CRA Collections: What Happens When You Owe Taxes
CRA has significant powers to collect unpaid taxes: garnishment of wages and bank accounts, liens on property, asset seizure, passport holds and director liability. This guide explains the full CRA collections process, what triggers each enforcement action, how to negotiate a payment arrangement, when collections are held, and how to protect yourself. Written by a licensed Ontario CPA who represents clients against CRA collections every month.
The CRA Collections Timeline: From Assessment to Enforcement
CRA does not seize assets on day one. There is a defined escalation path. Each step gives you an opportunity to respond. Ignoring CRA at any stage accelerates the process. Here is the complete timeline.
| Stage | What Happens | Timeline | What You Should Do |
|---|---|---|---|
| 1. Notice of Assessment or Reassessment | CRA assesses your return and determines a balance owing. The NOA or NOR states the amount of tax, interest and penalties due. Payment is due immediately (or by the filing deadline if the return was filed on time). | Day 0. The clock starts on the date of the assessment. | Pay the balance in full if you agree. File a Notice of Objection within 90 days if you disagree. Contact us to assess your options. |
| 2. First collection letter | CRA sends a letter reminding you of the balance owing and requesting immediate payment. This is a standard automated notice, not a personal collections officer contact. | 30 to 60 days after the NOA/NOR if unpaid. | Do not ignore this letter. Pay the balance, set up a payment arrangement, or file an objection. Ignoring accelerates the process. |
| 3. Phone calls from CRA collections | A CRA collections officer contacts you by phone. They request immediate full payment or ask you to propose a payment plan. They will request financial information (income, assets, expenses) to assess your ability to pay. | 60 to 120 days after the assessment if the first letter is ignored. | Answer the call or return it promptly. Propose a realistic payment arrangement. Provide the requested financial information. If you ignore the calls, CRA proceeds to enforcement without further notice. |
| 4. Requirement to Pay (RTP) / Garnishment | CRA issues a legal Requirement to Pay to your bank, your employer or your clients. The bank freezes your account and remits the balance to CRA. Your employer deducts from your paycheque. Your clients redirect payments to CRA instead of to you. | 90 to 180 days after the assessment. Can be faster if CRA believes the debt is at risk. | This is the most common enforcement tool. Once issued, it is legally binding on the third party. Contact us immediately. We negotiate the release of the RTP and establish a payment arrangement to prevent further action. |
| 5. Lien on property (certificate filed with the Federal Court) | CRA registers a certificate with the Federal Court, which creates a lien on your real property. The lien prevents you from selling or refinancing without paying CRA first. CRA can also register the lien with the provincial land registry. | Concurrent with or following the RTP. Typically 6 to 12 months after the assessment. | The lien does not force a sale, but it prevents any transaction involving the property. Refinancing, selling or obtaining a new mortgage requires paying CRA. Contact us to negotiate. |
| 6. Asset seizure and sale | CRA seizes and sells your assets (vehicles, equipment, inventory, investments) to satisfy the tax debt. This is rare for individual taxpayers but more common for corporate debts where the corporation has no other assets. | 12+ months after the assessment. Used when all other collection methods have failed and the taxpayer has not cooperated. | Asset seizure is CRA's last resort. If you have reached this stage without engaging CRA, you need professional representation immediately. |
| 7. Set-off of refunds and benefits | CRA automatically applies any future tax refund, GST/HST credit, Canada Child Benefit, climate action incentive or other government payment against your outstanding balance. This happens automatically with no additional notice. | Ongoing from the date the balance is assessed. Applies to every future refund and benefit until the balance is paid. | This is automatic. You cannot prevent it while a balance is outstanding. The only way to stop set-offs is to pay the balance or successfully object to the assessment. |
CRA Does Not Need a Court Order for Most Enforcement Actions: Unlike private creditors, CRA does not need to sue you in court to garnish your wages, freeze your bank account or seize your assets. The Income Tax Act and the Excise Tax Act give CRA self-assessing collection powers. CRA issues a Requirement to Pay directly to your bank, and the bank is legally obligated to comply immediately. There is no hearing, no judge and no advance notice to you. By the time you discover the garnishment, your account is already frozen. The only way to prevent this is to engage CRA before enforcement begins.
For the objection and appeal process (how to formally dispute an assessment), please see our detailed CRA objection and appeals guide.
