Dealing with CRA and Tax Debt Problems

How the CRA Collects Tax Debt

If you owe tax debt to the Canada Revenue Agency (CRA), it’s important to know that the agency can do things that other creditors cannot. The federal Income Tax Act gives the CRA very strong collection powers and it uses these powers to enforce tax compliance.

The power of the CRA means it’s incredibly difficult to deal with the agency. Here are just a few of the steps the CRA can take if you owe a tax debt.

Take Money Owed to you by Other Federal Agencies

The CRA can redirect money that is owed to you by other government agencies or departments. For example, if you are due to receive a GST/HST payment and you owe tax debt, the CRA can issue a statutory set-off that will allow the agency to use these amounts to reduce your tax debt. This means you won’t get your payment.

Garnish Wages from Your Employer

The CRA can send a Requirement to Pay notice to your employer or nearly any third-party that owes you money.

For example, if you are an employee, you receive a salary or pay cheque from your employer, and taxes are deducted at the source (which is the case for most employees) the CRA can send your employer a Requirement to Pay. Once this is received, the employer will be required by law to redirect money that would have been sent to you as your payment to the CRA instead.

In a situation like this one, the CRA can garnish up to 50% of your paycheque. However, if you do freelance or contract work, the agency can send a Requirement to Pay to your clients or anyone who owes you money. If this happens, the agency can garnish up to 100% of your invoices!

In addition to the obvious issues that come from not having access to your money, a Requirement to Pay notice can also harm your reputation. Anyone who receives one will have no choice but to comply and they will also become aware of your tax issues, which may not be something you appreciate.

CRA Can Freeze Bank Accounts

In addition to sending a Requirement to Pay to anyone who owes you money, the CRA can also send this notice to anyone who holds money for you. This means the agency can freeze your access to your own bank account and redirect the money in the account towards your tax debt. This can be a significant issue as it can become nearly impossible to pay your bills without access to your bank account.

Register your Tax Debt in Court

The CRA can also register your tax debt with the Federal Court of Canada or obtain a judgment from provincial courts. In either case, your debt will become a matter of public record and doing so gives the agency even greater powers.

Seize and Sell Your Assets

Once your tax debt has been registered in court, the CRA can seize your assets and property. It can then advertise and sell your assets, applying any funds generated from the sale towards your tax debt. This means you could lose your home, your car, and nearly anything else you own.

If this happens, you will be responsible for paying all reasonable costs that the CRA occurs from the process.

As with any of these collection actions, if you still owe tax debt once the action has been taken, you will still be responsible for paying the remaining debt.

How to Deal with Tax Debt and CRA Collections

Dealing with CRA can be incredibly difficult. If the agency has taken collection action against you or if you believe these actions are coming soon, you may wish to speak with a professional who will communicate and negotiate with the CRA on your behalf.

In addition, tax debt owed to the CRA can be included in a bankruptcy or consumer proposal. These legal processes are administered by Licensed Insolvency Trustees. When you file one of these processes, you receive legal protection from your creditors. This means that not only will the trustee communicate with them on your behalf, but it also stops them from taking collection action against you. Any actions that are already in place (such as wage garnishment) must stop when you file.

If you have tax debt and are struggling to deal with it, arranging a free consultation with a Licensed Insolvency Trustee can be a good idea.