Tag: unremitted hst

HST REMITTANCE REVIEW: UNPAID HST & THE DIRECTOR’S JOINT BANK ACCOUNT

Post author By Brandon Smith
Post date March 11, 2020

Introduction

I have previously written about joint bank accounts and joint credit cards. I recently read a decision of the Tax Court of Canada that will be of interest to every entrepreneur whose company may be behind in their HST remittance and who has a joint bank account with their spouse.

Joint bank account considerations

Opening a joint bank account is a relatively easy procedure. People who share a joint savings or chequing account can each make deposits and withdrawals from the account without the signature of the person they share the account with. As a matter of fact, any person listed on the joint account can close it using proper identification. Data held by a bank on the owners of the joint account, similar to any other account, consists of personal identifiers of the holders of the account, which enables anyone legally authorized to get that information.

I have written before on the dangers of a joint bank account. The dangers have nothing to do with the bank per se. They are more non-bank related. Examples of problems include:

Sometimes moms and dads will share an account with a small child. The reason is to begin providing the youngster with financial literacy education. However, if you share a bank account with your minor child and your spouse, you are taking a chance that your partner can access that joint bank account that you share with your child without your authorization.
There is a threat with a joint account between partners when you have a saver as well as a spender who each has access to the account without the other’s signature. It can trigger family, relationships or business problems.

I wanted to give this brief background information, but it is not what is of most interest to entrepreneurs. The following Tax Court of Canada decision which I will now describe is.

Tammy White and Her Majesty The Queen facts

This judgement was rendered on February 4, 2020, in the Tax Court of Canada in Vancouver, BC. Ms. White appealed an assessment by Canada Revenue Agency (CRA) against her under subsection 160(1) of the Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.)) (Income Tax Act) and subsection 325(1) of the Excise Tax Act (R.S.C., 1985, c. E-15) (Excise Tax Act). You will recall that last week, I spoke about the danger of receiving transfers of property from someone who owes money to CRA in my blog, DO YOU INHERIT DEBT IN CANADA: CRA SAYS YES TO PROPERTY TRANSFERS. That blog dealt with debt in death and the deceased Estate. This week, nobody died. You are probably wondering what this has to do with entrepreneurs and joint bank accounts. I will now tie it all together. I promise!

The appeal deals with the concern of whether the deposit of funds by a person into a joint account held with the entrepreneur’s partner comprises a transfer of property under subsection 160(1) of the Income Tax Act and subsection 325(1) of the Excise Tax Act.

The facts of the case are as follows:

On March 1, 2016, Mrs. White was assessed $49,962.45 under section 160 of the Income Tax Act and $90,886.35 under section 325 of the Excise Tax Act. She appealed both assessments to the Court. The assessments are a result of amounts that her husband, former business owner Andy White, apparently moved to his wife between March 15, 2013, and October 30, 2015.
On March 26, 2014, Andy filed a consumer proposal under the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (BIA).
Department of Justice counsel on behalf of CRA at the hearing backed off part of the claim by agreeing that any kind of purported transfers made after the date of the consumer proposal is beyond the range of the assessments in concern in this appeal.
Tammy and Andy were married in 1984 and always held the same joint bank account.
For the last 35 years, Andy and Tammy have made use of the joint bank account to pay their personal expenditures and the costs of running their family household.
Andy was a part-owner of White & Davidson Logging Limited, a company he started working for from a very young age.
The company began to experience financial troubles in 2004 as a result of weak demand in the British Columbia forestry industry and also a government-mandated decrease in cutting rights. These troubles resulted in the business selling its assets in 2006 and discontinuing business. At the time the business stopped operating, it had not remitted all amounts it had held back as payroll source deductions. It also did not make the required payment of the amounts it owed as HST tax obligations. Accordingly, it was not current in its tax obligations and did not make its final payroll or HST remittance.
Andy was a Director of the defunct company and therefore was assessed by CRA personally for the company’s unremitted payroll source deductions and unpaid HST.
After a while, and after being assessed by CRA, Andy eventually found full-time employment and deposited his pay into the joint bank account he shared with Tammy.
Andy owed CRA almost $91,000 for the company’s unremitted HST.
Tammy was also employed in a retail store. In the late 1990s, she opened up a bank account only in her name. Her pay was deposited into that new account.
Tammy was the sole owner of the family’s home. She admitted under oath that she made payments out of the joint account to pay the mortgage, utilities, property taxes and any other costs of running the home.
Certain amounts were also transferred from the joint account into Tammy’s personal account.

The issues

The issues are fairly narrow. In last week’s blog, I went through the criteria a court must look at to determine if there was a transfer of property at a time when the transferor owed an amount to CRA. You can refresh yourself on the criteria by clicking here.

