Business Owes Back Taxes for GST/QST

When a business in Quebec falls behind on remitting Goods and Services Tax (GST/HST) and Quebec Sales Tax (QST), it faces serious obligations and consequences. The amounts collected as sales taxes are not the company's to spend – they are held in trust for the government by law. In this blog, we outline the legal framework requiring timely GST/QST remittances, the penalties and aggressive enforcement actions for non-compliance, and the various options to resolve a sales tax debt. We also discuss Mackisen’s strategic approach (Big-4 style) to help businesses resolve GST/QST tax debts, illustrated by real client experiences, common FAQs, and why expert guidance is crucial for Montreal SME owner-managers and CFOs.

Legal & Regulatory Framework: GST/QST Remittance Obligations

Federal (GST/HST) Requirements: Under the federal Excise Tax Act (ETA), businesses must register for GST/HST once taxable sales exceed the small-supplier threshold (often $30,000) and must file returns and remit any net tax by the due dates (monthly, quarterly, or annually depending on the reporting cycle). GST/HST collected from customers is considered a trust fund for the Crown. In fact, any person who collects GST is deemed to hold those amounts in trust for the Crown. This means the government has a beneficial claim on those funds from the moment of collection. If GST is not remitted on time, the ETA’s deemed trust provision gives the government priority over virtually all the business’s assets up to the amount owed. In practical terms, the business is legally obligated to promptly remit GST because it’s not “their” money – it’s held for the tax authority.

Quebec (QST) Requirements: Similarly, Quebec’s tax laws impose strict obligations to collect and remit QST. Under the Tax Administration Act (often referred to by its French acronym, LAF), businesses must file QST returns and pay the QST by the prescribed deadlines to Revenu Québec. Taxes collected for QST are likewise considered trust funds that must be remitted on time. Quebec explicitly holds directors accountable to ensure “collecting and remitting the QST and GST” as required. If a company fails to meet its sales tax obligations, the directors in office at the time of the failure can be held personally (solidarily) liable for the unremitted QST/GST, including interest and penalties. (We discuss director liability more below.) In short, both the ETA and Quebec’s tax law demand that collected sales taxes be turned over to the government on schedule – failing to do so violates statutory duties and triggers serious repercussions.

Penalties & Consequences of Late GST/QST Remittance

Falling behind on GST/QST remittances can lead to a cascade of financial penalties and legal consequences. These include:

• Late Filing and Late Remittance Penalties: If you file a GST or QST return past the due date and owe taxes, a penalty is automatically charged. For GST/HST, the standard late-filing penalty is 1% of the amount owing, plus 0.25% per month late (up to 12 months). Quebec applies a similar formula for QST (e.g. 1% plus 0.25% per month). Even a few months’ delay can add a significant penalty – for example, filing a GST return 3 months late on a $10,000 liability would incur a $1,750 penalty. These penalties cannot be deducted as a business expense and compound your debt. Additionally, if a business repeatedly fails to remit or is grossly negligent, heavier penalties can apply (in extreme cases, fines up to 10–20% or even prosecution).

• Compound Daily Interest: Both CRA and Revenu Québec charge daily compound interest on any unpaid GST/QST from the day it was due. The interest rate is set quarterly (and has been relatively high in recent years, often in the 7–9% range annually). Interest charges accumulate every single day the tax remains unpaid, substantially increasing the balance over time. There is no grace period – even being one day late starts the interest clock. This can dramatically swell a tax debt if months go by without payment.

• Personal Liability for Directors: A critical consequence for incorporated businesses is that directors may be held personally liable for unremitted sales taxes. Under ETA Section 323 and Quebec’s Tax Administration Act, tax authorities can assess the directors individually for the company’s GST/QST debt if the company fails to pay. All directors can be held jointly and severally (solidarily) liable for the full amount of the unremitted taxes (plus associated interest and penalties). There is a limited due diligence defence – a director isn’t liable if they exercised a high level of care and could not reasonably have prevented the failure. There is also a statute of limitation (directors who resigned over 2 years ago generally aren’t liable). However, absent a strong defence, the CRA and Revenu Québec can go after the personal assets of directors (bank accounts, homes, etc.) to recover the tax debt. This makes unremitted GST/QST uniquely dangerous compared to other debts: the corporate veil will not shield directors when trust funds are at stake.

