Tax Liens and Real Property

Tax season is over and now you have to face the reality of how you’re going to pay for your tax debt.  Whether that tax debt is from the current year or added on to a previous years debt, the stress is likely something you are dealing with on a daily basis.  You are likely constantly looking over your shoulder to see if your bank account is frozen, your wages are being garnisheed or worse, a tax lien is being registered on your property.

This article provides a brief overview of the tax lien on real property. CRA uses the tax lien on property as an additional way to collect on an outstanding tax debt. This is over and above the garnishing of your bank account or your paycheque.  When you owe CRA money, CRA will use all of its available options to collect, including registering a lien on your home.

If you own your home and you owe taxes, you need to act fast.  You need to have a plan to deal with the debt before CRA takes the steps to register a lien on your property.  That’s where we come in.

Why? CRA is obliged to collect the taxes it is owed by virtue of the Income Tax Act.   If you owe taxes and are not in a position to pay them, then enforcement action is very common.  When you own your own home, a property lien is an effective method to achieve this.

A lien is actually a registration on the title of the property similar to a mortgage which alerts anyone searching the title of your home that you owe CRA taxes.  Land title records are public and anyone, including CRA, can simply run a search to find out what properties are in your name.

Once a property lien is in place, CRA essentially becomes a secured creditor, similar to your mortgage company.  This means that your negotiating power in a proposal or bankruptcy becomes more difficult, and if you choose to sell, they get your equity to cover the tax debt.

A property lien could also possibly hinder any future mortgage renewals or obtaining a new mortgage with a different lender.  As well, if the tax debt is greater than your property equity, and you’re planning to sell in the near future, this could very well result in you not being able to clear title and any sale would collapse exposing you to a possible law suit.

The most important thing to do if you are under threat of a property lien, or if a lien is already in place, is to contact a Licensed Insolvency Trustee for advice on how to deal with your tax debt before a lien is put in place. If you can deal with the tax debt before a lien is in place you have more options.

When there is no lien you have options:

Refinancing your home to pay the tax debt is an important option to consider. Accessing the equity you currently have may give you the ability to cover the debt, thereby avoiding enforcement action.

If you don’t have enough equity, or your income will not support a refinancing of your home, a consumer proposal or bankruptcy may be a good option to consider. Both can help you deal with a tax problem before it becomes unmanageable and you run the risk of losing your home.

If you transfer your home into someone else’s name for less than fair market value, that won’t solve the problem. In fact that will make it worse!  Doing so will only transfer the tax debt to that person.  CRA uses Section 160 of the Income Tax Act on a regular basis against those who attempt to avoid a tax problem in this way.  That means you have caused that person to become liable for your tax debt.

Protecting your house means acting fast and looking at what you can leverage now to deal with the tax problem is essential. The moment CRA places a lien on your home, your options for dealing with the debt decrease dramatically.

If you’re experiencing serious debt issues, including tax problems with CRA, contact Boale, Wood & Company Ltd., Licensed Insolvency Trustee at (604) 605-3335 for a no cost, no obligation consultation.  You have nothing to lose by taking an hour of your time to ask us a few questions so you can make an informed decision.

Call us, it’s not too late.