CRA Collection Tools: What CRA Can Do
| Collection Tool | How It Works | Who It Affects | Dollar Impact |
|---|---|---|---|
| Bank account garnishment (Requirement to Pay) | CRA sends a legal order to your bank. The bank freezes the balance up to the amount owing and remits it to CRA. If the balance exceeds the account balance, the bank sends whatever is available and continues to hold future deposits until the full amount is remitted. | Individuals and corporations. Personal and business bank accounts. Joint accounts where you are a co-holder. | 100% of the account balance up to the amount owing. Recurring: the bank continues to apply future deposits until the RTP is satisfied or released. |
| Wage garnishment (Requirement to Pay to employer) | CRA sends a legal order to your employer. Your employer deducts up to 50% of each paycheque (or more in some cases) and remits it directly to CRA. Your employer has no discretion. They must comply. | Employed individuals. Contractors who receive regular payments from a single client. | Up to 50% of each paycheque. Continues until the full balance is paid or the RTP is released. On a $5,000 bi-weekly salary, CRA can garnish $2,500 per pay period ($5,000/month). |
| Client redirection (Requirement to Pay to accounts receivable) | CRA sends a legal order to your clients or customers. Your clients are legally required to redirect their payments to CRA instead of to you. Common for self-employed, contractors and businesses with identifiable accounts receivable. | Self-employed, consultants, contractors and businesses where CRA can identify the source of revenue. | 100% of the invoiced amount. Your client pays CRA directly. You do not receive the revenue. This can shut down a business rapidly. |
| Lien on real property | CRA registers a certificate with the Federal Court and/or the provincial land registry (e.g., Ontario Land Registry Office). The lien attaches to your home, investment property or any real estate you own. | Property owners (individuals and corporations). Joint property: the lien attaches to your interest in the property. | The lien prevents the sale, refinancing or transfer of the property until CRA is paid. The lien amount equals the full tax debt plus accrued interest. |
| Asset seizure and sale (jeopardy order or writ of seizure) | CRA obtains a writ of seizure from the Federal Court and physically seizes and sells your assets: vehicles, equipment, inventory, investments, art, collectibles. Proceeds applied against the tax debt. | Individuals and corporations. Corporate assets are seized first. Personal assets of directors may be targeted under director liability. | Asset sold at auction or private sale. CRA recovers the proceeds net of sale costs. The taxpayer receives any surplus (rare). Assets typically sell below market value. |
| Passport and travel restrictions | CRA can certify a debt to the Canada Revenue Agency collections division, which can request that the Passport Program deny issuance or renewal of your passport. This applies to debts over $100,000 that have been outstanding for a significant period. | Individuals with tax debts over $100,000 where CRA has been unable to collect through other means. | No passport issuance or renewal until the debt is resolved or a payment arrangement is in place. |
| Set-off of government payments | CRA automatically intercepts your income tax refund, GST/HST credit, Canada Child Benefit, Canada Workers Benefit, climate action incentive and any other government payment. Applied against your balance with no additional notice. | Every taxpayer with an outstanding balance. No minimum debt threshold. | 100% of each government payment is applied until the balance is paid. A $3,200 income tax refund is intercepted entirely. Monthly CCB payments are redirected to CRA. |
When CRA Collections Are On Hold
In some situations, CRA is legally required to stop or pause collection activity. Understanding these holds is critical because they are the primary tool for buying time to resolve a dispute or negotiate a payment arrangement.