• Arbitrary Assessments for Unfiled Periods: Ignoring GST/QST filing obligations doesn’t make the liability disappear – the agencies can issue arbitrary assessments. If you don’t file a return, the CRA or Revenu Québec will estimate your tax owing and issue an assessment on their own. These estimated assessments are rarely in the taxpayer’s favor – in fact, authorities often overestimate revenues to protect the Crown’s interest. You’ll be charged penalties and interest on the assessed amount, even if it exceeds what you actually owe. While you can later file the actual returns to adjust the amount, in the meantime the inflated debt is legally enforceable. Arbitrary assessments are a blunt tool to spur compliance, and they put the onus on the taxpayer to prove the correct liability.

• Withholding of Tax Refunds: If your business is owed any tax refunds (for example, a GST refund or an income tax refund) while you have outstanding GST/QST arrears, expect those refunds to be withheld or offset against your debt. The CRA will hold back GST refunds until all past returns are filed. Revenu Québec likewise will freeze any tax refunds and apply them to your outstanding balance. This can choke your cash flow further – a refund you may have been counting on will never reach you but will just reduce your debt a bit.

• Potential Prosecution: Although less common, both levels of government have the ability to pursue criminal charges for serious tax evasion or willful fraud. Simply owing money due to cash flow issues typically remains a civil matter, but blatant cases of collecting taxes and intentionally not remitting can lead to prosecution. The ETA provides that failing to remit is an offence, and in aggravated cases business owners/directors have faced fines or, very rarely, jail time. This is generally reserved for egregious or repeated fraud (for example, deliberately falsifying returns or diverting large sums). Still, the threat of prosecution underscores how seriously the authorities view trust taxes – it’s a last-resort consequence for the worst cases.

In summary, the costs of not remitting GST/QST on time go well beyond the lost tax itself. Penalties and interest compound the debt, directors can be personally on the hook, and enforcement can escalate sharply (as discussed next). Any business owner facing a growing sales tax debt should be aware of these compounding consequences and move quickly to address the issue before it spirals further.

CRA and Revenu Québec Collections Enforcement

Both the Canada Revenue Agency (CRA) and Revenu Québec have dedicated collections units that pursue sales tax debts aggressively. Once a GST or QST debt exists (whether from filed returns or arbitrary assessments), the agencies have broad powers to recover the funds. Their enforcement actions can seriously disrupt a business if the debt is not dealt with promptly. Key enforcement tools include:

• Collection Calls and Demands: Initially, you’ll receive notices and calls from collections officers demanding payment. The file will be flagged in the tax authority’s system as non-compliant. The tone can escalate quickly – for significant debts, cases get assigned to specialized collectors who will actively follow up. They may require detailed financial disclosures to gauge your ability to pay, and they often press for immediate payment or a formal plan.

• Bank Freezes and Accounts Receivable Garnishments: One of the most impactful actions is a Requirement to Pay (RTP), which is essentially a garnishment. The CRA or Revenu Québec can send a notice to your bank to freeze funds from your business accounts and remit them directly to the government. This can effectively lock down your account without prior court action, up to the amount of the tax debt. Similarly, they can issue RTPs to your accounts receivable – for example, directing your clients to pay the CRA/RQ instead of paying you, if those clients owe you money. These measures often catch businesses by surprise and can devastate cash flow. Yes, they can freeze your bank account as a collection method if you ignore repeated demands.

• Liens on Property (Federal and Provincial): The tax agencies can register liens on your assets to secure the debt. The CRA can quickly register a lien on your business or personal property (such as land, buildings, or equipment) by way of a certificate in Federal Court, which then has the effect of a judgment. Revenu Québec can register a legal hypothec (lien) on the property of the business or its directors. A lien will encumber the property title, making it difficult to sell or refinance assets without paying off the tax debt. It also puts the government in a priority position among creditors. In some cases, tax liens have even taken priority over secured lenders because of the “super priority” of the deemed trust for GST/QST. This means banks and other creditors get in line behind the government for any sales-tax-related portion of debts.

• Garnishment of Wages and Other Incomes: If you draw a salary from the company or have other income, the CRA can garnish wages as well. For owner-managers, this may not be separate from the business cash flow, but for any key individuals who receive T4 income, wages can be attached. In extreme cases involving assessed directors, personal wages or other income sources of the director can be garnished similar to any debtor situation.

