Yes, the CRA can seize your RRSP and wipe out your retirment savings

Sunday, 19 August 2018


Yes, the CRA can seize your RRSP and wipe out your retirment savings

RRSPs are the backbone of retirement planning strategies. The self-employed and small business owners, who don't have the benefit of employer pension plans, have little else to fund their sunset years.

If you owe tax, these retirement savings are vulnerable to the long and grasping arm of the Canada Revenue Agency. And don't think it doesn't happen. This year, more than ever before in the DioGuardi experience, clients are coming for help after the CRA has already seized funds from their RRSP accounts. One client reported that, in addition to grabbing his RRSP at a major bank, the CRA called the issuer of his whole life policies to discover if any money in the policy was invested in a RRIF. (Fortunately, in this case, the answer was no, and the cash value of the policy was protected from CRA.)

altAdding insult to injury, when the CRA forces the sale of your RRSP investments, the amount is added to your taxable income for the year, creating an additional tax liability which can, depending on the sum seized by CRA, be devastatingly high.

It is breathtakingly easy for the taxman to issue a Requirement to Pay letter to a financial institution. It does not require prior certification of the debt. No judge orders the seizure.  You are not given the benefit of a hearing before the demand to pay letter is sent. In most cases, you won't even be aware that the demand letter has been issued. After the fact comes the dreadful discovery that your life savings have been wiped out by a single letter from the CRA.

If you owe tax, a self-directed RRSP in a money market account is not the safest place to build your retirement nest egg. If you have the option to withdraw funds at any time, the CRA can seize the money. There are safer choices.

A segregated fund insurance contract affords protection, but it can be complicated and expensive to set this up. If your RRSP is in a GIC, or another locked-in investment, the CRA cannot force the withdrawal. However, as soon as the investment matures, the CRA can enforce the garnishment before you have the chance to roll the funds over into a fresh investment. We know of one client who lost his RRSP savings this way, when the bank simply forwarded the money to CRA on the maturity date.

TFSA Savings Can Also Be Seized

Savings in a TFSA will also be at risk if the money is not in a locked-in investment. And, as with an RRSP, as soon as a GIC matures, your financial institution is obliged to forward the funds to the CRA.

The only good news in all this is the fact that a s.224 Demand to Pay order expires at the end of 12 months. So if you investments don't mature within a year, they may be safe on maturity - unless the CRA refreshes the s.224 demand.

Spousal Beneficiary May Inherit Your Tax Debt

Another danger lurks in a s.160 assessment, which attacks transfers of assets by a tax debtor to a spouse or other beneficiary. In a recent tax court case, the husband died owing a large tax debt, which his wife did not discharge before taking possession of his estate. She was the designated beneficiary of his RRSP, which she received tax free. When the CRA assessed her for her husband's tax debt, she was forced to use some of his RRSP money to pay it to protect her own assets.

It all comes down to this: Don't assume anything is immune from CRA seizure.  If you owe tax, get help now. Before your savings are gone. Talk to DioGuardi. Call 1-877-4-DIO-TAX. Or use the online form on the home page to book a meeting.


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