Accounting for Law

CRA can 'reset' limitation period on tax debt collection

The Canada Revenue Agency (CRA) may be prevented from collecting tax debts that are more than 10 years old — but only if there has been no collections action from the agency during that time, Toronto tax litigation lawyer David J. Rotfleisch writes on

As Rotfleisch, founding tax lawyer at Rotfleisch & Samulovitch Professional Corporation, says, subsection 221(3) of the Income Tax Act provides that the CRA may not commence or continue an action to collect a tax debt after the end of the limitation period for the collection of the debt.

“The prescribed limitation period in the Income Tax Act is 10 years; this means that after 10 years, the Canada Revenue Agency is legally prevented from collecting on a tax debt,” he explains.

However, Rotfleisch says the act also allows for the Minister of National Revenue to extend the limitation period. Effectively, it is “reset” if the tax department carries out any action to collect the tax debt, such as sending out a demand to pay letter.

“Also, if the Minister assesses any third-party in respect of the tax debt, for example a spouse or relative by way of derivative assessment, then the limitation period is reset. In addition, if the taxpayer (or the taxpayer’s legal representative) acknowledges the debt, the 10 year limit will again reset,” writes Rotfleisch.

“Essentially, every time that the tax collectors continue with collections action, the 10 year limitation period ‘restarts’. If there is no collection action for a period of 10 years plus one day, no taxpayer (or taxpayer’s legal representative) acknowledging the debt in the past 10 years, and no derivative assessment is issued against a third-party, the CRA will be statute barred by the 10 year limitation period to continue or restart collection action.”

As such, Rotfleisch says the only thing that a tax debtor can do to avoid prolonging the collection period is to avoid acknowledging or paying the debt. Taxpayers in this situation, he writes, should also seek professional tax advice.

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