• Seizure of Assets: Although less common for tax collectors due to the preference for liens and garnishments, the agencies do have the authority to seize and sell assets to satisfy tax debts. CRA field agents could seize business equipment, vehicles, or other property if a debt is large and no payment plan is in place. Revenu Québec also can seize assets under legal warrant. This usually happens only if other methods fail, but it remains a possibility for egregious cases.

• Intercepting Tax Refunds: As noted earlier, any tax refund or credit coming your way (federal or provincial) can be intercepted to offset your GST/QST debt. For example, a corporate income tax refund or even your personal income tax refund (if you’re a director and personally liable) might be applied against the outstanding GST/QST balance before you ever see it.

• Director Liability Assessments: If the corporation is insolvent or not cooperating, CRA and RQ will turn to the directors personally by issuing director’s liability assessments. This is a formal step that makes the directors debtors in their own capacity. We discussed the legal basis above – practically, a director assessment means the government can pursue the director’s personal assets just like a personal tax debt. This often happens if a company is shut down with GST/QST unremitted; the government won’t hesitate to transfer the liability to the directors who were in charge during the period of default.

• Withholding Government Services/Certificates: If you attempt to dissolve the company or sell its assets, you’ll hit a wall. Revenu Québec will not issue a certificate of clearance if taxes are owing, which blocks dissolution or certain transfers. Similarly, government-issued licenses or contracts could be jeopardized by a tax non-compliance flag. A noted example: CRA may refuse to issue a tax clearance certificate needed during the sale of a business or winding-up, until GST/HST debts are paid.

• Escalation to Legal Action: For long-standing, large debts, the file can be referred to the Department of Justice (for CRA) or Quebec’s legal affairs. They can obtain court judgments to reinforce collection, though often the statutory powers make this unnecessary. Ultimately, the agency can initiate legal proceedings to bankrupt a business or individual if that’s what it takes to recover the debt. As mentioned, sales tax collection enforcement is vigorous – the tax authorities have a mandate to recover trust funds quickly, often more aggressively than for income tax debts.

Both CRA and Revenu Québec are aware that unpaid GST/QST often signals financial distress or compliance problems, so they act quickly to protect the public revenue. It’s important for a business owner to know that “doing nothing” is the worst option: ignoring the problem will trigger escalating enforcement, from compliance flags to frozen accounts and asset lie. The government collectors do not simply write off sales tax debts; they will pursue every avenue allowed by law (and the law gives them many). In the next section, we turn to solutions – what options a business has to address and resolve a GST/QST tax debt before or after these aggressive measures hit.

Options to Resolve a GST/QST Tax Debt

If your business owes back taxes for GST or QST, there are several avenues to resolve the debt and bring your company back into compliance. The right option (or combination of options) depends on your specific situation – whether returns haven’t been filed, whether you can afford to pay in full, and how far the enforcement has gone. Below we outline the major options:

1. Immediate Filing of All Outstanding Returns: First and foremost, file any unfiled GST/QST returns as soon as possible, even if you can’t pay right away. Filing the returns will replace any arbitrary assessments with the correct figures and stop “failure to file” penalties. The late-filing penalty is based on how late the return is, not how late the payment is. By filing, you eliminate non-filing penalties and at least ensure the debt is accurate (often lower than an arbitrary estimate). Key point: Filing on time but paying late results in interest only, whereas filing late triggers both penalties and interest. So even if cash is tight, get the paperwork in – you can then arrange payments on the confirmed balance. Prompt filing also shows good faith to the authorities and can prevent further compliance actions. (For example, CRA will release withheld refunds once all returns are filed, and Revenu Québec views current filings as a condition for any relief or plan.)

2. Payment Arrangement with CRA and/or Revenu Québec: Both tax agencies have programs to set up a payment plan if you cannot pay the full amount immediately. Rather than let them freeze your bank account, you are almost always better off contacting them to propose a payment agreement based on your ability to pay. Typically, a payment arrangement will involve making monthly installment payments over a agreed period (often 6–12 months, sometimes longer for large debts). To get an arrangement approved, you must be compliant with all filings, disclose financial information if asked (to demonstrate what you can afford), make a good-faith initial payment, and commit to paying on time going forward. The CRA and Revenu Québec will still charge interest on the outstanding balance during the arrangement, but they will refrain from enforcement actions as long as you honor the agreement. It’s often useful to have a CPA or advisor help negotiate more flexible terms and communicate with the collections officers. Bottom line: A “CRA/Revenu Québec payment plan” can buy you time and prevent drastic measures, but you need to proactively reach out or respond to set it up. Always get the plan in writing and ensure it’s realistic for your cash flow.

