Help me – CRA put a lien on my house!
What is a tax lien?
If you owe money to Canada Revenue Agency (CRA) they have powerful collection tools unlike any other creditor. One of these tools is a tax lien. If you own real property (house, cottage, land, rental property, etc) and you owe CRA, they can register a lien on the title to your property. The lien acts just like a mortgage. If you try to sell the property, refinance your mortgage or move your mortgage to a new lender, you will have to deal with the CRA lien. The main debts CRA uses a tax lien for are personal income tax, HST, and payroll deductions.
There are some steps that CRA has to go through to certify the debt you owe in Federal Court. Once certified, they can proceed to register their lien. In Ontario, this is done through the land registry system. Once registered, the lien remains until you deal with it or sell the property. The lien will continue to grow as interest is added to the amount owing. If you don’t deal with a tax lien and your property increases in value over time, the increase in value is going to go to CRA up to the amount required to pay the lien in full. CRA can use the tax lien to force a sale of your property although they are unlikely to do this if it is your home and there is already a mortgage on it.
Where does a tax lien rank?
A tax lien does not jump ahead of other previously registered mortgages or encumbrances on your property. The priority goes in order of date registration, so it tacks on to the end of whatever is already registered at the time CRA places its lien. As you pay down your mortgage, CRA’s position improves, but they don’t go straight to the front of the line.
How do I get rid of a tax lien?
CRA may agree to cooperate with you if you are refinancing your property to obtain further mortgage funds to pay them. If you can pay in full, this is a great option. You likely need the help of a reputable mortgage broker as banks are hesitant to advance mortgage money to pay CRA. If you can’t pay in full by refinancing, CRA will not discharge the lien. They will accept your lump sum payment from the refinance, and work with you on a payment plan for the rest, leaving the tax lien in place as security to make sure you pay. This is not usually a great solution for you.
If you are selling your property and have a tax lien, it is important to contact CRA early in the process to get a statement from them outlining the amount required to discharge the lien. If there isn’t enough money to pay the lien in full, they will work with you and your lawyer to allow the sale to close provided the selling price is market value and they are receiving all of the proceeds they are entitled to based on where they rank in line with other creditors. They will allow reasonable closing costs to be paid from the sale, but they aren’t going to leave you with anything to cover moving or other personal costs. You will still owe the balance that wasn’t paid by the sale.
If the amount of the tax lien is more than the house is worth, you can file a proposal or a bankruptcy with a Licensed Insolvency Trustee to limit the amount of the lien to the equity at the time of filing. If there are one or more tax liens registered against your house for say $100,000 and the equity in the house before the lien is only $10,000, you can use a proposal or bankruptcy to limit the amount of the lien to $10,000 and deal with the $90,000 balance of the debt in the proposal or bankruptcy. Interest will continue to be added to the lien, but this will be based on the reduced value of the lien, not the full original amount. You will need at least one appraisal on the property, and the help of a Licensed Insolvency Trustee, but this is a good option if you owe more than your property is worth.
If CRA has a lien on your house, Contact Us or call us at 1-833-808-8463 to talk about how we can help. Consultations are free and we will explore all of your options with you!