CRA’s position was that a transfer of property from Andy to Tammy took place the moment his pay was deposited into the joint bank account. They also stated that Tammy gave no consideration for this.

Tammy’s position was that no transfer could have taken place by merely depositing the funds into the joint bank account. Andy maintained full control of the money. CRA, or the Sheriff, acting on a valid judgement, could garnishee Andy’s share of the funds in the joint bank account.

At the time in question, Andy’s pay that was deposited into the joint bank account totalled $89,806.72.

The Court’s decision

The court did not agree with CRA. The Judge found that:

Just depositing the funds in a joint account does not comprise a transfer. Mr. White did not unload himself of the funds when they were deposited into the joint account. He continued to have complete access to the funds in the account. As a matter of fact, the evidence was that Andy, as he had done since 1984, used some of the funds to pay his personal expenses and specific costs of his household.
Andy did not defeat or whatsoever prevent the Minister of Revenue from collecting any tax he owed by placing his compensation in the joint account. CRA could have taken collection activity relative to funds in the joint account. In fact, part of the evidence before the court was that the joint bank account was garnished by a third party to repay one of Andy’s debts.
As soon as the funds were put in the joint bank account, Tammy had the ability to impact a transfer. Nonetheless, such transfer did not happen until the funds were removed from the joint account and placed into the account only in Tammy’s name.
The Judge was very critical of CRA. They did not properly identify funds taken out of the joint account and put into Tammy’s account. There was limited evidence before the court. So, the Judge had to “guesstimate” as best as possible from the scant evidence how much was transferred from the time Tammy opened up her sole account and the date of Andy filing a consumer proposal.
The Judge determined that the amount of property Andy transferred to Tammy during the relevant period for no consideration was the amount of $34,052.
Accordingly, the Judge allowed the appeal and vacated the assessment. He referred it back to the Minister of Revenue to reconsider a reassessment of Tammy in the amount of $34,052.

HST remittance and the entrepreneur

So what does this mean for the entrepreneur? It tells me that if you are:

Director of an insolvent company that owes unremitted source deductions or unpaid HST;
the company goes either into receivership or bankruptcy or otherwise has to shutdown;
you are assessed personally by CRA because you were the Director; and
you get another job and deposit your pay into a joint bank account you hold with a spouse or child.

Your spouse or child will not be liable under the property transfer laws of the Income Tax Act and/or the Excise Tax Act by the mere depositing of your money into the joint bank account. What it also tells me is, if you are in this situation and do not have a joint bank account, maybe you should! If so, go back to the “Joint bank account considerations” section of this blog to see if it is the right thing for you to do in your situation.

Summary

I hope you enjoyed this blog on HST remittance and joint bank accounts. The Ira Smith Team is available to help you at any time. We offer sound advice and a solid plan for Starting Over Starting Now so that you’ll be well on your way to a debt-free life in no time.

Do you or your company have too much debt? If yes, then you need immediate help. The Ira Smith Team comprehends just how to do a debt restructuring. Much more notably, we know the demands of the business owner or the person who has too much debt. Due to the fact that you are managing these stressful financial problems, you are anxious.

It is not your fault you cannot fix this issue on your own. You have just been shown the old ways. The old ways do not work anymore. The Ira Smith Team makes use of new contemporary ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief now.

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We understand that individuals facing financial troubles require a lifeline. That is why we can establish a restructuring procedure for you as well as end the pain you feel.

Call us now for a no-cost consultation. We will certainly get you or your business back on the road to a well balanced and healthy life and end the pain factors in your life, Starting Over, Starting Now.

Tags Bankruptcy, Bankruptcy and Insolvency Act, BIA, Consumer Proposal, Debt, deceased estate, excise tax act, financial literacy, financial trouble, hst, hst remittance, income tax act, joint bank account, joint bank accounts, receivership, tax court of canada, unremitted hst, unremitted source deductions

Brandon Blog Post

WILL CRA CONTACT ME IF I DO NOT PAY?

Post author By Brandon Smith
Post date June 3, 2019

If you would prefer to listen to the Brandon’s Blog CRA contact audio version, please scroll down to the bottom of the page and click on the podcast

Introduction

It seems that more often than not, the Canada Revenue Agency (CRA) is a creditor in the personal or corporate insolvency matters that I get involved with. Many times the person, be they just an individual, an unincorporated business owner or the President of the company, will ask, “will CRA contact me if I do not pay?”.

In this Brandon’s Blog, I discuss the various ways CRA will contact the responsible individual, be they the taxpayer or the authorized representative of the taxpayer company.