3. Partial Payments & Quick Cash Strategies: If full payment is not immediately possible, at least consider making partial payments and improving your cash flow to chip away at the debt. Every dollar paid reduces accruing interest and shows the agencies that you’re trying. Even a small payment can slightly reduce the mounting interest and indicates good faith. Concurrently, look for ways to accelerate cash flow in your business to free up funds for the tax debt: send out invoices promptly, chase late payments from customers, offer small discounts for early payment, defer non-critical expenses, and consider short-term cost cuts. Many businesses find that the issue is timing rather than insolvency – e.g. speeding up receivables and slowing payables for a few months might generate enough liquidity to cover the GST/QST arrears. The goal is to minimize the debt as quickly as possible to avoid further interest and to strengthen your position if you request leniency or a payment plan.

4. Voluntary Disclosure Program (VDP) for Unreported Periods: If your GST/QST debt arose because you failed to register or failed to file returns for past periods, you might qualify for the Voluntary Disclosures Program. The VDP allows taxpayers to come forward before the tax agency contacts them, and disclose past non-compliance (e.g. unfiled GST/QST returns or unremitted collections) in exchange for relief from penalties and prosecution. For example, a business that unknowingly didn’t charge GST/QST when required, or collected tax but never filed the returns, can make a voluntary disclosure to correct the mistake. The benefit: if accepted, CRA/Revenu Québec will require you to pay the taxes owed (plus perhaps some interest), but all penalties are waived and you won’t face legal action. This can save enormous amounts in penalties and eliminate the risk of directors being charged or fined. VDP applications must be complete, voluntary, and submitted before an audit or enforcement begins. Typically, you file all the missing returns and a disclosure letter at once. For a Quebec business, a coordinated disclosure can cover both GST and QST issues together. It’s highly advisable to use a tax professional to prepare a robust disclosure package, as the success of a VDP request can depend on proper presentation and meeting all criteria. In summary, VDP is a powerful option if your “tax debt” is really due to unreported liabilities – it lets you wipe the slate clean of penalties and start fresh with compliance. (Note: interest may still be partly charged, but sometimes at a reduced level under the VDP “wash” policy.)

5. Taxpayer Relief (Cancellation of Penalties/Interest): Outside of VDP, if there were extraordinary circumstances that led to the late payment, you can request Taxpayer Relief (also called fairness or remission requests). Both CRA and Revenu Québec have discretion to cancel or waive penalties and interest in specific hardship situations. Examples might include serious illness of the business owner, natural disaster, significant accounting errors beyond your control, or other “Acts of God” that caused the non-compliance. To pursue relief, you must file a formal request detailing the circumstances and providing evidence. The bar for relief is fairly high – it’s not granted just because cash flow was tight or you “forgot.” But in genuine cases of financial hardship or misfortune, you might get some or all penalties waived, and interest relief for the period affected. Taxpayer relief requests are reviewed case-by-case and can take many months for an outcome. Keep in mind: the underlying tax will almost never be forgiven, only the added charges. It’s a one-time lifeline for a tough situation. This option is worth exploring if you have a compelling story (for instance, a fire destroyed your records, or a medical emergency diverted your remittance funds). Even if partial, relief can substantially reduce the burden and help you manage the debt.

6. Sell Assets or Seek Financing to Pay the Debt: If your business has valuable assets or if you (or the company) can borrow money, it may be prudent to raise funds to eliminate the tax debt. This might involve selling redundant equipment, liquidating inventory, or even selling an equity stake in the business to an investor to inject cash. Alternatively, you could consider short-term financing options like a business line of credit, a term loan, or a merchant cash advance to cover the GST/QST obligation. This should usually be a last resort, because borrowing money to pay taxes means trading a tax debt for a debt to a lender – but it can sometimes be wise. Compare the interest cost of borrowing vs. the interest and penalties the government is charging. Often, bank interest will be lower than CRA’s 8%–10% effective interest on tax arrears. If you go this route, only borrow what you need and ensure you can handle the repayments. The advantage of paying off the tax debt via financing is that it stops the government’s enforcement cold – you regain control by dealing with a bank or creditor on more flexible terms, rather than facing frozen accounts and liens. Many companies have saved themselves by refinancing: for example, using a line of credit to pay the tax bill and then repaying the line of credit over time, instead of having the CRA seize their receivables. Always weigh the risk carefully and, if possible, consult a financial advisor or CPA to plan this move.

