CRA Tax Lien

A tax lien is a legal claim made by the Canada Revenue Agency (CRA) against a taxpayer’s assets when they fail to pay their tax obligations. It is created by a CRA collections officer, without the need for a court order, when a taxpayer does not pay tax obligations, which can include income taxes, payroll taxes, GST or other debts owed to the CRA. The lien acts as an enforcement mechanism for the repayment of this debt, remaining in effect until the taxes are paid or the property is sold. If the debt remains unpaid, the CRA can seize the assets associated with the lien to recover the owed amount. Typically, the first enforcement step is seizing and freezing the taxpayer’s bank account.

It is advisable to address any outstanding tax obligations promptly and communicate with the CRA to explore options for resolution before the situation escalates.

In Canada, tax liens are a legal mechanism the Canada Revenue Agency (CRA) uses to secure payment of unpaid taxes. A tax lien gives the CRA a legal claim against a taxpayer’s property, ensuring the debt is prioritized and, if necessary, recovered through the property’s value. Here’s an overview of how tax liens work in Canada:

• Tax Debt Accumulation: A tax lien is created by the CRA collections officer when you owe taxes to the CRA, and the debt remains unpaid after multiple collection efforts, such as notices of assessment or demand letters.
• Registration of Lien: The CRA registers a certificate of arrears in Federal Court without needing to go through a regular court process or in the land registry system (or equivalent) in your province/territory. This registration creates a public record of the lien against the taxpayer’s property.
• Effects on Property: The lien prevents you from selling, transferring, or refinancing the property without first resolving the tax debt. If left unresolved, the CRA can escalate enforcement by seizing and selling the property to recover the debt.
• Impact on Financial accounts: While liens are generally tied to physical assets, they can indirectly affect other finances if the CRA takes action, such as garnishing wages or seizing and freezing bank accounts.
• Priority over other creditors: A CRA tax lien typically takes precedence over other claims, such as mortgages or private loans, meaning the CRA will be paid first from the property’s value in case of a sale or seizure.

Tax liens are serious but manageable if addressed promptly. Taking swift action or seeking professional guidance can help protect your assets and resolve your tax obligations effectively.

The Canada Revenue Agency (CRA) has the authority to seize various types of assets to recover the owed amount. Here are the key assets that can be seized:

1. Real Estate: The CRA can seize homes, rental properties, commercial buildings, and vacant land. The lien prevents the property from being sold, refinanced, or transferred without paying off the debt. If unresolved, the CRA may sell the property.
2. Vehicles: Cars, trucks, motorcycles, boats, or recreational vehicles (RVs) are commonly targeted and may be seized for auction.
3. Bank Accounts: The CRA issues a Requirement to Pay (RTP) to freeze your accounts and seize available funds. All balances in the account can be taken, up to the amount owed.
4. Investment Accounts: Assets such as stocks, bonds, mutual funds, or other financial instruments can be seized or liquidated to cover the outstanding debt.
5. Business Assets: For business owners, the CRA may target equipment, inventory, accounts receivable, or intellectual property. Operational assets may be seized, or customer payments intercepted, to recover the amount owed.
6. Wages and Income: The CRA can garnish wages or income by instructing an employer or other income source to remit funds directly to them.
7. High-Value Personal Property: Items such as jewelry, artwork, collectibles, or antiques that hold substantial resale value can also be seized to recover the debt.

Note: Some assets, such as basic living necessities (e.g., furniture or clothing), are typically exempt from seizure. It’s crucial to address tax debts promptly to avoid enforcement actions. Consult a tax professional or a tax lawyer to explore options for resolution.

A tax deed grants ownership of assets or property to a government body. It is a legal document. A tax deed can come into effect when an individual or business fails to pay property taxes. This is not applicable for debt owed to the CRA.

A tax lien is a claim to property to ensure repayment of debt. It does not mean property seizing will occur to cover what you owe. On the other hand, a tax deed gives the entity the right to seize property and use it to cover your property taxes owing. In other words, tax liens are merely a claim to assets whereas tax deeds give the right to assets.

If a tax lien has been registered against you, the Canada Revenue Agency (CRA) will usually notify you in writing. The notice will include details about the lien and the outstanding debt. However, if you didn’t receive the letter—perhaps due to a change of address or an error—here are additional ways to check:

1. Check your credit report: Although the CRA doesn’t directly report tax liens to credit bureaus, liens that become public records may appear in the legal matters section of your credit report. Request a copy of your report from credit bureaus like Equifax or TransUnion to verify.
2. Conduct a Title Search: Visit your local Land Registry Office to conduct a title search. This will reveal any liens registered against your property, including those placed by the CRA.
3. Search Public Records: Tax liens are public records, so they can be found through various public databases or registries that track liens and encumbrances on properties.
4. Contact the CRA Directly: If you have concerns about potential tax debts or liens, contacting the CRA directly can provide clarity on your tax status and whether any liens have been registered against you.  However, it is usually not advisable for taxpayers to speak directly to CRA. A knowledgeable tax lawyer should be retained.

