CRA Requirement to Pay & Garnishment Calculator

What a Requirement to Pay Actually Is

A requirement to pay is garnishment without a court order. Section 224 of the Income Tax Act lets the Minister direct a person who owes money to your corporation, or who will owe it within a year, to pay that money to the Receiver General instead of to you. Section 317 of the Excise Tax Act does the same thing for GST/HST. No judge sees it, no hearing is held, and the corporation is not asked to consent.

The document is served on the third party, not on you. A bank that receives one freezes and remits the funds it holds. A customer that receives one pays the CRA rather than paying your invoice. You often find out because a payment bounces or a customer telephones to ask what is going on, which is why most people reading this are reading it after the fact rather than before.

If the CRA garnished your business bank account this week, the useful questions are narrow and in order: how much has actually gone, what still has to be paid in the next thirty days, and what the corporation has to do to get the requirement lifted. The calculator above answers the first two. The sections below answer the third, and set out the one point that most readers get wrong.

Why the Payroll Portion Is the Most Exposed

The calculator splits the debt into corporate income tax, GST/HST and payroll source deductions for a reason. They are not three flavours of the same problem. The CRA’s legal reach over each is different, and the payroll slice is where it is strongest.

Beyond the ordinary requirement to pay, subsection 224(1.2) of the Income Tax Act gives the Minister a separate and wider garnishment in respect of amounts that were deducted or withheld from employees and not remitted. On top of that, subsections 227(4) and (4.1) deem those amounts to be held in trust for the Crown from the moment they are withheld, and that deemed trust generally ranks ahead of most secured creditors, including a bank holding general security over the corporation’s assets.

So the payroll portion is not merely a larger irritation. It is money the legislation treats as never having belonged to the corporation at all. Where the corporation deducted income tax, Canada Pension Plan contributions and Employment Insurance premiums from its employees and used that cash to pay suppliers, the Crown’s claim to it is stronger than any claim the corporation’s own lender has.

Objecting Does Not Stop Collection on Payroll or GST/HST

This is the single most misunderstood point on this subject, and it is the one that costs corporations the most money.

For ordinary corporate income tax, section 225.1 of the Income Tax Act generally prevents the Minister from taking collection action while a notice of objection or an appeal is outstanding. That is a real protection and it is why, for a disputed T2 reassessment, filing an objection genuinely does buy time.

Subsection 225.1(6) takes that protection away for amounts required to be deducted or withheld and remitted. Source deductions are collectible while the objection sits unresolved. The GST/HST regime under section 315 of the Excise Tax Act is narrower in the same direction, so a GST/HST objection is a much weaker shield than a T2 objection.

Put those two facts together and the position is uncomfortable. The debts most likely to attract a requirement to pay, because they are trust money and because the CRA escalates them fastest, are precisely the debts an objection does not protect. A reader who files an objection and waits, believing collection must now stop, will watch the bank account be swept anyway.

A Bank RTP and a Customer RTP Do Different Damage

A requirement to pay served on the bank is a single event with a single loss. The funds on hand go, the corporation is short, and the account keeps operating. It is brutal and it is finite.

A requirement to pay served on customers is worse in a way the arithmetic understates. The CRA writes directly to the people who buy from you and tells them to pay it instead of you. Even where it collects less than a bank sweep would have, it broadcasts to the market that the corporation is in trouble with the tax authority, and it keeps doing so every time a new invoice falls due.

That is why the calculator asks what proportion of your receivables comes from your single largest customer. Where one customer is most of the ledger, one letter takes most of the month’s revenue and damages the one commercial relationship the corporation cannot afford to lose. Concentration turns a cash problem into an existential one.

Why Negotiating With the Bank or the Customer Is Wasted Time

Readers commonly spend their first two days telephoning the bank manager or the customer’s accounts payable department and asking them not to comply. That will not work, and the reason is statutory rather than a matter of goodwill.