Types of CRA debt

The following types of tax debt are the usual ones that a person in Ontario might owe:

personal income tax
unremitted source deductions or HST of an unincorporated business
Director liability for corporate unremitted source deductions or HST

The following types of tax debt are the usual ones that an Ontario corporation might owe:

corporate income tax
unremitted source deductions or HST

Most likely CRA has already contacted the insolvent person or company before they come to see me for a free consultation. The reality is that when someone owes money to Revenue Canada and gets one of those unique brown envelopes in the mail, they tend to feel sick in the stomach. So, although they may keep the envelope and its contents, they certainly don’t wish to look inside it.

Let’s look at the various ways CRA has to contact a taxpayer and for CRA payment arrangements to be made.

Ways you and the taxman can communicate

Notice of Assessment or Reassessment

The first way CRA will contact you is by sending a notice of assessment or reassessment to the individual or corporate taxpayer. This is a notice that explains the reason for the (re)assessment, the calculation and the amount owing. There is no need to talk about the situation where the taxpayer pays the balance in full on time. I am talking about the situation when the taxpayer cannot afford to pay the amount owing.

Be proactive

If you cannot pay the total you owe, be proactive by getting in touch with the CRA as soon as possible. Overlooking your debt does not make it vanish. As a matter of fact, ignoring it might make things worse. This is the same whether it is a personal debt or a corporate debt.

The CRA tacks on interest at the prescribed rate compounded daily. You can’t avoid this because whether you realize it or not, CRA has become your lender for any unpaid amounts. By taking action first, you can at least ward off a much worse result. So you contacting CRA is the first and best way to make the connection.

I will discuss below what your options are concerning amounts you cannot pay off immediately, but first, I want to discuss other ways that the CRA will contact you if you first don’t contact them.

Telephone or letter

If the taxpayer does not contact CRA to work out a payment arrangement (discussed below), CRA will then communicate with the taxpayer. The amount owing is assigned to a collections officer who will contact the taxpayer by telephone, letter or both.

If the taxpayer responds to that outreach, the collections officer will attempt to obtain payment. The collections officer will also ask many more questions. If the taxpayer is a company, the collections officer may also make an appointment to go visit the company to review its financial records.

The purpose of asking the questions and reviewing corporate financial records is to attempt to determine if any money is owed to the taxpayer by third parties and where does the taxpayer maintain bank accounts.

Garnishment by a Requirement To Pay

Armed with the information obtained from the taxpayer’s tax filings and any additional information collected through discussions or reviews, the next level of CRA contact to get the taxpayer’s attention is not with the taxpayer, but rather with third parties. A Requirement To Pay (RTP) is a lawful notification that the CRA sends out to a 3rd party when:

the CRA thinks that the 3rd party owes or will owe money in the future to the taxpayer that has not paid their tax obligation; and
the CRA has not been able to collect the taxpayer’s debt or make an appropriate settlement plan with the taxpayer.

The RTP advises the 3rd party to send the money the third party owes to the taxpayer to the CRA, rather than the taxpayer. The RTP reveals the taxpayer’s name, address, and the CRA account number.

The RTP is the way the CRA uses to garnishee bank accounts, wages or any other amount owing by a third party to the taxpayer. An RTP can garnishee all sorts of repayments a 3rd party might make to a taxpayer. The more common ones are:

income, earnings, payments, bonus offers, or various other amounts owing by an employer to an employee;
repayment of expenses owed to an employee;
amounts due to a professional or contractor for work performed, products, or services;
lease or rent payments;
loan payments;
interest or dividend payments;
insurance claim settlements
amounts on deposit at a financial institution

Seizing your assets

A garnishee through an RTP is to intercept and seize payments from a third party to the taxpayer. But what if there is no such third party that exists or can be found but the taxpayer has assets?

In that situation, the CRA has the power to seize assets found registered in the name of the taxpayer. This is how CRA goes about doing it. The CRA can lawfully register your debt with the Federal Court of Canada. By doing so they get a certificate validating the amount you owe to the Crown. As soon as it is issued, this certification, called a memorial, has the same or even greater impact as a judgment if someone sued you.

Now that the CRA has the memorial, they can register it against any assets in your name. This includes your home and its possessions owned by the taxpayer. The CRA rarely actually takes physical possession of the assets, but in most cases, they don’t need to. It will be impossible to sell or refinance your assets with the CRA memorial registered against it under provincial law. So when that time comes, the taxpayer will have no choice but to deal with the CRA on the outstanding debt, one way or the other.

Here are different ways that you can deal with the CRA on your tax debt if you cannot pay it now in full.

