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The Canada Revenue Agency, CRA for short, has a lot of power over taxpayers in Canada, more than you may have originally thought. For this reason, it can be unsettling to be in debt to the CRA. There are many types of debt that CRA collects including, but not limited to, personal income tax, payroll deductions, and HST. In this article, we will explore the CRA collections process including how they collect unpaid taxes and other related debts.

CRA Collections Process: What Can They Do?

As mentioned, the CRA has a lot of power over taxpayers and they can be quite aggressive when collecting what is owed to them. There are several legal remedies and tools used for collections that can be applied to taxpayers, often times without notice. As a general rule, you should communicate with the CRA if you have outstanding debts with them because they are quite lenient with their payment options. If you don’t communicate with the CRA, they are likely to take more aggressive action against you.

Just be sure not to fall for the CRA phone scam.  

CRA Collections: The Right to Set-off

The CRA is a very large governing body with many different sectors, such as the personal income tax sector and the HST sector. You may be in debt to one division but be owed money from another division within the CRA. If this is the case, the CRA can hold the money owed to you and apply it against what you owe them. This is known as the right to set-off.

CRA Collections: Registering Your Debt

The CRA can register your debt with the Federal Court of Canada with no warning. There are two outcomes when the CRA decides to do this. First, the amount you owe is confirmed, regardless of whether or not you agree, thereby enabling the CRA to pursue further legal action. Second, your debt to the CRA becomes a matter of public record. Essentially, this is the process of the CRA putting your debt into collections.

CRA Collections: Registering a Lien

Once your debt has been registered, the CRA can proceed to register that debt on title against any asset you own. To pay off your debts to the CRA, they can seize and sell your assets.  Examples of assets the CRA can seize is your home and car.

Read this to learn if you’ll be able to buy a house while you owe taxes.  

CRA Collections: Garnishment

One immense power that the CRA has is they often don’t need a court order to issue debt collection actions. This may include actions such as garnishments or freezing of bank accounts. This is unusual because any typical business would require a court order. If the CRA decides to collect your tax debt using a garnishment or frozen bank account, they issue a ‘requirement to pay’ to your bank or employer who has no choice but to send money directly from your paycheque to the CRA instead of you.

What is the Bankruptcy and Insolvency Act?

The Bankruptcy and Insolvency Act, commonly referred to as the BIA or the Bankruptcy Act, is federal legislation established by the federal government to help Canadians who have been experiencing financial difficulty. The main purpose of the Bankruptcy Act is to protect the rights of indebted individuals and their creditors. In addition, the Act ensures that trustees and the court execute their responsibilities and duties when it comes to debts. Finally, under the Act, individuals have the option to file for bankruptcy or create a consumer proposal.

Will Bankruptcy Ever Override The CRA Collections?

Like the Income Tax Act, The Bankruptcy and Insolvency Act is federal legislation. The question becomes, which piece of legislation trumps the other when both apply to a sole individual? More often than not, The Bankruptcy and Insolvency Act will override the Income Tax Act. This means that bankruptcy would stop the CRA collection process and the debt is eliminated. That being said, there are some specific exceptions to the general rule which can be explained to you by a Licensed Insolvency Trustee (LIT).

Will a Consumer Proposal Ever Override the CRA?

As with bankruptcies, a consumer proposal would stop the CRA collection process and eliminate the tax debt owed. Also, there are some exceptions to this general rule which would be brought to your attention by your LIT.

Can I Stop a CRA Wage Garnishment?

Once a wage garnishment has been placed on your income by the CRA, you will know because the CRA will send you a notice. Fortunately, there is a way to stop a CRA wage garnishment, however, it involves using the Bankruptcy and Insolvency Act. This means that you must file a consumer proposal or file for bankruptcy. Keep in mind that you will need to offer the CRA an acceptable tax settlement when going through the consumer proposal process. Either option provides a legal stay of proceedings that will stop the garnishment CRA has placed on you. Similarly, this can protect you from any debt collection calls.

If you want to stop a CRA wage garnishment, be sure that you are prepared to file for bankruptcy or a consumer proposal. Both of these options have lasting consequences on your credit and should only be executed if you have no other option but to do so.

Click here to find out if bankruptcy is the right option for your tax debt.

Final Thoughts

It is important to be aware of what the CRA can and cannot do. Particularly if you have any outstanding debt with that governing body. If you’re currently struggling with your debt load, seek the help of a professional. They can help assess your situation and provide you with the best debt relief solution.

Veronica Ott avatar on Loans Canada
Veronica Ott

Veronica is a writer who specializes in creating unique and educational personal finance content. She has extensive experience writing blog posts for companies in the financial sector. Veronica's background is in accounting as she graduated from Western University in 2017 with a degree in accounting. She is passionate about using her accounting expertise to help others with their personal finance questions and issues and enjoys using her writing to educate Canadian readers. When Veronica is not writing, she enjoys film, reading, travelling, going to the gym, and listening to music.

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