By following these steps, you can confirm whether a tax lien has been placed against you. If you find a lien or are unsure how to proceed, consult an experienced tax lawyer to protect your assets and resolve the issue.

The short answer is no—a property with an active tax lien cannot be mortgaged or remortgaged until the tax debt is cleared. Lenders typically require any outstanding liens to be resolved before approving financing.

However, with the help of an experienced tax lawyer, you may negotiate a payment arrangement with the Canada Revenue Agency (CRA). In some cases, lenders may allow you to use the proceeds from a new mortgage or remortgage to pay off the tax debt at closing, effectively clearing the lien during the transaction. This requires careful coordination between the lender, the CRA, and your legal team.

A tax lien is placed on a property by the Canada Revenue Agency (CRA) when tax debts remain unpaid despite multiple warnings and legal demands.

Before filing a lien, the CRA will notify the taxpayer and provide opportunities to settle or arrange payments. If the debt is unresolved, the CRA can register the lien through the Federal Court, which restricts the property’s sale, transfer, or refinancing. Acting quickly to resolve the debt by hiring an experienced tax lawyer to negotiate with the CRA can prevent this outcome.

The CRA has a 10-year statutory period to collect tax debts from the date of assessment. During this time, they can take enforcement actions, including registering a tax lien against a property. However, this 10-year limit can be extended if the taxpayer acknowledges the debt (e.g., by making a payment or agreeing to a payment plan) or if the CRA takes legal steps such as filing a certificate in Federal Court.

Once a tax lien is registered, it remains in place until the debt is fully paid or resolved. Unlike the statutory collection period, a lien has no expiration date and can continue indefinitely unless discharged. This means the lien will remain a legal encumbrance on the property, restricting the ability to sell, transfer, or refinance it until the tax debt is cleared. Prompt action is essential to avoid long-term financial and legal consequences.

A tax lien doesn’t directly affect your credit score in Canada, as the CRA doesn’t report liens to credit bureaus. However, once a lien is registered, it becomes part of the public record through provincial or territorial land registries. Lenders and creditors can access these records during financial reviews, and a lien may signal financial risk, making it harder to secure loans or mortgages.

Indirectly, CRA enforcement actions like freezing bank accounts or garnishing wages can cause missed payments on other debts, which could harm your credit score. While the lien itself doesn’t lower your score, its public record status and financial consequences can limit access to credit.

In Canada, the Canada Revenue Agency (CRA) does not typically report tax liens to credit bureaus, so they usually won’t appear on your credit report. However, if a tax lien does show up—either due to a reporting error by a credit bureau or incorrect information being linked to your file—it can potentially affect your financial standing.

If you discover a tax lien on your credit report that you believe is incorrect, start by verifying the issue with both the CRA and the credit bureau. If the CRA confirms there’s no lien or that it has been resolved, request a written confirmation. Then, file a dispute with the credit bureau, providing the CRA’s confirmation as evidence. Credit bureaus are required to investigate and correct inaccuracies within a reasonable timeframe.

Resolving the lien itself, if valid, is essential. Once the debt is paid, you can request a certificate of release from the CRA, which can also help clarify the matter with creditors.

In Canada, tax liens typically do not appear on credit reports because the CRA does not report them to credit bureaus. However, if a lien is reported due to a mistake or through public records being accessed, it could remain on your credit report for a set period depending on the credit bureau’s policies.

Generally, negative information like liens or judgments may stay on your credit report for up to seven years from the date of filing, unless removed sooner due to resolution or dispute. Resolving the lien and requesting its removal can help minimize its impact.

Avoiding a tax lien in Canada requires proactive management of your tax obligations and timely communication with the CRA. Here’s how you can prevent a lien:

1. File Taxes on Time: Even if you cannot pay the full amount, filing your returns promptly avoids additional penalties and shows good faith.
2. Pay Your Taxes: Ensure you pay taxes owed by the due date. If you cannot pay in full, make partial payments to reduce the balance.
3. Set Up a Payment Arrangement: If you’re unable to pay, contact the CRA to negotiate a payment plan. This demonstrates a willingness to address the debt and can delay enforcement actions.
4. Monitor CRA Communications: Respond promptly to notices and letters from the CRA to avoid escalation. Ignoring these communications increases the risk of enforcement actions, including liens.
5. Seek Professional Help: If you’re struggling with tax debt, consult a tax lawyer or accountant. They can negotiate with the CRA on your behalf and explore options such as taxpayer relief or a consumer proposal or bankruptcy.

By staying informed and proactive, you can minimize the risk of a tax lien on your assets.

At taxlawyer.com, Canadian taxpayers can access experienced tax lawyers across all provinces and territories, including:

Our skilled tax lawyers can help you challenge unjust tax liens, deal with frozen bank accounts and negotiate reasonable payment arrangements with the CRA or other parties, develop proactive strategies to avoid liens, and represent you in court if necessary.

We understand that dealing with tax issues can be overwhelming. That’s why we offer a free 10-minute consultation with our staff to assess your situation and provide initial guidance. Let us help you take control of your tax matters—contact us today!