CRA Collections, Garnishment & Requirements to Pay

A CRA collections file moves differently from an audit or a dispute over how much you owe. By the time the collections branch is involved, the amount has usually been assessed and the debt is treated as final unless you have taken a formal step to challenge it. The collections officer's job is not to debate the number — it is to recover it. The good news is that the Income Tax Act sets real limits on how, when, and for how long the CRA can collect, and those limits create room to respond.

This page explains the main collection tools the CRA uses against individuals and businesses, the statutory rules that constrain them, and the practical options for taxpayers who have received a requirement to pay, a frozen account, a garnishment, or a notice of legal action. It is general information about Canadian federal tax law, not legal advice for your specific situation.

How a tax debt becomes collectible

When the CRA issues a notice of assessment or reassessment, the amount shown becomes a debt due to the Crown. Section 222 of the Income Tax Act confirms that tax, interest, and penalties are debts recoverable in court and through the administrative collection powers in the Act. Interest continues to compound daily on the unpaid balance, which is why a debt that looked manageable at assessment can grow quickly while a taxpayer waits to deal with it.

Two features of CRA collection often surprise people. First, the CRA generally does not need a court judgment before it begins collecting — most of its enforcement powers are statutory and self-executing. Second, the existence of a balance owing does not, on its own, give you a right to stop collection. To pause enforcement you usually need either a valid dispute in progress (discussed below) or a negotiated arrangement. Understanding which situation you are in is the starting point for any response.

Requirements to pay: garnishing wages, bank accounts and receivables

The requirement to pay, or RTP, is the CRA's most common and most disruptive collection tool. Under section 224 of the Income Tax Act, the CRA can send a notice to any person who owes money to a tax debtor — or who is about to pay money to that debtor — directing them to pay that money to the Receiver General instead. The third party is legally obligated to comply, and a third party that ignores a valid RTP can become liable for the amount itself.

In practice, an RTP can be served on:

• An employer, to garnish a portion of wages or salary before they reach the employee;
• A bank or other financial institution, to capture funds in an account — commonly experienced as a "frozen" account;
• Customers or clients of a business, to intercept accounts receivable; and
• Anyone else holding or owing funds to the debtor, including in some cases a contractor's payor.

The Income Tax Act also contains an enhanced form of requirement to pay aimed at funds the debtor is entitled to receive, including amounts payable under loans or advances, which gives the CRA reach over a broad range of payments. For wages specifically, the CRA applies internal guidelines on the percentage it will take, but those guidelines are administrative — they are not a statutory cap, and they can be adjusted. Where a garnishment leaves a taxpayer unable to meet basic living costs, that hardship can be raised directly with the collections officer and, where appropriate, supported by financial disclosure.

An RTP served on a bank typically attaches to funds in the account at the moment it lands. Acting quickly matters: a request to release or reduce the hold is far more effective before the funds have been remitted than after. We help taxpayers respond to RTPs, verify that the underlying debt and the notice are valid, and open a dialogue with collections to lift or narrow the garnishment, often as part of a broader tax arrears negotiation.

Certificates, seizure and other enforcement powers

Beyond garnishment, the Income Tax Act gives the CRA two further tools that taxpayers should understand.

Under section 223, the CRA may certify an unpaid amount and register that certificate in the Federal Court. Once registered, the certificate has the same force and effect as a judgment of that court for the certified amount. This is significant because it allows the CRA to use court enforcement procedures — and, in particular, it is the gateway to registering a charge against real property, a topic we address in more detail under CRA liens and asset seizure. The certificate is an administrative step; it does not require the CRA to first prove the debt in a contested hearing.

Under section 225, the CRA may seize and sell a taxpayer's goods and chattels to satisfy the debt where amounts remain unpaid. Seizure is less common than garnishment because it is more resource-intensive, but it is a genuine power and the prospect of it is sometimes used to encourage payment. There are procedural requirements the CRA must follow — including a period of advance notice — and certain property is exempt from seizure under the applicable provincial law. Where seizure is threatened or underway, the priority is usually to establish a credible payment plan or to identify a defect in the process.

The 10-year collections limitation period

One of the most important and least understood protections for taxpayers is the collections limitation period. The Income Tax Act generally bars the CRA from beginning or continuing collection action on a tax debt after the limitation period has expired — a period of ten years. The clock, however, does not simply run from the date of assessment and stay fixed.