Payment arrangement

This is the first and most hassle-free way of paying off your tax debt. A payment arrangement is a settlement plan you make with the CRA. It enables you to make smaller regular payments over time until you have paid your whole tax debt plus interest.

Prior to agreeing to the settlement plan, the CRA collections officer will want to know that you are paying the maximum amount you can afford. Hopefully, the amount you can pay is at least the same as the minimum monthly amount the collections officer is willing to accept.

So, the collections officer will ask you all sorts of questions and may even want you to complete a questionnaire, so that they understand your monthly budget as part of any debt settlement plan.

As part of making a payment arrangement, you should also be working with your accountant to see if any of the taxpayer relief provisions are available to you. This blog isn’t meant to be a discussion of the income tax act or taxpayer relief, so, I won’t go into any more detail than that.

Any payment arrangement has to deal with 100% of the principal amount of tax owing plus interest. Unfortunately, the collections officer does not have the authority to make a deal to accept less than full payment, absent an insolvency proceeding (further discussed below).

Insolvency proceeding

If you cannot reach a satisfactory payment arrangement with the CRA, or you have one but can no longer keep up with the payments, then, the taxpayer can consider an insolvency filing. In the case of an individual, it would be either bankruptcy or a consumer proposal. For a corporation, it would be either a Division I Proposal or bankruptcy.

Either bankruptcy or a proposal will stop CRA’s ability to issue a requirement to pay or obtain a memorial. However, if CRA has obtained and registered a memorial before the taxpayer files for either a restructuring proposal or bankruptcy, the memorial cannot be eliminated.

Similarly, for a corporation, unremitted source deductions form a deemed trust claim against the company’s assets. So in either a bankruptcy or financial restructuring proposal, this trust claim cannot be eliminated or reduced. However, for both individuals and companies, the income tax debt can be eliminated. For companies, the HST arrears will not be a trust claim in bankruptcy. Unlike a bankruptcy, HST arrears are not automatically made unsecured by the wording of the Bankruptcy and Insolvency Act (Canada). However, current CRA policy in financial restructuring proposals results in the HST arrears being treated as an unsecured claim.

Personal or corporate income tax is an unsecured debt. As soon as you’ve declared bankruptcy or filed the financial restructuring proposal, the CRA cannot begin or continue any action against you, including wage garnishment or freezing your assets, including your bank account. Your licensed insolvency trustee (formerly called a bankruptcy trustee) will alert CRA as soon as you submit your filing and advise it to quit any type of enforcement activity through any RTP. As I stated above, unfortunately, any memorial already registered will remain against your assets.

Do you have too much debt?

I hope you have found this CRA contact Brandon’s Blog to have useful information for you. Do you have too much debt? Are you in financial distress? Do you not have adequate funds to pay your financial obligations as they come due?

If so, call the Ira Smith Team today. We have decades and generations of experience assisting people looking for financial restructuring, a debt settlement plan and to AVOID bankruptcy.

As a licensed insolvency trustee (formerly called a bankruptcy trustee), we are the only professionals accredited, acknowledged and supervised by the federal government to provide insolvency advice and to implement approaches to help you remain out of personal bankruptcy while eliminating your debts. A consumer proposal is a government approved debt settlement plan to do that. We will help you decide on what is best for you between a consumer proposal vs bankruptcy.

Call the Ira Smith Team today so you can eliminate the stress, anxiety, and pain from your life that your financial problems have caused. With the one-of-a-kind roadmap, we develop just for you, we will immediately return you right into a healthy and balanced problem-free life.

You can have a no-cost analysis so we can help you fix your troubles. Call the Ira Smith Team today. This will allow you to go back to a new healthy and balanced life, Starting Over Starting Now.

Tags Bankruptcy, Bankruptcy and Insolvency Act, Canada Revenue Agency, CRA, cra contact, cra payment arrangements, director liability, financial restructuring, Ira Smith Trustee, notice of assessment, onsumer proposal, payment arrangement, requirement to pay, Revenue Canada, tax debt, unremitted hst, unremitted source deductions, wage garnishment

Brandon Blog Post

MORTGAGE LENDING CRITERIA SELF EMPLOYED: BIGGEST MYTH MAY BE RIGHT

Post author By Brandon Smith
Post date July 4, 2018

Mortgage lending criteria self employed: Introduction

Mortgagees rely upon the provincial land registry system to decide what obligations are secured against real property and in what order of priority. When it comes to mortgage lending criteria self employed, a recent Court decision has proven that when it comes to a self employed person’s mortgage, if there is a deemed trust claim by Canada Revenue Agency (CRA), you cannot solely rely upon the registry system.

