DEBT SETOFF

Debts the CRA may set-off:

1. Debts owed to the CRA:

1.        Unpaid income tax.

2.        Tax refunds incorrectly issued and required to be repaid.

3.        CERB and other Covid payments incorrectly issued and required to be repaid.

4.        Benefits and refundable credit payments incorrectly issued and required to be repaid. For example: GST/HST credit, Trillium benefits, Carbon Rebate, Canada Workers Benefit.

2. Debts owed to other departments of the Canadian government:

1.        CERB benefits incorrectly issued by Service Canada on behalf of Employment and Social Development Services (ESDC), which are person is required to repay.

2.        Arrears of spousal and child support.

3.        Federal portion of Canada Student Loan, where the borrower is in arrears.

Payments by the CRA that may be applied to debts:

1.        Tax refunds.

2.        GST/HST credit, Trillium benefits, Carbon Rebate, Canada Workers Benefit, and certain other non-refundable credits.

Payments by the CRA that are not applied to debts:

Child benefits—whether federal or provincial—are not normally used by the CRA to pay off debts. However, if a person was overpaid and now owes money for child benefits, the CRA may use future benefit payments to recover that overpayment.

Income Tax statements on My-CRA account (accessible through Represent-A-Client)

Within the My CRA Account, the section titled “Accounts and payments” allows users to view their “Income tax” statement. This statement is presented in three main columns:

• Debits, which record:

• federal and provincial tax determined to be owed to the CRA after a return has been assessed;
• interest and penalties charged by the CRA;
• amounts the CRA has determined must be repaid, such as overpayments of Covid benefits, GST/HST credits, CWB, other benefits, or other benefits and refundable credits; and
• tax refund payments issued by the CRA.

• Credits, which record:

• tax payments paid directly by an individual to the CRA; and
• tax deducted or withheld by employers, banks, government departments and others.  For example, employers deduct tax from wages, Service Canada withholds tax when paying CPP benefits, banks withhold tax when making RRSP payments. These appear on the CRA statement as “Tax deductions applied”.

• End Balance:

• A positive balance indicates an amount owed to the CRA. This may seem counterintuitive, but it results from the accounting conventions used by the CRA.
• A negative balance means the person is owed money by the CRA.
• A zero balance does not necessarily mean that no debts exist. The statement only reflects debts owed to the CRA. Debts to other federal departments—such as Canada Student Loans, Employment Insurance (EI) overpayments, or COVID-19 benefits issued by Service Canada—do not appear on the CRA income tax statement.

Set-off of debts owed to other federal departments:

Certain federal debts—such as Canada Student Loans, Employment Insurance (EI) overpayments, and CERB payments issued by Service Canada—do not appear on a person’s CRA Income Tax Statement of Account.

However, under the Individual Refund Set-Off Program, the CRA may still apply (divert) a person’s refunds, benefits, or credits to repay those debts.

If any portion of a tax refund has been intercepted for a non-CRA debt, a Notice of Assessment will include a line such as “Refund applied to other federal government debt (ESDC) – $ ___”. “ESDC” is Employment and Social Development Canada, which handles student loans, EI, and Service Canada CERB debts.

If GST/HST credits, Trillium benefits, Canada Workers Benefits, or carbon rebates have been used to offset non-CRA debt, that will not be reflected in the CRA Statement of Account, and there may be no explicit statement of the offset in a person’s MyCRA page.  A note of the offset might appear in the “Benefits and credits” section or the “Accounts and payments” section.  

Private debt:

Non-governmental creditors, including judgement creditors, cannot require or compel the CRA to divert or garnish a person’s refunds, credits or benefits.

References:

• CRA website - How payments are applied to offset debt
• CRA website - Debt collection at the CRA
• Gov of Canada website - Individual Refund Set-off Program
• Income Tax Act, s.164(2): “Instead of making a refund or repayment that might otherwise be made under this section, the Minister may, where the taxpayer is, or is about to become, liable to make any payment to Her Majesty in right of Canada or in right of a province, apply the amount of the refund or repayment to that other liability and notify the taxpayer of that action.”