, so I don't expect that more resources will be devoted to collections, or if more resources were to be deployed, that it would make any difference.  I also suspect that the real tax amount written-off may be lower."

He says it's important to realize "that in many cases the interest and penalties owing exceed the actual tax debt.  So if $4 billion has been written off, probably only $2 billion of that is taxes owing. 

"Also in some cases the amount CRA assesses may be too high, but the taxpayer decides to declare bankruptcy rather than fight the assessment.  This would also reduce the actual amount of lost taxes," says Rotfleisch.

"Finally the BIA was amended several years ago to require payments against  tax debts in excess of $250,000 before receiving a discharge, unlike regular bankruptcies where there is an automatic discharge after nine months in the case of a first bankruptcy," he adds.

- With files from AdvocateDaily.com

© 2015 The Canadian Press

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