The limitation period restarts when certain events occur. Acknowledging the debt — for example, by making a payment, by signing a written acknowledgement, or in some circumstances by entering into a payment arrangement — can reset the ten-year clock to zero. Other events, such as certain collection actions taken by the CRA, can also restart or extend it. This means a debt a taxpayer believes to be old may still be fully collectible, and conversely, a debt the CRA is pursuing may in fact be time-barred. Because the calculation turns on the precise sequence of assessments, payments, acknowledgements and collection steps, it should be reviewed carefully against the taxpayer's file rather than estimated from memory. We frequently obtain a taxpayer's collection history to determine where the limitation period actually stands before recommending a strategy.

When collection must pause: objections and appeals

The Income Tax Act contains an important restriction on collection while a taxpayer is genuinely disputing an assessment. Under section 225.1, for most income tax amounts the CRA is restricted from taking the collection actions described above while a valid objection or appeal is outstanding, and for a defined period after assessment. In broad terms, if you have filed a notice of objection on time, or appealed to the Tax Court of Canada, the CRA is generally required to hold off on garnishment, seizure and similar measures relating to the disputed amount until the dispute is resolved.

This protection is one of the strongest reasons to ensure that a disagreement with an assessment is pursued through the proper channel and within the deadlines. Filing a notice of objection does more than preserve your right to argue the merits — it can also stop active collection on the disputed tax. If you have missed an objection deadline, there are limited mechanisms to apply for an extension of time, and whether collection can be paused depends on reinstating a valid dispute.

There are critical exceptions, and taxpayers should not assume the collection pause is automatic or universal. The restriction in section 225.1 does not apply to amounts the taxpayer was required to hold in trust for the Crown. The two most important categories are payroll source deductions — income tax, Canada Pension Plan contributions and Employment Insurance premiums withheld from employees — and GST/HST collected from customers. Because these are considered trust funds that never belonged to the business in the first place, the CRA can continue to collect on them even while a dispute is in progress — for GST/HST under the parallel collection rules of the Excise Tax Act rather than section 225.1. Large corporations are also subject to a partial collection rule rather than a full hold. For businesses behind on remittances, this distinction is decisive, and it often overlaps with directors' liability exposure, since unremitted source deductions and GST/HST can be assessed personally against directors.

Payment arrangements and taxpayer relief

For many taxpayers, the realistic objective is not to erase the debt but to manage it on workable terms while protecting income and assets from enforcement. The CRA has discretion to accept payment arrangements, and a well-prepared proposal supported by accurate financial information is far more likely to be accepted and to forestall garnishment than an informal phone call. A negotiated arrangement can also be structured to avoid inadvertently resetting the collections limitation period where that is a live consideration.

Separately, the CRA has discretion under the taxpayer relief provisions of the Income Tax Act to waive or cancel interest and certain penalties in defined circumstances — for example, where the debt grew because of serious illness, financial hardship, or a delay or error attributable to the CRA. Relief addresses the interest and penalty layers of a debt rather than the underlying tax, but on an aged balance those layers can be substantial. A taxpayer relief application is discretionary and fact-specific, and the quality of the supporting record matters a great deal. Where a taxpayer simply cannot pay, other avenues may be considered, and we can discuss how collection interacts with insolvency processes in appropriate cases.

How Barrett Tax Law approaches this

Our starting point in a collections matter is to understand exactly where the file stands before reacting to the pressure. That means confirming what has actually been assessed, obtaining the taxpayer's collection history, checking whether the collections limitation period has expired or been reset, and determining whether a valid objection or appeal exists — or can still be filed — to engage the collection restrictions in the Act. From there we deal directly with the collections officer to address active garnishments and requirements to pay, to negotiate a payment arrangement grounded in real numbers, and, where the facts support it, to pursue relief from interest and penalties.

We work with both individuals and businesses, including owner-managed companies facing source-deduction and GST/HST collection where the usual objection-stage pause does not apply. Every situation is different, and nothing here is a substitute for advice on your own circumstances. If the CRA has frozen your account, garnished your wages, or sent a notice of legal action, you are welcome to reach out for a free, confidential consultation to discuss your options and the next steps that make sense for you.