If you have debt with the Canada Revenue Agency (CRA), it can be daunting, and you might not know which way to turn.

Fortunately, bankruptcy can stop the CRA from pursuing you for debt while allowing you to eliminate them upon completion.

This guide looks at how the Canada Revenue Agency handles debt collections and how bankruptcy can help you stop CRA collections.

What types of debt does the CRA collect?

The CRA is responsible for collecting government money owed for:

  • Personal income tax.
  • HST.
  • Employment deductions.
  • Student loans in arrears.
  • Benefit overpayments.

What collection actions can the CRA undertake?

Under legislation such as the Income Tax Act and the Excise Tax Act, the CRA has the power to collect outstanding tax debts in various ways.

If you do not pay your arrears, the CRA can take serious measures such as wage garnishments, set-offs, a lien on property or seizure of assets.

There is daily interest on outstanding balances until you pay your balance in full, so it is essential to deal with these debts promptly.

Requirements to pay (RTP)

You will receive a legal notice known as a Requirement to pay (RTP) if you have not paid your tax debts or haven’t made a payment arrangement with the CRA.

If you have received a Requirement to Pay notice, you should immediately speak to a Licensed Insolvency Trustee.

Check your RTP date: It’s important to note that the CRA cancelled Requirements to pay (RTP) in March 2020 due to the pandemic. If you have an RTP dated March 31, 2020, or earlier, no deductions or remittances are required. If RTPs are received dated on or after April 1, 2020, you must comply with them.

Source: Collections at the CRA

Wage garnishments

If you do not have a payment arrangement in place, the CRA can take legal action to collect money through wage garnishments.

Wage garnishments allow a creditor to collect money from your wages. The CRA can also freeze your bank account and take any available funds.

Set-offs

Set-offs involve the CRA taking money owed from another federal agency or department to pay your CRA debt.

For example, the CRA could withhold a tax refund or HST credit and apply it to the debt that you owe.

Registration of a certificate in court

The CRA can apply for the registration of a certificate in federal court for unpaid debts, which has the same power as a court judgment.

When this happens, the CRA will notify you via mail.

Seizure of assets

If your debt is certified and you do not pay, the CRA will instruct a sheriff or bailiff to seize any assets that your own. These assets will be sold to pay your debt.

Lien on property

The CRA can register a lien on your property, even if it is co-owned.

You must pay the balance in full before this can be removed, and if you want to sell the property, the CRA must be paid first.

As a lien on your property is effectively a secured debt, you cannot eliminate your CRA debts through bankruptcy or a consumer proposal once this happens.

So before this happens, consider filing for bankruptcy or filing a consumer proposal.

When dealing with debts, it’s a smart move to contact a Licensed Insolvency Trustee to discuss your options.

Remember: don’t wait for CRA to take action. Deal with CRA debts immediately by talking to a trustee.

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Statute of limitations

In Canada, a statute of limitations governs how long a creditor or collection agency can pursue legal action against you for unsecured debt.

Government debts are not subject to these rules, so while there is a limitations period for tax collections, you’ll find that most CRA debts will be collected indefinitely.

How long will CRA debt collections last?

Once the CRA collection action begins, it continues until the account is paid in full.

However, if this action is causing undue hardship, you can stop it by speaking to a Licensed Insolvency Trustee.

CRA debt relief options

The good news is there are some solutions to your CRA debts.

1. Set up a payment arrangement with the CRA

Consider setting up a payment arrangement with the CRA to pay off your tax debt over time.

CRA collections phone number

To make a payment agreement or discuss your options, you can call the CRA’s debt management department at 1-888-863-8657 to speak to an agent.

Here’s a tip: Collection action resumed on February 2021 following a suspension due to COVID-19. At present, the CRA is reviewing each situation on a case-by-case basis to prevent financial hardship. Now is a good time to talk to the CRA about your debts if you can’t pay them. Find out more.

2. Request for Taxpayer Relief

If you want relief from penalties and interest, you can apply for a Request for Taxpayer Relief by completing this form.

You must have a legitimate reason, such as:

  • Financial hardship or inability to pay.
  • Death/accident/serious illness/emotional or mental distress.
  • Natural or human-made disaster, such as a flood or fires.
  • Civil disturbance or disruptions in services, such as a postal strike.
  • CRA delay or error.

You must submit all relevant documents and evidence to support your request for relief.

Include any correspondence from the Canada Revenue Agency that shows the penalties and interest charged to your account.

3. File for bankruptcy to stop CRA collections

If you want to eliminate your CRA debts, you might also consider filing for bankruptcy.

Does bankruptcy stop CRA collections?

In most cases, bankruptcy can stop action from the CRA and eliminate your debts.

Once your bankruptcy is filed, a Stay of Proceedings gives you immediate protection from all your creditors, including the CRA. Collection calls, legal action and wage garnishments will stop.

The CRA can oppose your bankruptcy if you have substantial tax debts or have a bad history with the CRA in the past.

If you’re ready to find out more, speak to a Licensed Insolvency Trustee about filing for bankruptcy to eliminate CRA debts.

4. File a consumer proposal to stop CRA collections

A consumer proposal could reduce and eliminate your CRA debt while combining all of your unsecured debts into one simple monthly payment.

Like bankruptcy, a consumer proposal provides a Stay of Proceedings, which gives immediate automatic protection from your creditors throughout the term of your proposal.

All CRA actions, such as wage garnishments or legal action, will stop. Plus, you can keep control over more of your assets, which is beneficial if you have lots to protect.

On completion of a consumer proposal, you are discharged from your debts.

The CRA is happy to settle your outstanding tax debt through a consumer proposal, but they ask for specific terms. They may also look to negotiate with you, with help from your Licensed Insolvency Trustee, before the proposal begins.

Before filing for bankruptcy or a consumer proposal

Before filing for bankruptcy or a consumer proposal, you must file all outstanding tax returns so that the CRA knows how much you owe.

A bankruptcy involves filing a pre-bankruptcy and a post-bankruptcy tax return through your Licensed Insolvency Trustee.

If you are due a tax refund for returns before the year of bankruptcy, this money will form part of your bankruptcy estate and be sent to your trustee to be distributed among your creditors.

The same applies to refunds for your pre-bankruptcy and post-bankruptcy returns.

In a consumer proposal, you must continue to file your taxes as usual.

You must file and pay any tax returns due throughout your consumer proposal or bankruptcy term.

See also: What happens to my taxes if I file for bankruptcy?

Conclusion

Both bankruptcy and a consumer proposal can stop CRA collections and help you eliminate your tax debts.

If you’re considering either option, be aware that only a Licensed Insolvency Trustee has the power to administer bankruptcy and consumer proposals to deal with CRA debts.

It is vital to take action quickly: don’t wait until the CRA garnishes your wages, seizes your assets or registers a lien on your property.

By filing for bankruptcy or entering into a consumer proposal, you will pay less than your total debt, allowing you to take back control of your finances and start living again.

Before you decide, talk with a Licensed Insolvency Trustee about the best way to resolve your outstanding CRA debts. Your trustee will explain your debt relief options and help you find a viable solution.

All consultations are free, and there is no obligation.

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