Mortgage lending criteria self employed: The Court case

The Court case I am referring to is Canada v. Toronto-Dominion Bank, 2018 FC 538 (CanLII) which was heard in Federal Court. In this matter, the Crown on behalf of Her Majesty looked to recover funds Toronto-Dominion Bank (TD) obtained from one of its clients who repaid a loan secured by a home mortgage upon the sale of his house. The client was a self employed person.

The Crown claimed that there was an outstanding deemed trust claim for collected but unremitted GST. The Crown further claimed that the proceeds from the sale of the home collected by TD was subject to the CRA deemed trust claim, was property of Her Majesty and that TD had to pay it over. TD did not take the position that it had a registered first charge and can keep the funds. It argued that as a “bona fide purchaser for value” it is not subject to the deemed trust claim and does not have to pay over the money.

Mortgage lending criteria self employed: The undisputed facts

The borrower carried on a landscaping business as a sole proprietor. In 2007 and 2008, he collected and did not remit GST totaling $67,854. TD held both a registered mortgage and a home equity line of credit (HELOC) against the borrower’s home. The home was sold in 2011. The borrower repaid the mortgage and HELOC in full from the sale of the home.

Almost two years later in April 2013, CRA made demand on TD for repayment of $97,327, revised in 2015 by amended demand for $67,854. TD refused to pay.

Mortgage lending criteria self employed: What the Court said

The Federal Court reviewed the legislation. The Court decided that the funds paid to TD were proceeds of sale of his property. Therefore, it is covered by the deemed trust CRA claim. So the Court found that the requirements of Section 222 of the Excise Tax Act were met.

The Court agreed with the Crown’s position that the deemed trust Canada claim covered the debtor’s house. This is in spite of there was no registration on title and that the Bank had proper valid registrations. The Court further agreed that according to Section 222(3) of the Income Tax Act, the Bank has an obligation to pay over the proceeds it received which were impressed with the deemed trust.

The Judge disagreed with TD’s position. TD stated that the payment of proceeds only applied if a secured creditor enforces its security. This was not the case in this situation. The Court further disagreed with TD’s position that it was a bona fide purchaser for value. The Court agreed that money could be considered property available in such a defence. However, it stated that a secured creditor facing a deemed trust claim could not use that defence. TD also offered certain public policy issues in its defence, but the Court was not swayed.

TD is liable to pay over the amount of $67,854, interest and costs.

Mortgage lending criteria self employed: So what is the biggest myth?

The biggest myth is as follows. To find out what claims against the real property, you only have to perform a title search.

This is an important decision for mortgage lending criteria self employed people. Now TD is in the position of having to make demand on and possibly sue in 2018 its borrower who ostensibly repaid the loan in full in 2011! It would be suing as an unsecured creditor.

What this means for mortgagees is that they can no longer just accept funds from a self employed person who wishes to pay off a loan, be it a mortgage or other type of loan, from the sale of property. It also cannot merely accept funds to pay off a loan from a self employed individual’s business bank account.

Mortgage lending criteria self employed: So what is the fix?

Rather, the lender also must now get a true copy of a statement from CRA showing that there are no amounts owing by the self employed person on account of either HST or source deductions as the employer of others.

Lenders would also be well advised to add language to their loan term sheet, loan documents and any other documents issued when a loan is repaid. The new language would be an attestation by the self employed borrower that there are no amounts owing to any government authority that would be considered or deemed to be a trust claim.

Further, the language would have to make it clear that in the event there were any such amounts owing, even if the loan was fully repaid, the lender had the right to demand and sue the borrower for any amounts proven to be a deemed trust claim that the lender was required to pay over to the government at some later date.

No doubt this case will be relied upon by Her Majesty when the Callidus Capital Corporation v. Her Majesty the Queen case is heard by the Supreme Court of Canada in November 2018

Mortgage lending criteria self employed: Does your business need HST and source deductions you collected to stay afloat?

Does your business need HST and source deductions you collected to stay afloat? Can your business not afford to pay over to the government deemed trust claim amounts collected? If so, then your business is in trouble and requires restructuring immediately. You need the advice of a professional trustee now!

The Ira Smith Team have decades of experience in complex corporate and other business financial restructurings. We first look at how we can reorganize and restructure your business to rescue it. You are worried because your business is facing significant financial challenges. The stress placed upon you because of your business’s financial challenges are enormous. We understand your pain points, and we know how to relieve them for you.

If you or your company cannot survive without a restructuring, contact Ira Smith Trustee & Receiver Inc. NOW for a free consultation. You are just one phone call away from getting back on the road to financial health and reducing your stress levels, Starting Over, Starting Now.