7. Insolvency Solutions (Consumer Proposal, Corporate Proposal, Bankruptcy): If the sales tax debt is so large that your company (or you as the owner) are insolvent – meaning you truly cannot pay it even over time – then formal insolvency proceedings can be considered. Consumer or Corporate Proposals under the Bankruptcy and Insolvency Act allow a financially troubled debtor to settle tax debts for less than the full amount owing, with payments made over up to 5 years. CRA and Revenu Québec will usually participate in a proposal as unsecured creditors (to the extent the deemed trust doesn’t survive; unremitted GST/QST trust claims do not continue in a bankruptcy scenario for amounts collected after a bankruptcy – but that detail aside, in a proposal they vote like other creditors). In a successful proposal, interest stops accruing, collections are stayed (no more garnishments or liens), and you make agreed-upon payments; at completion, the remaining debt is legally forgiven. For a small corporation, a Division I Proposal can be filed through a licensed insolvency trustee, allowing the business to avoid bankruptcy and settle with all creditors including the tax authorities. For an individual director who has been personally assessed, a Consumer Proposal might be an option to compromise that personal liability (the CRA does accept personal proposals that include director liabilities for GST, as those are unsecured personal debts in the eyes of the bankruptcy law). Bankruptcy, the last resort, would discharge the tax debt as well in most cases (barring fraud), but it usually means the end of the business. A proposal is often preferable if the business is viable aside from the tax debt. Insolvency proceedings are complex and have major implications (credit ratings, loss of assets, etc.), so they require professional advice. However, they can provide relief in extreme situations: for instance, stopping the CRA from garnishing and wiping out penalties/interest beyond what a settlement offers. The key takeaway is that no tax debt is truly hopeless – even multi-million dollar tax debts have been reduced via negotiations or legal processes when a company’s survival is at stake. The earlier options (payment plans, etc.) are preferred if feasible, but insolvency is the safety valve if a fresh start is needed.

By exploring these options – individually or in combination – a business with GST/QST arrears can formulate a plan to resolve the debt. Often the solution will involve an immediate triage (filings and a payment arrangement) followed by longer-term fixes (e.g. financing or gradual payments), along with addressing the root cause (improving compliance and bookkeeping). In the next section, we’ll see how a professional firm approaches such cases to protect the client’s interests.

Mackisen’s Strategy: Professional Resolution of Sales Tax Debts

At Mackisen CPA in Montreal, we specialize in helping businesses navigate GST/QST tax debt problems from start to finish. Our approach is comprehensive and aimed at minimizing financial damage, protecting the client (and its directors), and restoring full compliance. A Big-4 style methodology means we bring technical tax expertise, negotiation experience, and strategic planning to each case. Here’s how we typically handle a sales tax debt file:

• Situation Assessment and Compliance Review: First, we perform an in-depth review of the client’s tax situation. This means determining exactly which GST/QST returns are outstanding or under-reported, how much is owed (per period), and what penalties/interest have accumulated. We’ll also review the company’s financial ability to pay and whether any amounts might be incorrect (for example, maybe some GST was over-assessed or input tax credits were missed). Mackisen conducts a full GST/QST account reconciliation and identifies all compliance gaps. This may involve reconstructing records or bookkeeping for unfiled periods, ensuring we have accurate data on sales and allowable credits. By fully quantifying the tax exposure, we can make informed decisions on next steps.

• Immediate Protective Measures: If enforcement has already started (e.g. you’ve received a collections notice or bank freeze threat), Mackisen will communicate with CRA and Revenu Québec right away on your behalf. We notify the agencies that the file is under professional review and request a hold on collections while we work out a plan. Often, simply having a CPA representative involved can buy you some time and goodwill. Our team will engage with the collectors to prevent extreme actions like bank account seizures during the resolution process. Protecting the client (and its directors) from escalated enforcement is a top priority. That may include negotiating the release of frozen funds or forestalling a director liability assessment by showing a plan is in motion.

