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If you owe taxes to the Canada Revenue Agency (CRA), they may register a lien against your property to secure payment of your tax debt. Here’s what you need to know if the CRA issues a notice to place lien on your home or other assets.
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What Is A Tax Lien
A CRA tax lien is a legal claim on your property for unpaid tax debts. If you are behind on income taxes, GST or other government obligations, the CRA can register a lien on your home or other personal property. The CRA can lien your personal residence, car, boat, artwork, cottage, investment property or business equipment.
This lien allows the Canada Revenue Agency to recover the debt when the property is sold. This means your tax debt is paid before you receive any proceeds from the sale. A tax lien remains in place until the debt is paid in full.
Can CRA Take My House?
Having a Canada tax lien doesn’t necessarily mean the CRA will seize your home or property, but it does mean they have secured payment against the value of your asset when you do sell. Technically the CRA can seize assets, but they usually exhaust all other collection methods first. A lien is a way to force you to deal with the CRA. If you have back taxes, and CRA has not yet placed a Canada tax lien on your property you have more options for tax debt relief which is why we recommend acting sooner rather than later before the CRA registers a secured charge against your property.
How Does the CRA Place a Lien on Your Home?
Under Canadian law, the CRA has significant authority to enforce tax collection, including placing liens on real estate. CRA will not register the lien until they have tried other collection methods and failed.
The CRA typically follows a series of steps before placing a lien:
- Notification of Tax Debt: The CRA will notify you of outstanding tax debts through letters and requests for payment including calls from a CRA collection agent.
- Demand for Payment: If the debt remains unpaid, the CRA may issue a legal demand for payment.
- Certificate of Judgment: The CRA can register a certificate in Federal Court, confirming the debt and enabling enforcement actions.
- Registration of a Lien: The CRA registers the lien against your property title in your province’s land registry.
At each stage, it’s essential to communicate with the CRA to avoid escalation.
Financial and Legal Consequences of a Tax Lien
A CRA lien can have significant consequences, including:
- Loss of Home Equity: The lien reduces the equity available in your property.
- Challenges Selling or Refinancing: Most buyers and lenders will require the lien to be cleared before completing a transaction.
- Complications in Transferring Assets: A CRA lien can create obstacles when transferring property ownership during divorce proceedings, estate planning or in the event of death.
- Further Collection Actions: Ignoring the lien can result in additional enforcement actions, such as property seizure, freezing your bank account or issuing a wage garnishment.
- Negative Credit Score Impact: CRA may also put a tax lien on your credit report.
How to Prevent a Tax Lien
If you’re struggling with significant tax debt and the CRA is threatening a tax lien, consider consulting a Licensed Insolvency Trustee before CRA takes legal action.
LITs can help you deal with tax debt through formal solutions like consumer proposals before CRA registers a lien. A consumer proposal filed before lien registration offers several advantages:
- CRA must stop all collection actions, including registering new liens
- You can often settle your tax debt for less than the full amount
- Interest and penalties stop accumulating on your tax debt
- You keep control of your property while resolving your tax debt
- You get protection from other CRA collection actions
Filing a consumer proposal early prevents CRA from registering a lien and gives you more options for resolving your tax debt. Remember that once CRA registers a lien, your options become more limited and complex.
Struggling with tax debt?
You can also try working directly with the CRA to prevent a lien:
- File your tax returns on time, even if you can’t pay the full amount
- Communicate with the CRA immediately if you’re struggling to pay.
- Set up a payment plan early to avoid escalating enforcement actions.
- Make a payment arrangement before CRA escalates to lien registration
- Maintain organized financial records to stay on top of tax obligations.
Steps to Remove a CRA Tax Lien
If CRA has already placed a lien on your home or other assets, you have three choices to remove the lien.
1. Pay the Tax Debt in Full
If you can pay the outstanding amount, the CRA will remove the lien upon full payment. This is the fastest way to resolve the issue but may not be feasible for everyone.
2. Negotiate a Payment Arrangement
The CRA offers payment arrangements that allow you to pay your debt in installments. Once a plan is in place and payments are consistent, the CRA may consider lifting the lien. Once the debt is repaid, they will remove the lien.
3. Sell the House
A CRA lien does not prevent you from selling your house, however after the mortgage is paid, the remaining funds will go towards the lien.
Unfortunately, a consumer proposal or bankruptcy will not remove the lien once it is in place as these are secured debts. That is why it is important to talk with a Licensed Insolvency Trustee early in the process if you have tax debts you can’t pay. It may be possible to include a clause in your proposal to ask for lien to be removed but CRA is not likely to agree for significant tax arrears.
Common Questions About CRA Tax Liens
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How Long Does a CRA Lien Last?
The lien stays registered until you pay your tax debt. CRA must renew the lien every 5 years but can do so indefinitely.
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Can I Refinance a Mortgage with a Tax Lien?
You can refinance with a tax lien but in most cases you will need to pay off the tax debt first. Most lenders require a tax clearance certificate showing the lien is removed before advancing new mortgage funds.
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Does CRA Negotiate Lien Amounts?
CRA will usually only reduce the amount through a consumer proposal. They may accept payment arrangements and provide some relief or reduction in interest and penalties but they cannot reduce the actual tax debt except through a bankruptcy or proposal.
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Can the CRA put a lien on joint property?
The CRA can place a lien against property you hold jointly with someone else. When the property is sold, CRA will be paid from your share of the equity in the home.
How We Can Help You
Our Licensed Insolvency Trustees have helped thousands of Canadians prevent CRA liens through consumer proposals and other debt solutions. There are many issues to consider when dealing with Canada Revenue Agency and tax liens, so if you owe money to CRA, please contact us to review your situation and develop a plan to deal with these debts.
