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How Do Tax Liens Work in Canada?

In Canada, we’re able to have a lot of public resources because of our taxation system. The Canada Revenue Agency (CRA) oversees taxation. If a taxpayer, which could be an individual or business, doesn’t pay their debt, the CRA is responsible for collecting it. A tax lien may arise if you fail to pay your tax bill. In this guide, you can learn more about tax liens and what to do if you find a lien attached to your property.

What is a tax lien?

A tax lien is a legal claim. It is against the assets of an individual or business. For a tax lien to arise, the entity has failed to pay taxes to the Canada Revenue Agency (CRA). Generally speaking, a lien guarantees payment of debt. In this case, the debt in question is taxes. A tax lien will remain in place until payment or the seized property sells. If the debt or taxes is not paid, the creditor can seize the assets connected to the lien. This would serve as debt repayment.

Some people invest in tax liens as a way of making money. Buying tax liens in Canada is possible too, but it is a complex form of investing.

Consolidated Credit Canada is here to guide and help you with your debt repayment.

What is the difference between tax lien and tax deed?

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 taxes. This could be property tax, income taxes or any other 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 debts. In other words, tax liens are merely a claim to assets whereas tax deeds give the right to assets.

How do I know if I have a tax lien against me?

The CRA normally communicates with people in written format. The first step the CRA must take to issue a tax lien is to register a certificate of arrears in Federal Court. The governing body will send you a letter notifying you of this. When the CRA obtains a tax lien certificate, another letter notifies you officially.

If the CRA does not have your address or has the incorrect one, it’s possible you may not know of a tax lien. In this case, you might become aware if you try to sell your home or refinance your mortgage. If you owe significant tax debt and suspect a tax lien, you can perform a title search at the Land Registry Office. If you’re up to date on your taxes, chances are very low a tax lien exists against you.

How does a lien affect me?

Since most tax liens exist on homes, there is a chance you could lose your property. However, the CRA’s intention is not to make people homeless. There are many steps before seizing and selling a property to cover tax debt. To avoid losing your home, it’s best to communicate with the CRA and determine a way to settle your tax debt. If the CRA puts a tax lien on property other than your home, you’re at risk of losing those assets too.

How does a tax lien affect your credit score?

In general, the CRA keeps your information private and does not report to the credit bureau, Equifax or TransUnion. However, anything that becomes a matter of public record will appear on your credit report. In the circumstance of a tax lien, the CRA must obtain a certificate of arrears from a federal or provincial court. This appears on public notice and could appear on your credit report under the legal section.

Even though a tax lien may not impact your credit score directly, it will impact your finances. Tax debt is unique compared to other debts. This is because the CRA has higher authority compared to regular creditors. For this reason, settlement of tax debt must occur in one way or another. If you don’t, your interest rates may rise or you may struggle to pay other bills and debts.

How long do tax liens stay on credit reports?

If there is a legal judgment arising from your tax debt, it will appear on your credit report under the legal section. Information under this section remains on your credit report for 6 years.

How to remove tax lien from credit report?

Unfortunately, you cannot remove a tax lien from your credit report. However, if it’s been over 6 years and it’s still on your report, you can file a dispute with the credit bureau to remove it.

Can a creditor put a lien on my property?

Yes, a creditor can put a lien on your real estate if you do not repay your debt. Of course, you must be a property owner. However, before they can obtain a lien, the creditor must get a judgment against you. This means they must go to court. The judge must rule that you owe money and the creditor has the right to collect it from you. At this point, the creditor can put a lien on your home or other assets.

Can the CRA put a lien on my home?

Yes, the CRA can put a lien on your home if you have delinquent tax debt. They can also put a lien on other assets of substantial value. However, they must obtain a judgment from a court before they can put a lien on your home.

How to stop a tax lien?

To avoid a tax lien in Canada, file your personal and corporate taxes every year. If you owe taxes, be sure to pay them. If you don’t have tax debt, a tax lien cannot arise.

If a tax lien is already made against you, you have a few options to stop it:

  • Pay the taxes. If you can afford to pay the balance, do so now.
  • Negotiate a payment plan with the CRA. Once your tax payments are complete, the tax lien will lift.
  • Sell your home and use the proceeds to repay your tax debt. Keep in mind that you must pay your mortgage first, if applicable. If your home sale proceeds don’t cover the entire tax debt, you are responsible for the difference.
  • File for a consumer proposal or bankruptcy. This is a last resort option. It will not remove the lien immediately. But during the process, some sort of arrangement will arise to handle your tax debt. In the case of a consumer proposal, the CRA must agree to your terms of their debt.

Tax debt is considered very serious. Unlike ordinary creditors, the CRA has a lot of authority. For this reason, you should handle tax arrears as soon as it comes to your attention.

We can help you avoid a tax lien in Canada

Navigating tax debt can be overwhelming. If you’re not sure what to do or need help in the process, Consolidated Credit can help. Reach out today for a consultation!

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