If you do not pay a CRA balance and do not set up a payment arrangement, CRA collections can issue legal demands without going to court. The tools available include wage garnishment (Requirement to Pay served on your employer), bank account freezes, liens on real property, and offset of refunds and benefits. CRA collections is highly automated for small balances and case-managed for larger ones. Acting before collections begins, even by setting up a small payment arrangement, almost always avoids the most aggressive measures.
The collections timeline
| Stage | Typical timing | What happens |
|---|---|---|
| Notice of (re)assessment | Day 0 | CRA issues the notice; balance due is on the notice |
| Reminder letters | 30-90 days | Automated letters increasing in tone |
| Collections call | 60-180 days | CRA officer calls to discuss payment |
| Final demand letter | 90-200 days | Letter warns of legal action if not paid |
| Legal action begins | 120-365 days | Requirement to Pay, lien registration, refund offset |
Timing varies by debt size, type, and the taxpayer’s history. GST/HST and source deductions get faster action than personal income tax because those funds are deemed held in trust.
Five legal tools CRA uses
| Tool | Authority | Effect |
|---|---|---|
| Requirement to Pay (employer / wage garnishment) | ITA s. 224(1) | Up to 30% of wages or 50% of independent contractor income redirected to CRA |
| Requirement to Pay (bank account) | ITA s. 224(1) | Bank freezes the account and remits available balance to CRA |
| Lien on real property | ITA s. 223 | Registered against title; must be paid before sale or refinance |
| Refund and benefit offset | ITA s. 164(2) | CRA applies tax refunds, GST credit, CCB, OAS, etc. to outstanding balance |
| Section 160 derivative assessment | ITA s. 160 | Spouse or non-arm’s-length transferee held jointly liable for transferred assets up to the value transferred |
None of these require a court order. CRA’s debt-collection authority is set out in the Income Tax Act itself and is broader than most private creditors.
Wage garnishment in detail
The Requirement to Pay served on an employer typically directs the employer to withhold up to 30 percent of net wages and remit to CRA. The percentage can be higher (up to 50 percent) for self-employed taxpayers receiving payments from a business client. The employer is legally required to comply; non-compliance makes the employer personally liable for the amount not remitted.
The employee remains liable for the underlying balance plus interest. The garnishment continues until the balance plus interest is fully paid or until CRA agrees to stop, typically through a payment arrangement.
Bank account freeze
The Requirement to Pay served on a bank directs the bank to remit any funds in the account at the time of service, up to the amount stated in the requirement. The bank may freeze the account briefly to determine the available balance. Funds deposited after service are generally not captured (the requirement is a snapshot, not a continuing claim), but a second requirement can be issued.
Lien on real property
CRA can register a memorial of the debt against the title to your home, cottage, rental property, or any other Canadian real estate you own. The lien:
- Does not require a court order.
- Remains on title until paid, at which point CRA issues a discharge.
- Must be paid out of sale proceeds before the title transfers, similar to a mortgage discharge.
- Affects refinancing — most lenders refuse to advance against a property with a CRA lien on title.
Refund and benefit offset
CRA can apply any future tax refund, GST credit, CCB, OAS, or other federal benefit against an outstanding balance, automatically and without notice. This is the most commonly used tool because it is fully automated. Many small CRA balances clear themselves over time through this route.
Section 160 derivative assessment
If a taxpayer with CRA debt transfers assets to a spouse or other non-arm’s-length person for less than fair market value, CRA can assess the transferee for the lesser of (the value transferred minus consideration paid) and (the original taxpayer’s debt). This catches family asset shuffles intended to defeat collection. The assessment can extend years after the transfer.
What stops collections action
| Action | Effect |
|---|---|
| Set up a payment arrangement | Halts active collections; CRA expects monthly payments |
| Successful Notice of Objection | Suspends collections on the disputed amount until objection is decided (this protection does not extend to GST/HST debts) |
| Bankruptcy filing | Stays most collections immediately; tax debt usually included in the bankruptcy estate |
| Consumer proposal filing | Stays collections; CRA reviews and votes on the proposal |
| Pay in full | Stops collections; CRA discharges any registered lien within weeks |
Worked example: response to a Requirement to Pay
A self-employed taxpayer receives notice that her bank account was frozen on a $24,000 GST/HST debt. The bank remitted $3,200 (the available balance). Her business invoices are due to be paid into the same account.
- Day 0: Requirement to Pay served. $3,200 remitted to CRA.
- Day 1-3: Taxpayer calls CRA collections to negotiate a payment arrangement on the remaining $20,800.
- Day 4: Provides income/expense statement; agrees to $1,500/month over 14 months.
- Day 5: Sets up pre-authorized debit; requests CRA confirm the bank Requirement to Pay is lifted.
- Day 6-7: CRA notifies bank; account is functional again.
- Future: Each month’s $1,500 PAD reduces the balance; interest at 9 percent continues to accrue on the unpaid portion.
What does not stop CRA collections
- Refusing to answer phone calls or letters. Collections proceeds with or without the taxpayer’s response.
- Closing a bank account. The frozen funds are still remitted; the bank reports the closure to CRA, which can serve a different bank.
- Quitting a job to avoid wage garnishment. CRA can serve a new employer once notified by the taxpayer’s T4 filings.
- Moving to another province. CRA collections is federal and works across all provinces; provincial debts (e.g., Quebec Revenue Agency) are managed separately but coordinate with CRA.
Cross-references
- CRA Payment Arrangement: How to Set Up a Plan
- Taxpayer Relief: Cancelling CRA Penalties and Interest
- CRA Notice of Objection
- Late Filing Penalty + Interest
Frequently asked questions
- Can CRA garnish my wages without a court order?
- Yes. Section 224(1) of the Income Tax Act lets CRA serve a Requirement to Pay on your employer, who must withhold up to 30 percent of net wages and remit to CRA. No court order required.
- Can CRA freeze my bank account?
- Yes, by serving a Requirement to Pay on the bank. The bank is required to remit any funds in the account at the time of service, up to the amount of the requirement.
- Can CRA register a lien on my house?
- Yes, under section 223 of the Income Tax Act. The lien remains on title until the debt is paid and must be discharged before the property can be sold or refinanced.
- What is a section 160 assessment?
- A derivative assessment that holds a non-arm's-length transferee (often a spouse) jointly liable for the transferor's tax debt up to the value of assets transferred for less than fair market value.
- Does filing an objection stop collections?
- Yes for personal income tax — collections is suspended on the disputed amount while the objection is being reviewed. GST/HST collections can continue during an objection.
- What happens if I ignore CRA collections?
- CRA can issue Requirements to Pay against your employer and bank, register liens on property, and offset refunds and benefits — all without further notice. Ignoring almost always results in more aggressive collection.
- Will bankruptcy clear my CRA debt?
- Most CRA debt is dischargeable in bankruptcy, with some exceptions (e.g., source deductions held in trust by employers). A consumer proposal is often used to negotiate a reduced settlement before considering bankruptcy.