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The Canada Revenue Agency (CRA) uses wage garnishment as a tool to recover tax debt from taxpayers who do not pay or make arrangements to pay their outstanding taxes.
A CRA garnishment means that the debtor’s employer will be required to send part of the debtor’s salary directly to the CRA.
When can the CRA garnish wages? And how can you stop CRA garnishment? Read on to find out more.
Understanding CRA Garnishment
The CRA garnishment is a legal process used to recover tax debt. When the CRA cannot collect the tax debt or agree on a payment arrangement with a tax debtor, the Agency can send the debtor’s employer a requirement to pay (RTP). The CRA also sends the debtor a copy of the RTP.
The RTP is a legal document that notifies the employer that they are required to send part of the debtor’s income to the CRA. Employers are obligated to comply with the RTP or they become liable for the amount they don’t forward to the CRA.
Situations Where CRA Can Garnish Wages
CRA wage garnishment happens when taxpayers are overdue on debt payments and they fail to repay their debt or make payment arrangements with the CRA. The CRA has the power to send a requirement to pay or a garnishment order for multiple types of debt or overpayments you may receive from the government, 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.
Time Limitations for Collections
Many people wrongly believe that the CRA’s collections limitation period of 6 to 10 years means that the debt is annulled after this period. But the truth is that, even though each tax debt has a collection limitation period of 6 or 10 years, this period can be restarted or extended in certain situations.
This means that the CRA garnishment limits may not restrict the Agency from collecting tax debt after 10 years. Tax debt can accrue interest until it’s paid in full, so it’s not a good idea to wait for the collection period to end without taking action.
How Much Of A Person’s Wage Can the CRA Garnish?
CRA has the right to garnish up to 50% of a debtor’s wages if the debtor is employed and up to 100% of the debtor’s income if the debtor is a contract worker. Self-employed debtors who bill their clients directly can have 100% of their income directed to the CRA in order to pay off their outstanding tax debts.
CRA Garnishment Letter: Requirement to Pay
One of the most important things you should know about a CRA garnishment is that it can be enforced without a court order.
The garnishment process is initiated when the CRA issues a Requirement to Pay notice to third parties such as the debtor’s employer. The notice requires the employer to deduct or withhold money from the debtor’s income and direct it to the CRA.
Requirements to Pay apply to different payments third parties could make to a debtor, including:
- Wages, salaries, bonuses, or commissions
- Rent or lease payments
- Proceeds of an insurance claim
- Reimbursement of expenses the third party owes to the debtor
- Amounts held by the debtor’s financial institution
- Loans made by the third party to a debtor, when the corporation is not handling the debtor at arm’s length
Unlike other creditors, the CRA doesn’t have to send the debtor a formal notice before putting a garnishment in place. However, this doesn’t mean that the CRA starts a garnishment process out of the blue.
The CRA will first send the debtor notices of assessment and collection letters. Then, the CRA will send a copy of the Requirement to Pay notice sent to the third party to the debtor via mail.
But if the debtor doesn’t pay or doesn’t make payment arrangements with the CRA, the Agency can start the wage garnishment procedure without other notifications.
Since the CRA sends the Requirement to Pay via regular mail and works directly with third parties to garnish wages, many debtors don’t realise this is happening until they’re unable to withdraw money from their accounts.
Contact one of our LITs and find out how you can stop the CRA wage garnishment today. We offer free, no-obligation consultations. Contact us today and take the next steps toward tax debt relief
CRA Garnishments FAQs
When does the CRA garnish wages?
CRA wage garnishment happens when taxpayers are overdue on debt payments. If the taxpayers owe money but fail to repay their unpaid taxes or make payment arrangements, the CRA can use tools such as wage garnishment, bank account freezes, or asset liens/seizures to recover tax debts.
What can the CRA garnish wages for?
The CRA can garnish up to 50% of a debtor’s wages if they work for a company on the payroll. However, for debtors who are self-employed, work as contractors, or receive income from pensions or other sources, the CRA can garnish up to 100% of their income.
Is my debt cancelled after 6 or 10 years?
No, the tax debt still exists and continues to accumulate interest even if the collections limitation period ends.
Can bankruptcy stop CRA garnishments?
Yes, consumer proposals and bankruptcies stop wage garnishments. However, there may be other solutions at your disposal such as filing a consumer proposal. Contact one of our Licensed Insolvency Trustees for a free, confidential, no-obligation consultation.