Strikes and Taxes – 5 Reasons Why CRA Strike will be bad for Business

By: Updated: July 22, 2016


The possible Canada Post lock out or strike is garnering most attention from business and the public, affecting as it does the delivery of promotional admail as well as the delivery of customer packages and payments by mail.  At the same time, Canada Revenue Agency employees may go on strike over wages and surrendering accumulated severance pay. 

Well over 50% of members of the Union of Taxation Employees who cast their ballots rejected the last CRA offer.  While Canada Post is the largest crown corporation, CRA is the largest federal agency with over 40,000 employees. 

So, why should businesses care of the taxman goes on strike? Here are 5 reasons why a CRA strike will not be good for SMEs—and what to do about them.

1. Unpaid Taxes Bear Interest, Even During CRA and Canada Post Strikes

All tax amounts, including your payroll remittances, GST/HST payments and income tax installments (personal and corporate) still have to be paid.  If they are late, your small business incurs interest and possible penalties.  So, what do you have to do?  In the case of a postal strike you will have to deliver your payments in person or by courier to a CRA office.  Schedule A banks allow businesses to set up online payments for CRA.  A separate payment account should be set up for each of payroll, GST/HST and income tax.  In the event of a CRA strike payments still have to be made.  CRA will process the payment as of the date you make it. 

If CRA makes a processing error due to backlog, you will need to apply as soon as the strike is over to have the interest or penalties reversed.

2. CRA Tax Debt Will Be a Problem

If you owe taxes to CRA and a tax collections officer has not yet started enforcement action, you are a winner in the case of a strike.  However, that is the only case in which taxpayers will benefit from a strike.  CRA collections officers have draconian enforcement powers for taxes owing, all of which can be exercised without a court order.  They can garnishee wages, seize bank accounts and accounts receivable and lien houses and assets.  To seize bank accounts they merely issue a third party demand to a bank.  A bank that receives such a demand automatically freezes the bank account and remits the funds to CRA. 

Normally, our tax lawyers are able to negotiate a payment arrangement to stop enforcement actions.  What happens if the arrangement is in place, but the strike happens before payment is made, or before the third party demand is lifted?  Or before a payment arrangement is in place?  In theory, we may be able to negotiate with management.  However, the managers will be backlogged and it will be very time consuming to try to have a seizure lifted.  Until we are able to do so, the bank account will remain frozen.  Not a good scenario for any business on the wrong side of a CRA enforcement action.

3. CRA Appeals Backlogs Will Get Worse

CRA has an internal appeals process called a Notice of Objection for taxpayers who disagree with a tax audit.  The current backlog is running 9 to 15 months which we find to be unacceptable and excessive but it is the reality. 

You can expect that backlog to increase by more than the length of the strike, since no progress will be made on existing inventory, the new inventory of Objections will continue to grow, and the 90 days appeal period will not be increased.

4. Tax Return Processing Will Be Slower

Not all 2015 personal tax returns have been processed, especially returns for self employed individuals who had a June 15 deadline.  What happens if you are expecting a refund?  You will have to wait.  The good news is that you will be paid interest.  But if you need the cash flow provided by that refund, you’re out of luck until the CRA strike is over.

5. Tax Audits Will Be Prolonged

A tax audit is painful at the best of times.  If you are in the middle of a tax audit when the strike happens then you will be put in stasis.  Nothing will happen and all unresolved issues and worries will just hang until the strike is over and the tax auditor goes back to work. 

While it may seem that a CRA strike will have less impact on business than a postal strike or lock out, the opposite is true.  A CRA strike is not good for business.

David J Rotfleisch, CPA, JD is the founding tax lawyer of Rotfleisch & Samulovitch P.C., a Toronto-based boutique tax law firm. With over 30 years of experience as both a lawyer and chartered professional accountant, he has helped start-up businesses, resident and non-resident business owners and corporations with their tax planning, with will and estate planning, voluntary disclosures and tax dispute resolution including tax litigation. www.Taxpage.com and david@taxpage.com

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