How to Stop CRA Tax Debt Collection Action?
Stopping Tax Debt Collection Actions
If you owe tax debt, do not pay, and do not make a payment arrangement with the Canada Revenue Agency (CRA), it can take serious collection action against you. The CRA is a powerful agency and it has much stronger powers than nearly every other creditor.
Some of the collection actions that the CRA can take include:
- Sending a Requirement to Pay (RTP) to a third party that owes you money
- This means the agency can send a letter to your employer or your clients and require them to send the agency money that they would have sent to you. This is also commonly known as wage garnishment.
- An RTP can also be sent to the financial institution(s) that hold your bank account(s). If this happens, the institution will need to freeze your access to the account and direct the funds in your account to the CRA.
- Since the Requirement to Pay is a legal document, the third party that it is sent to is required to comply. If they do not, the CRA can hold them liable for the tax debt and take collection action against them.
- Issuing a set-off to any federal government department or agency that owes you money
- The CRA is able to redirect any federal income, goods and services tax/harmonized sales tax (GST/HST) credits, or any future income tax refunds towards your tax debt
- Certifying the debt in court and registering a lien on your assets
- The CRA can certify your tax debt in federal court. Once this is done, the agency can register a lien on your property, including your primary residence. This means, if you sell the asset, the CRA is paid from the proceeds of the sale (and this money is applied to your tax debt) before you receive any remaining proceeds
- Certifying the tax debt in court, then seizing and selling your assets
- Once a debt is certified in court, the CRA can seize your assets and sell them. The agency will then apply the money raised from this sale against your tax debt.
- If this happens, you will be responsible for any costs associated with the sale.
If these collection actions do not pay off your tax debt in full, you will still have to pay the remaining amount.
How You Can Stop Tax Debt Collection by the CRA
The easiest way to stop CRA collection action is to pay the tax debt you owe. However, if you owe a large amount, or if you have owed money for a long time and been charged a lot of interest, this can be very difficult. The longer you take to pay, the more interest you will be charged, making it more difficult to pay.
You may be able to come to a payment arrangement with the CRA. This will allow you to pay your tax debt in monthly payments. However, the agency will only agree to a payment arrangement after you have proven that you attempted to pay your debt in full by either reducing your expenses or borrowing funds. Note that the CRA may accept monthly payments, but the agency will never agree to a payment arrangement that sees you pay less than the full amount.
If you cannot meet your tax obligations, you may be able to ask for relief from penalties and interest. However, this is only possible in certain situations such as a loss of employment, circumstances where interest charges represent a significant portion of the payments or a situation where paying the accumulated interest would cause a prolonged ability to afford basic necessities.
While the CRA may be willing to provide relief from interest and penalties, as mentioned, it will not agree to reduce the overall amount owing. However, the tax debt can be included in a consumer proposal or bankruptcy. While these options may not be right for everyone, they can be a good solution for certain people. Speaking with a Licensed Insolvency Trustee can help you understand if filing for bankruptcy or consumer proposal makes sense for you. Most trustees offer the initial consultation at no charge. Once you understand your options, you can make the right decision for your financial situation.
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