I have a client who has a CRA debt and wages are being garnished to pay down this debt.
This client has now entered into a common-law relationship but the client’s partner is worried that CRA will come after him to pay off her debt if he declares Common-Law on his tax return. Has CRA every come after a spouse to repay a common-law partner’s debt? Have they ever garnished a spouse’s wages to pay down the common-law partner’s debt? Appreciate the feedback. Thanks.
CRA can’t legally do that unless the debtor starts transferring assets to your client.
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The debtor (person who owes the debt) is my client.
I think you are saying then that CRA can’t legally do this unless the common-law spouse starts transferring assets to my client (the one in debt). Then CRA can step in and garnish those assets, right?
Thanks for the reply, Kevin.
Sorry. Your client (who owes the money to CRA) cannot transfer assets to the new common-law spouse. It’s called a fraudulent conveyance of assets. Otherwise, CRA can’t go after the new common-law spouse’s assets. Having said that, I think a normal splitting of household expenses to the new spouse should not put the new spouse at risk.
That’s very helpful. Thank you, Kevin.
They cant touch a joint account either
I wasn’t aware of that, Jim. My client hasn’t given CRA her bank account info as she needs the little that’s in her account to live on, thus CRA’s approach to garnish wages. For the CERB credit, she’s receiving cheques. Knowing that CRA can’t touch joint accounts is good information to know. Much appreciated.
“Knowing that CRA can’t touch joint accounts is good information”
Whether garnish ever occurs in the near future is not very practically relevant.
CRA does not just forget about amounts owing, nor die, nor emigrate to space.
At some point, the taxpayer will have to pay, whether it is the lower amount now, or the very much higher amount after years of huge penalties and non-deductible interest…
I’ve counseled clients on this fact for years, Joe, that CRA’s debt is never erased from the books. My client is aware of this too. She’s expressed that she’s actually grateful they are garnishing her wages because she knows her debt is slowly being repaid.
I have actually come across a situation where the debt (a six figure amount) does appear to have evaporated or disappeared into thin air. This was confirmed by someone at CRA. The account balance is zero.
CRA is a funny place… I had a client with a $40k debt and never even got a phone call and another with $50 owing and collection agent harassing them constantly…
I believe only certain agents have access to sub-ledgers.
That does seem to be the case - one client had a statement that showed she didn’t owe anything, yet at the same time they were withholding payments and requesting payments. it seems everything current was good but there was a small amount from 2012 that had turned up. It took a lot of digging to find out what that was all about.
IIRC there was a case some time back about this…a tax debt can only “disappear” if there has been no “action to collect” taken in 10 years…can’t remember the origin of this though.
Some old debts “apparently disappear”, either from online access or from agent access, but are still on the books and get collection letters every few years. I have a few of those “clients” kicking around from ancient debts…the debt is inactive, the regular agents can’t find the amounts, nothing is online at RAC, but if one talks to the right person (senior? large file?) the debt is still on record at CRA.
And, just as a curiosity, I looked at “garnish” vs “garnishee”…the latter being the term that I usually have used over the past number of decades in both banking and tax. Seems like the 'murcans use both and the Brits use the latter (mostly).
I am going to disagree with @jimt ’ comment that they can’t touch joint accounts either.
As a joint account has the name of the debtor on it, it is easily caught up in the web trying to garnishee amounts. If the debtor NEVER puts money into the joint account, then it will be easy to get the money back. But we know how fast the CRA will release money back that they took in error.
It will be better to NEVER have a joint bank account or, if you have a joint account, always assume that the monies in that account could disappear to the CRA without warning.
As a tax preparer who is under contract to a Trustee in Bankruptcy, I would suggest that your client talk to a reputable Trustee about setting up a repayment plan, otherwise known as a Consumer Proposal. Doing this will mean that the CRA can’t step outside of the agreement and go after the spouse’ accounts even in error. There are rules for this. The Trustee whom I work under contract for provides the initial interview free of charge and explains that this is to allow the client to gather information. It may be worthwhile to proceed or not. But the information is free, so why not try.
(If you are in Ontario, PM me and I will give you the Trustee’s contact information. I get no benefit from this as my contracts are to handle the bankruptcy returns.)