As some businesses struggle with
cash flow, they may be motivated to
prioritize suppliers and other creditors
ahead of CRA. A recent court case
demonstrates CRA’s power to collect
tax arrears and the impact of CRA
exercising this power on a business.
In a June 11, 2021 Court of Queen’s
Bench of Alberta case, the taxpayer
had fallen into arrears in respect of
both GST/HST and payroll remittances. Payment arrangements were entered into with
CRA to assist in meeting the obligations. However, after
failing to meet the agreed-upon terms, requirements to pay
(RTPs) were issued to several of the taxpayer’s clients.
RTPs are legal documents that require recipients (the
taxpayer’s clients in this case) to submit payment to CRA
rather than the taxpayer. The RTP gives priority to CRA over
most other creditors.
After the taxpayer had renegotiated a new payment plan, all
RTPs were cancelled except for the one to its largest
client. After struggling to meet the new payment plan and
facing a new withholding liability, CRA once again issued
RTPs. Shortly after, the taxpayer lost its largest client (the
one that the sole RTP had been issued to previously). The taxpayer advised CRA that it was considering receivership, which led to the seizure of assets and
issuance of more RTPs. One client sent a letter to the
taxpayer that noted that CRA had visited them personally
to serve the RTP and implied that the taxpayer could be out
of business or shut down. Further, the client noted that they
were asked by CRA whether they could get their parts from
alternate suppliers, and the client indicated that they were
now considering doing so.
The court found that CRA and its agents did not owe a duty
of care to the taxpayer, that there was no negligence, and
that the government’s actions did not unlawfully interfere
with the economic relations of the taxpayer.
CRA can collect your tax liability by
requiring your clients to pay them rather than you. To
limit the business and operational issues arising from an
RTP, steps should be taken proactively to communicate
with CRA collections.
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