Can CRA put a lien on your house if you owe taxes?
(You bet they can.)
CRA can and do place liens on people’s homes. They don’t do it often (yet) though. But that may change.
They actually go through the tax court, which is much more efficient than the civil courts. (It’s essentially internal.) But tax liens are pretty rare – so far. That may change, though, given two things: 1. CRA have been much more aggressive on collections in the last 18 months than I’ve ever seen them and 2. the amount of home equity existing in Canada since the housing boom.
Let’s clarify first what a lien really is. It’s a legal charge on a property – like a mortgage. It’s a secured debt. It sits there until such time as title is transferred. The lawyer handling the title transfer (sale or otherwise) cannot execute the transfer until the lien is paid out. Meanwhile, the lien accrues interest and penalties (if applicable) the whole time it is on. And no, you can’t have it removed without paying it. Don’t listen to Tik Tok gurus.
So once CRA liens your house, they have effectively swapped an unsecured debt (tax owing) to a secured debt. Which means you have no way out of paying it, eventually.
This also means that an insolvency filing cannot protect you from that charge because it is secured. That is perhaps most important when someone is faced with insurmountable debts that may include taxes owing: you now cannot discharge that debt via a bankruptcy or a proposal. (OK, the proposal could contain a clause such that the tax lien is removed upon the proposal’s completion, but CRA would have to agree, and they would be crazy not to demand the full amount be paid anyway.)
Technically a lien doesn’t mean you have to do anything in the short term. But often it will prompt people to pay it out by whatever means they can. CRA fear is a very real thing.
(I’m quite surprised CRA don’t do this more often, really, considering how relatively easy it is for them to execute. Government inertia, maybe? If I was in charge of CRA and tasked with collections, I’d be doing it.)
So if you owe substantial tax debt to CRA – whether it’s personal income tax, HST, source deduction – you’d better address it if you own a home with significant equity. Because you may wake up one day with a big juicy lien against your home.