| Situation | Collection Hold? | Details |
|---|---|---|
| Notice of Objection filed (income tax, individuals and corporations) | Yes. Collections held. | CRA cannot collect the disputed amount while the objection is being processed. Interest continues to accrue. The hold applies from the date the objection is filed until CRA issues a Notice of Confirmation or Reassessment. |
| Notice of Objection filed (GST/HST) | No automatic hold. | CRA can continue to collect GST/HST amounts during the objection period. You can request a hold by providing security (a letter of credit, a bank guarantee) or demonstrating financial hardship. CRA grants holds on a case-by-case basis. |
| Tax Court appeal filed (income tax) | Yes. Collections held. | CRA cannot collect the disputed income tax amount while the Tax Court appeal is active. Interest continues to accrue throughout. Tax Court Appeal Guide → |
| Tax Court appeal filed (GST/HST) | No automatic hold. | Same as the objection stage. No automatic hold for GST/HST. You can request a hold or provide security. |
| Payroll source deductions (CPP, EI, income tax at source) | No hold at any stage. | Source deductions are trust funds held for employees. CRA can collect at any time, regardless of objection or appeal. There is no collection hold for payroll trust amounts. |
| Payment arrangement agreed with CRA | Informal hold (not statutory). | If you negotiate a payment arrangement with CRA and make all scheduled payments on time, CRA will generally not pursue further enforcement action. However, the hold is not statutory. CRA can resume enforcement if you miss a payment. |
| Taxpayer relief application (RC4288) | No hold. | Filing a taxpayer relief application does not stop collections. CRA can continue to collect while the application is being processed. The application only requests waiver of penalties and interest, not the underlying tax. |
| Bankruptcy | Stay of proceedings. | Filing for bankruptcy triggers an automatic stay of proceedings under the Bankruptcy and Insolvency Act. CRA cannot continue collection activity while the stay is in effect. The tax debt is included in the bankruptcy estate. Not all tax debts are dischargeable. |
The Objection Is Your Most Powerful Tool Against Income Tax Collections: If you disagree with a CRA assessment, filing a Notice of Objection within 90 days immediately halts all income tax collection activity. CRA cannot garnish your wages, freeze your bank account or place a lien on your property while the objection is being processed. The objection can take 6 to 18 months to resolve, during which time you have a statutory collection hold. This is why it is critical to file the objection within the 90-day deadline. Missing the deadline means CRA can collect the full amount while you wait for a resolution. We file objections for clients within days of receiving the assessment. CRA Objection Services →
How We Help You Resolve CRA Collections
Assess
We review the assessment, the balance owing, interest, penalties and CRA's collection history on your file. We determine whether the assessment is correct, whether an objection should be filed and what payment options exist.
Protect
If the assessment is wrong, we file a Notice of Objection to halt income tax collections. If GST/HST, we request a collection hold. If enforcement has already started, we contact CRA immediately to negotiate a release.
Negotiate
We negotiate a payment arrangement with CRA based on your financial situation. We prepare the financial disclosure CRA requires and propose terms that are sustainable for you while acceptable to CRA.
Resolve
We apply for penalty and interest relief (taxpayer relief) where eligible. We ensure the objection or appeal resolves the underlying dispute. We monitor the payment arrangement to prevent future enforcement.
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CRA Payment Arrangements: How They Work
If you cannot pay the full balance immediately, CRA will accept a payment arrangement. The arrangement must be based on your actual financial situation. CRA will request a detailed financial disclosure before agreeing to terms.
| Factor | What CRA Expects |
|---|---|
| Financial disclosure | CRA requires a complete statement of your income, assets, liabilities and monthly expenses. For individuals: T1 income, bank balances, property values, vehicle values, monthly rent/mortgage, utilities, food, insurance, loan payments. For corporations: financial statements, accounts receivable, cash flow projections. |
| Payment amount | CRA expects the maximum amount you can reasonably afford. The calculation is: net monthly income minus essential expenses equals the available payment. CRA defines essential expenses narrowly. Discretionary spending (entertainment, travel, luxury purchases) is not considered essential. |
| Payment frequency | Monthly payments are standard. CRA may accept bi-weekly or weekly for larger debts. Lump-sum partial payments are encouraged to reduce the balance faster and lower the interest accruing. |
| Interest during the arrangement | Interest continues to accrue on the unpaid balance throughout the payment arrangement. CRA's prescribed interest rate is approximately 9% to 10% (2025/2026). On a $50,000 balance, interest accrues at approximately $400 to $420 per month. Your payment must exceed the monthly interest or the balance increases. |
| Compliance requirement | You must file all outstanding returns before CRA will agree to a payment arrangement. If you have unfiled T1, T2 or GST/HST returns, CRA will not negotiate until everything is filed. You must also stay current on future filings and payments while the arrangement is active. |
| Duration | CRA generally expects the balance to be paid within 12 to 24 months. Longer arrangements (up to 5 years) are possible for very large debts where the taxpayer demonstrates an inability to pay faster. CRA reviews the arrangement periodically and may request updated financial disclosure. |
Your Payment Must Exceed the Monthly Interest: On a $50,000 balance at CRA's prescribed rate of approximately 10%, the monthly interest is $417. If you negotiate a $300/month payment arrangement, the balance increases by $117 every month. After 12 months of $300 payments, you will have paid $3,600 but the balance will have grown by $1,404 in net interest. You will owe more than when you started. We calculate the minimum effective payment for every client and negotiate arrangements where the balance actually decreases every month.
