Few CRA actions feel as alarming as a frozen bank account or a letter telling your customers to send their payments to the government instead of to you. The Canada Revenue Agency has broad statutory powers to collect tax debts, and many of them can be exercised without going to court first. This guide explains how CRA collections actually works — the freezes, requirements to pay, and garnishments — whether the CRA can collect while you are disputing the underlying assessment, and the tools available to reduce the debt and arrange manageable payments.

How CRA collections works

CRA Collections has authority that begins the moment a tax debt is assessed and ends only when the debt is paid, settled, or otherwise extinguished. The feature that catches most people off guard is this:

No court order is required. Unlike an ordinary creditor, the CRA generally does not need to sue you and obtain a judgment before taking collection action. The notice of assessment is itself the legal authority. That is what makes CRA collections move so much faster than collection by a bank or supplier.

There is usually a sequence the CRA follows before aggressive enforcement — statements of account, phone calls, and a legal warning letter — but that sequence can be short, and once it has run, several powerful tools are available at once.

Frozen bank accounts

A frozen account is one of the most common and most disruptive collection actions. The CRA issues a demand to your financial institution — often called a "Demand on Bank" — under section 224 of the Income Tax Act (or section 317 of the Excise Tax Act for GST/HST). The demand directs the bank to remit funds in your account, up to the amount specified, directly to the CRA.

The practical effect is that money in the account on the day the demand bites can be swept to the CRA. The first response is almost always to contact the assigned collections officer immediately to understand the scope of the demand and to negotiate. Speed matters here, because once funds are remitted they are gone.

Requirements to pay (RTPs)

A requirement to pay, also issued under section 224, is a redirect order sent not to you but to third parties who owe you money or hold money for you. That includes your bank, your customers, your accounts-payable counterparties, brokerage firms, and others. The recipient of an RTP is legally obligated to remit the money to the CRA instead of to you — and if the recipient ignores the RTP and pays you anyway, the recipient can become personally liable for the amount.

For a business, an RTP to customers can be especially damaging, because it tells your clients, in effect, that you owe the government money. Each RTP is for a specified amount; once that amount is satisfied the RTP ends, but the CRA can issue new ones.

Wage garnishments

A garnishment is an RTP directed at an employer. The CRA can require an employer to remit a portion of an employee's wages — commonly up to 50% of net wages for an arm's-length employee, and up to 100% for a non-arm's-length employee such as a shareholder-employee, depending on the circumstances. Because the garnishment is just an application of the section 224 power, it does not require a court order either.

Other collection tools

Liens and certificates. The CRA can register a certificate in the Federal Court that has the force of a judgment. The certificate can then support a writ of seizure and sale, garnishments, and liens against real property.
Set-off. The CRA may apply refunds and benefits — including GST credits and Canada Child Benefit amounts — against an outstanding tax debt.
Director's liability. Under section 227.1 of the Income Tax Act and section 323 of the Excise Tax Act, directors can be personally assessed for a corporation's unremitted source deductions and GST/HST. There is a two-year limitation period running from when you ceased to be a director, and a due-diligence defence — both of which are addressed on our director's liability page.
Section 160 derivative liability. Where a tax debtor transfers property to a non-arm's-length person for less than fair market value while a tax debt exists, the recipient can be made jointly liable up to the value of the shortfall.

Can the CRA collect while my objection is pending?

This is one of the most important questions in any collections file, and the answer depends entirely on the type of tax.

For most income-tax debts, the CRA's collection action is generally restricted while a notice of objection is under consideration and during the related appeal period. In other words, filing a valid objection on an income-tax reassessment usually slows or pauses collection on the disputed amount. This is one reason an objection is not only about the merits — it can also buy breathing room. The mechanics of objecting are in our guide on how to file a notice of objection.

For GST/HST, source deductions, large-corporation amounts, and certain other categories, that restriction does not apply. The CRA can continue collecting even while you object. For a large corporation, only half of the disputed income-tax amount is held back. So a business owner who assumes that "filing an objection stops the CRA" can be caught out if the debt is GST/HST or unremitted source deductions — exactly the categories most likely to trigger aggressive collection.

Because the rule turns on the tax type, the first step in any collections file is to confirm precisely what is owing, by year and by tax type. The understanding of when collection is and is not restricted often drives the entire strategy. For a full picture of how the objection and appeal stages relate, see Notice of Objection vs Tax Court Appeal.

Taxpayer relief: reducing interest and penalties

A large part of many tax debts is not the underlying tax at all — it is accumulated interest and penalties. Under subsection 220(3.1) of the Income Tax Act, the CRA has discretion to cancel or waive interest and penalties in defined circumstances:

Financial hardship or inability to pay — where paying the interest would cause genuine hardship;
CRA error or delay — where the CRA's own actions caused or prolonged the problem; and
Extraordinary circumstances — serious illness, natural disaster, or similar events beyond the taxpayer's control.

Taxpayer relief is a separate application from an objection, and it addresses interest and penalties rather than the tax itself. It is also subject to a ten-year limitation window. It will not change whether the underlying assessment is correct, but it can meaningfully shrink the total owing — and a smaller balance is easier to resolve through a payment arrangement. Our taxpayer relief application page covers the process in detail.