• Bringing Filings Up to Date: Next, we focus on filing all outstanding GST/QST returns (if any) and correcting any filing errors. Mackisen’s accountants prepare the back filings with precision – claiming all eligible input tax credits (GST ITCs) and input tax refunds (QST ITRs) to reduce the net payable, and ensuring each return is accurate. By filing the correct returns, we replace arbitrary assessments with the true liabilities and often reduce the debt. For example, one client came to us with a large CRA-assessed amount for unfiled GST; after we filed actual returns, the assessed debt dropped significantly because we included missed ITCs. Timely and accurate filing is also crucial for establishing trust with the tax authorities. We ensure all compliance obligations are met so that the file transitions from “non-compliant” to current status.

• Evaluating Relief Programs: As part of our strategy, we evaluate whether the client is eligible for programs like the Voluntary Disclosure Program or Taxpayer Relief. If the issue involves past unreported taxes and meets the criteria, we may recommend making a voluntary disclosure to cancel penalties. Our team has extensive experience preparing VDP applications (including the narrative and legal justifications) to maximize the chances of acceptance. If extenuating circumstances exist, we will draft and submit taxpayer relief requests to potentially cancel interest/penalties. Essentially, Mackisen leaves no stone unturned in finding opportunities to reduce the debt through official relief channels. Every dollar of penalty or interest we can get forgiven is a dollar saved for the client.

• Negotiating Payment Terms: Once the amount owing is finalized (after filings/adjustments and any relief measures), the core issue is paying the debt. Mackisen serves as your negotiator in discussions with CRA and Revenu Québec to arrange manageable payment terms. We present the client’s financial information in a professional manner to justify a reasonable installment plan, if needed. Because we understand the internal policies of the tax offices, we can often secure more favorable terms – for instance, a longer payment period or a reduced initial payment – than a taxpayer acting alone might achieve. In one case, a Mackisen client with ~$18,000 QST debt obtained a monthly installment plan that prevented any collections action and even stopped additional interest from compounding on the future installments. The key is demonstrating a clear plan and ability to comply with it. We act as the liaison so that communications stay constructive and focused on resolution, not intimidation.

• Cash Flow and Finance Strategy: In tandem with negotiating with tax authorities, our advisors work with the client on internal financial strategy to generate funds for the debt. This might include budgeting exercises, improving accounts receivable collections, or finding financing options (as discussed earlier). Because of our experience in both tax and accounting, we’re able to help clients restructure their cash flow to meet the payment obligations. For example, we might assist in preparing short-term cash flow projections and identifying how the client can cut expenses or temporarily increase liquidity to funnel money towards the tax arrears. This often is the difference between successfully following through on a payment plan versus defaulting. In some situations, we coordinate with refinancing partners (banks or alternative lenders) if a loan is the best solution – essentially providing an all-in-one advisory solution to solve the tax debt problem from both the government side and the business side.

• Director Liability Protection: If directors are at risk of being assessed personally, Mackisen takes steps to protect them. This can include quickly remitting specific older amounts to get under the 2-year director liability window, or documenting the due diligence a director exercised (for use as a defence if an assessment is issued). We counsel the directors on minimizing personal exposure – for instance, not resigning in panic (which doesn’t avoid liability for existing omissions and can complicate matters) and instead focusing on resolving the corporate debt. Should a director receive a formal assessment, we can manage the objection and appeal process, arguing any available defences. Our goal is to avoid the need for director assessments by resolving the corporate debt, but if it comes up, we stand ready to defend the individuals vigorously.

• Audit Support and Compliance Restoration: A business owing back GST/QST often faces heightened audit risk. Mackisen’s strategy therefore emphasizes audit defense and long-term compliance. We review past filings for accuracy and prepare the client in case CRA or RQ audits the periods of concern. By voluntarily correcting issues and maintaining open communication, we sometimes avert a formal audit altogether. If an audit or verification does occur, we handle all interactions with auditors to ensure the client’s rights are protected. Finally, we help the business establish robust processes (bookkeeping, timely filings, perhaps quarterly check-ups) to prevent future tax problems. The endgame of our engagement is that the client not only gets out of the immediate crisis but also has improved systems to stay onside going forward. We essentially turn a fire-fighting exercise into an opportunity to strengthen the company’s compliance infrastructure.

In summary, Mackisen acts as a trusted ally and strategist for businesses with sales tax troubles. We don’t just fill out forms – we project manage the entire resolution: from quantifying the debt, pursuing reductions, negotiating with authorities, to advising on finance and preventing recurrence. This holistic approach has helped many companies in Montreal and Quebec resolve GST/QST debts while continuing to operate and thrive. The next section provides a snapshot of an anonymized client case to illustrate how these strategies come together in practice.

