How we may make another person or entity also responsible for your debt – Debt collection at the CRA

When you have a debt with us, there could be consequences for transferring property to an individual or corporation. This allows us to issue an assessment to a third party and collect your debt from them.

We can issue this assessment when all of the following are true:

• You had a debt in the year of the transfer, or a prior year
• You transferred a property to an individual or corporation that is non-arm's length
• It was for less than fair market value

The amount of the assessment will be for the difference between the fair market value of the property and what the recipient paid for it. The assessment will only include debt that was incurred up to, and including, the date of the transfer.

For more information, refer to: Income Tax Folio S1-F5-C1, Related Persons and Dealing at Arm's Length

If we send you a copy of a garnishment, the recipient of the original document must legally comply with it. If they fail to do so, they will become responsible for the amount they don't pay. Then we can take legal action to collect from them.

They can become responsible if they:

• Don't pay the CRA when they owe money to a taxpayer
• Continue to pay the taxpayer amounts they are legally required to pay to the CRA
• Pay someone else on behalf of the taxpayer, such as a relative or another creditor, instead of the CRA
• Loan or advance money to the taxpayer within 90 days from the date they receive the garnishment, as specified in the terms of the Requirement to Pay (RTP) or Enhanced Requirement to Pay (ERTP)

Refer to: How to process a garnishment from the CRA

A clearance certificate confirms all amounts due to the CRA have been paid, or that we have accepted security for the debt.

When you are a legal representative of an estate, business or property, you must ask for a clearance certificate once the debts have been paid and before you distribute any assets.

If you don't get a certificate, we can hold you responsible for any amounts that are still owing.

This does not apply to you if you are a trustee in bankruptcy.

Refer to:

• Apply for a clearance certificate
• Authorizing a legal representative

When you have a business, you play an important part in the Canadian economy. You collect payroll deductions and GST/HST amounts on behalf of the government (in trust). These are important sources of revenue for the government. This allows the government to support social programs and address priorities that impact all Canadians.

If you don’t remit these amounts, we may collect from the directors of the corporation or the creditors of the business.

Collecting amounts from directors of corporations

You are responsible for making sure the corporation meets its obligations while you are a director. When a business doesn't deduct, withhold, or pay trust amounts during this time, we can issue a directors’ liability assessment against you.

This assessment makes you personally responsible, together with the corporation, to pay part or all of the corporation’s trust debt. It allows us to take legal action against you to collect the debt as it would from the corporation. This includes penalties and interest associated with these trust amounts.

Collecting amounts from creditors of businesses

When a business has payroll deductions or GST/HST unpaid amounts, the amount of the deemed trust debt becomes secured to us over all your assets, even if you gave any security interest to other creditors. We also have priority over the proceeds of the sale of any of your assets.

We don't have to register deemed trust debts in a public registry, such as a personal property security registry or a land titles office registry.

For example:

• Your business has payroll deductions or GST/HST amounts due
• You sold a business asset
• You used the funds from the sale to pay a debt to a creditor, instead of paying your deemed trust debt to us

Then, we can send a deemed trust claim letter to this creditor because of our priority over the proceeds from the sale.

Exception - Insolvency event

We can't send a GST/HST deemed trust claim to a secured creditor who received funds from the sale of a taxpayer’s assets following an insolvency event. In this situation, we would only be able to send the claim if we had established our security interest before or upon the filing of the insolvency event.

An insolvency event can include:

• Filing for bankruptcy
• Filing a proposal
• Companies Creditor Arrangement Act proceeding

Deemed trust priority can be a complicated issue. You may wish to seek legal or professional advice.

For more information, refer to: Information on deemed trust