The Canada Revenue Agency uses wage garnishment to recover unpaid tax debt. If you have not paid or made arrangements to pay your outstanding taxes, a CRA garnishment means that your employer must send a portion of your salary directly to the CRA.
This article will answer the questions of when the CRA can garnish your wage, how you can stop them and more.
Understanding CRA Garnishment
A wage garnishment by the CRA is a legal process to recover unpaid tax debt. If the CRA cannot collect the tax debt or receive a payment arrangement from you, the Agency may send your employer a Requirement to Pay, also known as an RTP. The CRA may also send you a copy of the RTP.
The RTP is a legal document that notifies your employer that they must send a portion of your income to the CRA to cover part of your tax debt. Employers must comply with the RTP. Otherwise, they become liable for any amount they do not forward to the CRA.
Situations Where CRA Can Garnish Wages
The CRA can order wage garnishments when you are overdue on tax debt payments and either fail to repay the debt or make payment arrangements with the CRA. There are multiple types of debt or overpayments you may receive from the government that the CRA can send a requirement to pay or garnishment order for:
-
- Income tax debt
- Customs duties and taxes
- Employment insurance and Canada Pension overpayments
- PST/GST/HST debt
- Withholding taxes
- Money owed to Revenue Canada resulting from a failed business.
Time Limitations for Collections
There is this wrong belief that CRA collections have a limitation period of 6 to 10 years, believing that the debt would be expunged after this period. In truth, however, while each tax debt does have a collection limitation of 6 to 10 years, the CRA can restart or extend this period in certain situations.
This means the collection limitations may not restrict the CRA from collecting tax debt after 10 years. Also, please note that tax debt can accrue interest until it is paid in full, so waiting for the collection period to end without taking action may increase your debt considerably.
How Much Of A Person’s Wage Can the CRA Garnish?
If you are employed, the CRA has the right to garnish up to 50% of your wage; if you are a contract worker, the Agency may garnish up to 100% of your income. If you are self-employed and bill your clients directly, the CRA can direct 100% of your income to pay off outstanding tax debts.
CRA Garnishment Letter: Requirement to Pay
It is critical to note that the CRA can enforce a wage garnishment without requiring a court order.
To initiate the garnishment process, the CRA issues a Requirement to Pay notice to your employer or other third parties. The RTP notifies your employer to deduct or withhold money from your income and direct it to the CRA to cover part or all of your unpaid tax debt.
Requirements to Pay apply to different payments third parties could make to you, including:
-
- Wages, salaries, bonuses, or commissions
- Rent or lease payments
- Proceeds of an insurance claim
- Reimbursement of expenses the third party owes to you
- Amounts held by your financial institution
- Loans made by the third party to you, when the corporation is not handling you at arm’s length
The CRA does not have to send you a formal notice before a garnishment is put in place. This does not, however, mean that the CRA will not take several other steps before starting a garnishment process. The CRA will first send notices of assessment and collection letters before sending a copy of the Requirement to Pay notice sent to the third party to you via mail as well.
Should you not pay your outstanding debt or make payment arrangements with the CRA, the Agency can start the wage garnishment procedure without other notifications.
As the CRA sends the Requirement to Pay via regular mail but works directly with third parties to garnish wages, you may only realize this happens once you cannot use your bank card or withdraw money from your account.
Will the CRA notify me of a wage garnishment?
The CRA will mail you a copy of the Requirement to Pay after receiving notices of assessment and collection letters. If you fail to pay your debt or make arrangements for payment with the Agency, they can commence garnishment without any additional formal notice to you. Your employer does not have to notify you of receiving a CRA payroll garnishment notice or that the garnishment has started. Your employer is obligated by law to comply with the RTP immediately.
Unfortunately, if you open your mail regularly, you might only be aware of a wage garnishment once you attempt to use your band card or withdraw funds from your bank account.
Also Read: Consumer Proposal Vs. Division 1 Proposal to Creditors
Can you stop a CRA wage garnishment?
Paying your outstanding taxes will stop the CRA wage garnishment or if your tax debt has been paid off through the garnishment. If you cannot afford to pay your overdue taxes, another path is open to you, governed by the federal Bankruptcy & Insolvency Act (BIA).
You have two options to stop a CRA garnishment and eliminate the tax debt:
Both options will provide a legal stay of proceedings that will stop the garnishment. Once you file either a consumer proposal or bankruptcy, the Licensed Insolvency Trustee (LIT) will forward a copy of the filing to your employer. This will act as legal notification required for them to stop withholding and forwarding funds from your paycheque.
The difference between the two options is that if you file a consumer proposal, you will have to make an acceptable settlement offer to the CRA; if you file bankruptcy, the CRA will file a claim of their own, and your tax debts will be expunged when you receive your discharge.
The process to stop a CRA wage garnishment is simple:
-
- Contact a Licensed Insolvency Trustee at Risman Zysman for a free, confidential, no-obligation consultation. During the consultation, advise us if you have a garnishment pending or already in place.
- During this consultation, we will collect all the necessary information to help you decide whether to propose to your creditors or file bankruptcy and prepare all paperwork.
- Acquire the contact information from your employer, who should be contacted to stop the garnishment once you have filed.
- Once you sign the proposal or bankruptcy documents, we will file them with the government, which starts the stay of proceedings. This can happen as soon as all information is collected, sometimes even on the same day.
- Then we will immediately notify your employer of your filing and advise them to stop the garnishment.
Time is of the essence, as the sooner we notify your employer, the sooner the garnishment will cease.
Also Read: How Long Does Bad Credit Stay on Your Credit Report in Canada?
Seek Professional Help
You should seek professional advice when you notice that you are having increased problems paying your taxes and have fallen behind on payments. A professional can analyse your financial situation and advise you about all available options for debt recovery. They have the experience and expertise to find the best solution for you.
Risman Zysman has over 45 years of experience providing quality debt solutions. Our team of professionals understands the fears and frustrations of individuals facing financial difficulty. At Risman Zysman, we present each client with a full range of options and guide them to make the right choices so they can move forward.
To find out how we can help you, call us at 416-222-4600 and get a free, confidential, no-obligation consultation today! Risman Zysman can help you on the road to financial recovery.
CRA Garnishments FAQs
When does the CRA garnish wages?
The CRA can initiate wage garnishment when you are overdue on debt payments. If you have failed to pay your unpaid taxes or make payment arrangements, the CRA can use it to recover tax debts. Other options open to them are bank account freezes or asset liens/seizures.
What can the CRA garnish wages for?
The CRA can garnish wages for a variety of debts or overpayments, including
-
- Income tax debt
- Customs duties and taxes
- Employment insurance and Canada Pension overpayments
- PST/GST/HST debt
- Withholding taxes
- Money owed to Revenue Canada resulting from a failed business.
Also Read: Can the CRA Freeze Your Bank Accounts? – Here’s How To Avoid It!
Is my debt cancelled after 6 or 10 years?
No. Even after the collection limitation period ends, the tax debt still exists and continues to accumulate interest until it is paid back in full.
Can bankruptcy stop CRA garnishments?
Yes, bankruptcy will stop wage garnishments. Other solutions are also to consider, such as filing a consumer proposal. Speak to our Licensed Insolvency Trustees today for a free, confidential, no-obligation consultation to learn how we can help you find the best solution.