Payment arrangements

Where the debt is real and undisputed, the practical goal is usually a payment arrangement the taxpayer can actually sustain. CRA Collections has authority to enter into arrangements, but they come with conditions:

Current compliance. The CRA generally expects all outstanding returns to be filed before it will negotiate. A taxpayer with unfiled returns should address that first; our unfiled returns page explains how.
A credible proposal. The CRA wants a realistic cash-flow proposal, not an aspirational one. For larger debts, this typically requires financial disclosure — income, expenses, assets, and liabilities.
Written terms. The arrangement is normally documented, and missing payments can cause it to collapse and enforcement to resume.

One point of realism: the CRA does not generally accept "settlements" of the underlying tax debt for less than the full amount the way private creditors sometimes do. What it can do is waive interest and penalties through taxpayer relief and agree to extended payment terms. A genuine reduction of the principal usually arises only through a successful dispute of the assessment, or through a formal insolvency process. Negotiating arrears is its own discipline, covered on our tax arrears negotiation page.

How a collections file usually unfolds

When collection action is already in motion, the work tends to follow a predictable order, and understanding it helps a taxpayer respond rather than react.

Stop the immediate bleeding. The first task is to find out exactly what enforcement is active — frozen accounts, live RTPs, garnishments — and to engage the assigned collections officer to negotiate a suspension where that is possible. Active enforcement moves quickly, so early contact matters.
Confirm the debt. Many collections files involve amounts that are still in dispute, partially paid, or based on misapplied payments. Establishing the precise amount owing, by year and by tax type, is the foundation for everything that follows.
Identify dispute options. If an assessment is recent and the objection deadline is still open, filing an objection may both challenge the debt and — for most income-tax amounts — slow collection on it.
Pursue taxpayer relief where appropriate. Where interest and penalties are a large share of the balance, a relief application can shrink the total.
Negotiate a sustainable arrangement. For the genuine, undisputed portion of the debt, a realistic payment arrangement keeps enforcement off the table.
Defend derivative assessments. Director's liability and section 160 assessments have their own defences and limitation periods, and these are addressed on a separate track.
Consider insolvency only as a last resort. A proposal or bankruptcy under the Bankruptcy and Insolvency Act is sometimes the right answer, but it has lasting consequences and some tax debts can survive it, so it warrants advice before acting.

Documents to gather for a collections file

Whether you are preparing to call the CRA yourself or instructing someone to act for you, the same materials are useful:

all recent CRA collection correspondence — notices, requirements to pay, legal warning letters, and any registered certificates;
a current statement of account from the CRA showing the balance by year and tax type;
the notices of assessment and reassessment for the years in dispute;
recent T1 or T2 returns and financial statements;
personal and business bank statements and cash-flow projections;
an accounts-receivable ageing, if a business is involved;
a list of real estate and significant personal property;
any prior payment-arrangement history;
for corporate debts, director information — board minutes, resolutions, and the dates of directorship.

Walking into the first conversation with documents and a position, rather than reacting to whatever the officer raises, materially changes how the file proceeds.

Common questions

Can the CRA take my house?

The CRA can register a certificate as a Federal Court judgment and seek a writ of seizure and sale. Forced sales of principal residences are uncommon but not impossible, particularly where other collection avenues have failed.

Can the CRA take money from my RRSP?

RRSPs are not generally protected from CRA collections. The CRA can issue a third-party demand to the RRSP issuer.

How long does the CRA have to collect?

Most income-tax debts carry a ten-year collection limitation period running from the date of assessment, but that period can be restarted by defined events — an acknowledgement of the debt, a payment, or certain CRA actions. GST/HST and source-deduction debts have similar but distinct periods.

What if I cannot pay anything right now?

Communicate that to the collections officer, with documentation. The CRA may agree to a deferral or a low-payment arrangement until cash flow improves. Doing nothing usually accelerates enforcement rather than slowing it.

Common mistakes in a collections file

Calling collections without a plan. The first call often sets the trajectory of the file. Going in with documents, a clear position, and a strategy is far more productive than a reactive call.
Assuming an objection stops all collection. It does for most income tax; it does not for GST/HST or source deductions.
Missing the two-year limitation in director's liability files. One of the most powerful defences and one of the most commonly overlooked.
Selling assets below fair market value during a dispute. The textbook trigger for a section 160 assessment.
Going bankrupt to escape tax debt without advice. Some tax obligations survive bankruptcy in specific circumstances. Get advice before acting.

How we help

Barrett Tax Law represents taxpayers and corporations facing CRA collection action — frozen accounts, requirements to pay, garnishments, liens, director's liability, and section 160 assessments. The work usually begins with confirming exactly what is owed and by what tax type, identifying whether an objection or appeal can pause collection, applying for taxpayer relief where interest and penalties are excessive, and negotiating a payment arrangement the taxpayer can sustain. You can read more on our tax arrears negotiation, taxpayer relief application, and director's liability pages. If the underlying assessment is wrong, the route to challenging it is the objection — see how to file a notice of objection — and, if necessary, an appeal through the Tax Court of Canada.

CRA Collections: Frozen Accounts, Requirements to Pay, and Garnishments