A third party served with a requirement to pay who does not comply becomes personally liable to pay the amount it should have remitted. That liability arises under subsection 224(4) of the Income Tax Act and under subsection 317(9) of the Excise Tax Act. A bank that releases your funds to you instead of to the Receiver General is then on the hook for them out of its own money, and so is a customer that pays your invoice.

Nobody takes that risk to help a supplier. The bank and the customer are not your opponents here and they are not exercising any judgement, they are complying with a legal demand that exposes them if they do not. The only party that can lift a requirement to pay is the CRA, so the only conversation worth having is with the collections officer whose name appears on the notice.

One thing is worth saying to your customer, however. Not a request to ignore the requirement, which puts them at risk, but a short and calm explanation that the corporation is dealing with a historic tax balance, that supply is unaffected, and that you will tell them when it is resolved. Silence is read as collapse, and a customer who hears nothing assumes the worst.

What It Takes to Get a Requirement to Pay Released

There is no right to have a requirement to pay lifted, and no form that compels it. What generally moves a collections officer is one of four things: paying the balance in full, agreeing a payment arrangement the CRA finds acceptable, demonstrating that the garnishment is preventing the business from operating at all, or resolving the underlying assessment so that the debt is not owed.

The third of those is a hardship argument rather than an entitlement. It is strongest when it is specific and documented. A collections officer who is shown that the sweep means a named payroll cannot be met on a named date, with the payroll register and the bank statement attached, has something to act on. The same argument made in general terms about the business being under pressure has nothing in it to weigh.

Filing whatever is outstanding is normally a precondition to all of this, which is why the calculator asks about it. The CRA will rarely negotiate an arrangement over a balance it cannot see the shape of, and unfiled returns invite arbitrary assessments that make the number worse. If the corporation is behind, our unfiled T2 catch-up cost calculator and unfiled HST returns catch-up calculator set out what that work involves.

Once the requirement itself is dealt with, the question becomes what plan the CRA will actually accept over the following months. That is a different calculation and it is done on our CRA payment arrangement calculator, which handles the amortisation and the interest this page deliberately does not repeat.

Director Liability, and What Happens If This Is Not Resolved

A requirement to pay is a claim against the corporation. The trust-fund portion of the debt is also a potential claim against you personally. Section 227.1 of the Income Tax Act makes directors liable for unremitted source deductions together with the related interest and penalties, and section 323 of the Excise Tax Act does the same for net GST/HST. The corporation’s own income tax is not included, which is why the calculator separates the three accounts and reports the exposed portion on its own.

Director liability is not automatic. It is subject to a due diligence defence and to limitation periods that depend on when the director ceased to hold office, and the CRA has to assess it before it can collect. But it is the reason that a corporation which cannot pay is not the end of the analysis, and it is why the payroll and GST/HST slices deserve to be paid first where a choice has to be made. Our director liability limitation period checker deals with the timing question, and our trust examination exposure guide covers how the CRA quantifies the payroll side.

If the matter is left unresolved, escalation is orderly and predictable rather than sudden. Requirements to pay are reissued and extended to further third parties. Interest continues to accrue on the whole balance. Certificates can be registered in the Federal Court and liens can follow against the corporation’s property. Assets can be seized and sold. Director liability assessments are issued for the trust portion. None of that happens in a week, and all of it is easier to stop early than to unwind later.

What This Calculator Does Not Cover

• Personal and wage garnishment, including requirements to pay served on an individual’s employer or personal bank account
• Taxpayer relief applications for cancellation of penalties and interest, which run on a separate track from collection
• Objections and appeals, their deadlines and the extension provisions
• Insolvency, proposals and receivership, including the stay of proceedings and how the deemed trust is treated
• Secured-creditor priority disputes between the Crown’s deemed trust and a lender’s security
• Provincial tax garnishments and collection action by provincial authorities or the Workplace Safety and Insurance Board
• Non-resident collection, requirements to pay served outside Canada and treaty assistance provisions
• The due diligence defence to a director liability assessment, which is fact-specific and turns on what the directors actually did
• Set-off against refunds and the CRA’s application of credits across accounts, which it controls