Real Client Experience: From Tax Debt to Recovery

Consider the case of a Montreal retail business (name withheld) that found itself owing a substantial sum in GST/QST after a series of cash flow setbacks. The business had a few rough quarters where sales were lower and some customers delayed payments. To keep the lights on, the owner used funds collected for GST/QST to cover operating expenses, planning to “catch up later.” By the end of the year, the company had $50,000 in GST/QST trust funds that were collected but not remitted to the government.

When the CRA and Revenu Québec began sending collection notices, the owner understandably panicked. They faced late penalties, mounting interest, and warning letters about possible bank account freezes. On top of that, since one quarterly return hadn’t been filed on time, the CRA issued an arbitrary assessment that overshot the actual liability, making the situation look even worse on paper. The director was worried not only for the business but also about personal liability and whether his personal assets were at risk.

Mackisen was engaged at this critical point. Our team swiftly took charge of communications with the tax authorities, obtaining a short grace period to allow time for a resolution plan. We filed the missing GST/QST return, which immediately reduced the assessed balance (the arbitrary assessment had assumed higher sales than actual). We then compiled a financial proposal for a payment arrangement. The total debt – once properly calculated and with some penalties reversed – was roughly $45,000. The business could not pay that in a lump sum without selling off inventory at a loss. Instead, Mackisen negotiated a 6-month payment plan with equal monthly installments. We demonstrated to the collectors how the company’s upcoming seasonal sales would support these payments.

While negotiating the plan, we also guided the owner in implementing a quick cash boost: he was able to obtain a short-term bridge loan of $15,000 from a local lender (at a reasonable rate), which we advised using to make a large initial payment to show good faith. This upfront payment convinced Revenu Québec to hold off on any bank garnishment. They saw the cooperation and partial payment as a sign that formal enforcement wasn’t necessary.

With the installment plan in place, the business made payments consistently over the 6 months and successfully cleared the debt. Throughout, Mackisen monitored each payment and handled any queries from CRA/RQ, allowing the owner to focus on running the business. We also helped the client adjust pricing and implement an automated tax set-aside account so that going forward, all GST/QST collected would be separated and saved for remittance (ensuring this issue would not recur). The directors were relieved to avoid personal assessments, and no further enforcement actions occurred. In the owner’s words, “Mackisen turned a dire situation into a structured plan. We paid it off, avoided a freeze of our accounts, and I learned how to never get in that bind again.”

This case highlights that even a significant GST/QST debt can be managed and resolved with the right approach. The keys were acting proactively, using professional negotiation, and coupling the resolution with better cash management. Every client’s situation is unique, but the outcome above – no bank account seizure, no legal action, no business interruption, and a full debt payoff over time – is what we strive for in every engagement.

Common Questions from Business Owners

Q: Can the government really freeze my business’s bank account due to GST/QST debt?
A: Yes. Both CRA and Revenu Québec have the power to issue a legal directive (Requirement to Pay) to your bank that will effectively freeze funds and divert them to the tax authority. They typically resort to this if you ignore payment requests or default on agreed plans. It’s often the first severe enforcement action you’ll feel. To avoid this, always respond to tax notices and try to work out a payment solution before they escalate to a bank freeze. Once a freeze is in place, it’s very disruptive – you may have no access to money to pay suppliers or staff. Mackisen often intervenes before it gets to that point, or can sometimes get a freeze lifted by negotiating an immediate plan.

Q: Will I go to jail if I owe a lot of GST/QST?
A: For the vast majority of cases, no, jail is not a consequence for simply owing GST/QST. These matters are civil, not criminal. The tax agencies are interested in collecting the money, not imprisoning business owners. Jail is only on the table in extreme cases involving tax evasion, fraud, or willful obstruction (for example, a case where someone collected huge sums of GST, didn’t remit, and then falsified records or refused to cooperate – that could lead to charges). The CRA does mention prosecution as a possibility, but that is very rare and usually comes with evidence of intentional wrongdoing. If you are honestly trying to resolve the debt, you will not be jailed. The worst you face is financial pain and civil enforcement (though in some cases, directors have faced house liens or bankruptcy due to tax debts). So, while jail is an exceedingly unlikely outcome, the financial and legal consequences are serious enough to treat the situation as an emergency even without criminal sanctions.