Director Liability: When CRA Comes After You Personally
If your corporation owes unremitted payroll source deductions (CPP, EI, income tax withheld from employee paycheques), unremitted HST or unremitted employee trust amounts, CRA can assess the directors of the corporation personally for the full amount. This is called director liability under section 227.1 of the Income Tax Act and section 323 of the Excise Tax Act.
| Factor | Director Liability for Source Deductions | Director Liability for GST/HST |
|---|---|---|
| What triggers it | The corporation fails to remit CPP, EI or income tax withheld from employee paycheques. CRA assesses the corporation, the corporation cannot pay, and CRA assesses the directors personally. | The corporation fails to remit HST collected from customers. CRA assesses the corporation, the corporation cannot pay, and CRA assesses the directors personally. |
| Amount | The full amount of unremitted source deductions plus interest and penalties. Directors are jointly and severally liable (CRA can collect the full amount from any single director). | The full amount of unremitted HST plus interest and penalties. Joint and several liability among all directors. |
| Time limit for CRA to assess directors | 2 years from the date the person ceased to be a director. If you are still a director, there is no time limit. | 2 years from the date the person ceased to be a director. |
| Due diligence defence | A director is not liable if they can demonstrate they exercised the degree of care, diligence and skill that a reasonably prudent person would have exercised in comparable circumstances to prevent the failure to remit. This is the "due diligence defence." | Same due diligence defence applies. The director must show they took positive steps to ensure remittances were made or that they could not have prevented the failure. |
| What constitutes due diligence | Asking the bookkeeper if remittances are up to date is not enough. Positive steps include: verifying CRA My Business Account statements monthly, setting up pre-authorized debit for payroll remittances, hiring a CPA or payroll provider, ensuring dedicated funds are set aside each pay period. | Same standard. Verifying HST was remitted. Reviewing CRA statements. Not relying solely on a bookkeeper's assurance. |
| How to resign as director and start the 2-year clock | File a formal resignation letter with the corporation. Update the corporate minute book. File the change with Corporations Canada (federal) or the Ontario Business Registry (provincial). Simply stopping involvement without a formal resignation does not start the clock. | Same process. The resignation must be formal and documented. CRA will verify the date of resignation. |
Director Liability Applies to Payroll and HST Trust Amounts, Not Corporate Income Tax: CRA cannot assess directors personally for unpaid corporate income tax. Director liability is limited to trust amounts: payroll source deductions (CPP, EI, income tax at source) and GST/HST collected from customers. These are funds the corporation collected on behalf of employees (payroll) or CRA (HST) and was required to remit. The failure to remit trust funds is treated more seriously than the failure to pay corporate income tax. If your corporation is in financial difficulty and cannot pay all obligations, always prioritize payroll remittances and HST remittances over corporate income tax. We advise every client on this priority during financial difficulty.
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Taxpayer Relief: Reducing Penalties and Interest
CRA has the discretion to waive or cancel penalties and interest under the taxpayer relief provisions (subsection 220(3.1) of the Income Tax Act). This does not reduce the underlying tax. It reduces the penalties and interest that have accumulated on top of the tax.