Q: Can I negotiate a deal to reduce the amount or get more time?
A: Absolutely. You can often negotiate payment plans (more time to pay) with both CRA and Revenu Québec, as discussed above. These agencies are open to arrangements if approached properly, because ultimately they want to collect the money, not shutter your business. As for reducing the amount, while they won’t forgive the base tax, you can sometimes get penalties or interest waived via taxpayer relief if you qualify. In an insolvency proceeding (consumer or corporate proposal), it’s even possible to settle the debt for less than full value, but that’s a formal legal process. There is no informal “let’s cut a deal for half the tax” outside of those channels – CRA/RQ agents themselves don’t have authority to reduce the tax owing. They can remove penalties in a VDP or relief context, and they can stop future interest by agreeing to a proposal or accepting payments sooner. Negotiating also extends to how you pay: we often secure installment agreements that fit a client’s cash flow, whereas an unrepresented taxpayer might be told to pay in 3 months something they realistically need 12 months for. In summary, you can make a deal on payment terms with the government, and sometimes on canceling penalties/interest, but not on the core tax amount unless it’s through a legal proposal. Having a professional handle the negotiation can improve your odds significantly of getting a favorable plan.

(Q: What if I can’t pay anything at all? Will they shut down my business?)
A: If a business truly can’t pay (insolvent), it’s a tough situation. The agencies might still pursue legal enforcement (like seizing assets or forcing a bankruptcy). However, that doesn’t necessarily mean the end – many businesses with tax debts end up restructuring through formal proposals or obtaining new financing. The government typically doesn’t “shut down” businesses directly; lack of payment might indirectly force you to cease operations if they lien all assets or garnish all income. The goal is to avoid reaching that point by exploring the options we outlined (even if you can’t pay now, perhaps an interim financing or a proposal can save the business). Each case is unique, and frankly if there are no assets and no prospects, bankruptcy might occur. But we’ve seen clients in dire straits turn it around by seeking professional help in time.

Q: If I enter a payment plan or use a voluntary disclosure, will the tax agencies audit me?
A: Generally, making good faith efforts to resolve the debt decreases your audit risk. When you come forward through the Voluntary Disclosure Program, the file is processed in a special voluntary stream – you avoid the adversarial audit and you won’t be penalized. Similarly, if you negotiate a payment plan and stay compliant, you’re showing a cooperative posture. That said, past non-compliance can draw some scrutiny. The agencies may flag your account for follow-up to ensure you file and pay on time thereafte. Major discrepancies in reported sales (when you finally file) could trigger a closer look. But in our experience, resolving issues proactively with a CPA’s help often satisfies the tax authorities; once the debt is paid and compliance is restored, you’re usually not on the audit radar unless something else is off. On the other hand, if you don’t address the debt and they have to chase you, they are far more likely to audit deeper.

Why Mackisen

Dealing with a GST/QST tax debt can be overwhelming for any business owner – but you don’t have to face it alone. Mackisen CPA brings Big-4 level expertise to GST/QST tax debt help in Montreal, with a team that understands both the technical tax rules and the practical aspects of negotiating with CRA and Revenu Québec. With over 35 years of combined CPA experience, we have become a trusted partner for resolving sales tax collections and enforcement issues for SMEs in Quebec. Our clients choose us for our full-service approach: we offer professional tax audit defense, strategic negotiation, and accounting solutions all under one roof.

What sets Mackisen apart is our unwavering focus on achieving the best outcome for the client while keeping the business running. We pride ourselves on avoiding worst-case scenarios – preventing bank account freezes, keeping directors out of personal jeopardy, and stopping aggressive collectors in their tracks through proactive communication. Our deep knowledge of the Excise Tax Act and Tax Administration Act means we can find creative avenues in the law (like VDP or relief provisions) to reduce your burden. At the same time, our practical experience in cash flow management helps you implement the plan to actually pay off the debt sustainably.

In short, Mackisen CPA is your ally for navigating the complex world of GST/QST tax debt resolution – from CRA and Revenu Québec payment plans to voluntary disclosures and beyond. We have helped numerous Montreal businesses large and small to regain compliance, protect their assets, and move forward with confidence. If your business owes back GST/QST, don’t wait for the situation to worsen. Contact Mackisen for a confidential consultation, and let our team develop a clear, professional strategy to resolve your sales tax debt once and for all. We’ll handle the authorities and the numbers; you focus on your business. That’s the Mackisen difference – turning a tax crisis into a recoverable, managed solution, with expertise and peace of mind every step of the way.