| Factor | What CRA Considers |
|---|---|
| Extraordinary circumstances | Natural disaster, serious illness, death in the family, imprisonment, emotional or mental distress that prevented the taxpayer from meeting their obligations. CRA requires documentation (medical records, insurance claims, death certificates). |
| CRA actions or errors | CRA processing delays that caused interest to accrue. Incorrect information provided by CRA. CRA errors in applying payments or credits. Material posted to the wrong account. |
| Financial hardship | The taxpayer cannot pay the penalties and interest, and enforcement would cause severe financial hardship. CRA reviews income, assets, expenses and ability to pay. |
| Time limit for applications | You can request relief for penalties and interest that accrued within the last 10 calendar years. For example, in 2026 you can request relief for tax years 2016 and later. |
| What is NOT eligible | The underlying tax itself. Taxpayer relief only applies to penalties and interest, not the tax balance. If you owe $30,000 in tax, $8,000 in interest and $4,000 in penalties, the maximum relief is $12,000 (the interest and penalties). The $30,000 tax is not reducible through taxpayer relief. |
| How to apply | File form RC4288 (Request for Taxpayer Relief) or write a letter to the CRA. Include a detailed explanation of the circumstances, supporting documentation and a request to cancel or reduce specific penalties and interest amounts. We prepare the application and supporting documentation for every eligible client. |
CRA Interest Rates on Tax Debts
| Tax Type | Interest Rate (2025/2026 approximate) | How It Is Calculated | Annual Interest on $50,000 Balance |
|---|---|---|---|
| Income tax (personal and corporate) | 9% to 10% | Compound daily. The prescribed rate is set quarterly by the Department of Finance and is based on the Government of Canada 90-day treasury bill rate plus 4%. | $4,500 to $5,000 |
| GST/HST | 9% to 10% | Compound daily. Same prescribed rate as income tax. | $4,500 to $5,000 |
| Payroll source deductions | 9% to 10% | Compound daily. Same prescribed rate. Additional penalties for late or insufficient remittances (3% to 20% depending on the number of failures in the year). | $4,500 to $5,000 plus penalties |
| Late filing penalty (income tax) | 5% of balance owing + 1% per month for up to 12 months | Applied once at the time of filing. Maximum 17% in penalties. Repeated late filing: 10% + 2% per month (up to 20 months). Maximum 50%. | On $50,000: $2,500 base + $500/month = $8,500 after 12 months |
CRA Interest Compounds Daily: Unlike most consumer debt, CRA interest compounds daily. A $50,000 balance at 10% does not grow by $5,000 over the year. It grows slightly faster because each day's interest is added to the principal before the next day's interest is calculated. Over 2 years, a $50,000 balance at 10% compounded daily grows to approximately $61,000 (not $60,000). The difference is small per year but significant on large balances held for multiple years during an objection or appeal.
10 CRA Collections Mistakes to Avoid
| # | Mistake | Consequence |
|---|---|---|
| 1 | Ignoring CRA collection letters and phone calls | CRA escalates directly to garnishment (bank account freeze, wage garnishment, client redirection) without further warning. Ignoring CRA is the single fastest path to enforcement. |
| 2 | Not filing a Notice of Objection within 90 days | You lose the statutory collection hold for income tax. CRA can collect the full disputed amount immediately. The objection deadline is the most important deadline in the entire process. |
| 3 | Paying discretionary expenses before CRA trust amounts | If your corporation is in financial difficulty, always prioritize payroll remittances and HST remittances over all other expenses. Trust amounts trigger director liability. Corporate income tax does not. |
| 4 | Not filing outstanding returns before negotiating a payment arrangement | CRA will not negotiate a payment arrangement until all outstanding returns (T1, T2, GST/HST) are filed. Every unfiled return must be completed before CRA will discuss terms. |
| 5 | Negotiating a payment amount that does not exceed the monthly interest | If your monthly payment is less than the monthly interest, your balance increases every month. You will owe more after 12 months of payments than when you started. |
| 6 | Assuming CRA needs a court order to garnish your bank account | CRA does not need a court order. CRA issues a Requirement to Pay directly to your bank, and the bank must comply immediately. There is no hearing and no advance notice to you. |
| 7 | Not formally resigning as a director of a defunct corporation | If you are still a director (even if the corporation is inactive), CRA can assess you personally for unremitted payroll and HST. The 2-year clock only starts when you formally resign and document the resignation. |
| 8 | Trying to hide assets from CRA | CRA has broad information-gathering powers. They can access your bank records, land registry, vehicle registration, investment accounts and any other financial information without your consent. Transferring assets to family members to avoid CRA can result in the transfer being reversed and additional penalties. |
| 9 | Not applying for taxpayer relief when eligible | Many taxpayers pay penalties and interest in full without realizing they could have applied for relief. On a $30,000 balance with $8,000 in interest and $4,000 in penalties, a successful taxpayer relief application saves $12,000. |
| 10 | Representing yourself against CRA collections without professional help | CRA collections officers are trained negotiators. They will request maximum financial disclosure and propose the highest possible payment. A CPA who negotiates with CRA regularly knows the standard terms, the disclosure requirements and the realistic payment amounts CRA will accept. |
Frequently Asked Questions: CRA Collections
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