When does CRA freeze bank accounts?

Posted on 20 September 2023

Written by Chris Galea

It is all too easy for many of us Canadians to owe tax debt at some point in our lives. Most often, it is quick and simple enough to repay our tax debt, or indeed to make a payment arrangement with an account manager from the Canada Revenue Agency (CRA). Tax debt is one of the most serious kinds of debt given the unique powers of the CRA, and so it is important to handle it as promptly as possible. If you do not, and instead avoid the problem, it can lead to a number of serious consequences like having your bank account frozen, or even a wage garnishment. One day, you may go to make a purchase and discover that your card is declined. You may call up and discover the CRA has frozen your bank account, and you are no longer able to access your money. So, when does CRA freeze bank accounts? In this article, we explore the consequences of owing tax debt, and what you can do to unfreeze your accounts and avoid other actions.

Why can the CRA freeze your bank account?

If you owe tax debt to the CRA and have missed your payments without communicating with your CRA account manager, the CRA may choose to freeze your bank account. This can prove very problematic as it means you may not be able to pay any living expenses including bills that are due to come from your account. You will not be able to withdraw cash or make debit transactions for essentials like groceries and gas, on top of an already difficult financial situation. The CRA is legally entitled to do so without notifying you, and without obtaining permission from the court in line with the Income Tax Act. This makes the CRA a particularly powerful creditor, as creditors for other unsecured debts will need to notify you and go to court beforehand. The CRA has a number of tactics to make its debtors pay up, including wage garnishment. The typical process of the CRA freezing your bank account looks like the following:

  • The CRA will issue a Requirement to Pay to you and your bank. This informs you that you owe money to the Canada Revenue Agency.
  • This notice orders your bank to freeze your account, and forward the money directly to the CRA to go towards your tax debt payment.
  • Your bank must comply legally, and will freeze your account and send your future deposits to the CRA until your tax debt is paid, or it is told to stop freezing your account.

When does CRA freeze bank accounts?

The CRA may choose to freeze your bank account once a Requirement to Pay has been triggered. At this point, the CRA can demand funds from a third party to go towards paying the taxpayer’s arrears. If you have unpaid tax debt, the CRA can freeze your bank account without notice, and without a limit as to how long this could be for. For this reason, it is difficult to say when the CRA could freeze your bank account. This is because the CRA uses the element of surprise to stop debtors from moving their funds before they can be taken by the CRA, and so there is usually no warning. Any money deposited into the account after it is frozen is immediately sent to the CRA until your tax debt is paid off in full.

How long can a bank account be frozen in Canada?

When it comes to how long a bank account may be frozen in Canada, there is no limit. When a bank receives a Requirement to Pay, it has to send the figure outlined in the letter from the CRA. Should you already have the funds in the bank to cover the total sum of the tax debt, you bank account will become accessible once again once the CRA receives these funds. If, however, you do not have enough money in your account to repay your full tax debt, your bank account will remain frozen. Your bank will need to send at least some of any deposits made into your account straight to the CRA. This will continue until the tax debt is paid in full, or until the bank receives a legal notice to remove the freeze on the account – say you have filed a consumer proposal or bankruptcy.

Can the CRA take all the money in your account?

Typically, the CRA will freeze your bank account until your tax debt is paid, or an arrangement made to repay your debt in a timely manner. If you have both a chequing and a savings account at the bank, both of your accounts will be frozen and the money in those accounts will be sent to the CRA to pay off your tax debt until the situation is resolved. This means the CRA will take as much money as required to repay your tax debt in full. If the money in your account is less than the tax debt bill, this means all of the money in your account will be taken. This is money that would otherwise go towards your rent, groceries, gas, or other purchases you may make. If, on the other hand, you do not have the available funds, your account will remain frozen until the situation is resolved. Something to note is that the CRA cannot take money from your RRSP and TFSA accounts, even if you hold these at the same bank as your other frozen accounts. If, however, you try to redeem the investment and take the money out of your RRSP or TFSA, these funds will be included in the Requirement to Pay, and will instead be sent to the CRA. If your accounts are at different banks, the CRA will send out Requirements to Pay to each bank. The CRA may choose not to freeze your bank account if it is a joint account and if only you owe the tax debt, and not the other account holder.

How to remove a freeze on a bank account

There are a few ways to remove a CRA freeze on a bank account. This includes the following:

Pay your tax debt in full

If you can find a way of paying your tax debt in full, it will put an end to collection measures taken by the CRA. Perhaps you can borrow the money from a family member or friend if you are certain you can agree and commit to their repayment terms. Tax debt carries the most severe consequences of all other types of unsecured debt, so it is certainly one that is beneficial to repay as quickly as possible.

Arrange a payment schedule with the CRA

In doing so, you will need to stick to this schedule. You should handle this plan with caution as the CRA could refuse to negotiate a repayment plan unless an appropriate strategy is in place. As the CRA has an expectation to collect taxes now, it is of course an inconvenience to them to agree to a plan, making them tough to negotiate with. Often, the CRA will try to offer you a short-term payment plan. Before you agree, you will need to disclose your income, employer, assets, and so on. Once the short-term period is over, the CRA may choose to make unaffordable demands from you. It is only focused on reclaiming any tax debts owed, with little thought of other debts you may have on your plate. If you cannot meet these demands, the CRA could refuse to negotiate any further, and may take further action. The CRA has huge leverage in negotiations and understands Canadian tax law in a way that most taxpayers do not. For this reason, you should always work with a professional like a Licensed Insolvency Trustee to get advice before attempting to negotiate with the CRA.

File a consumer proposal or a bankruptcy

By speaking to an experienced Licensed Insolvency Trustee, you can understand your options for debt relief. Two of the most common forms of debt relief in Canada are consumer proposals and bankruptcy. A consumer proposal is legal form of debt settlement that can reduce your unsecured debts – including tax debt – and reduce them by up to 80%. A consumer proposal allows you to keep your assets, and also offers full protection from your creditors via a stay of proceedings which will stop the CRA from freezing your assets. A bankruptcy is a more drastic measure of debt relief, but one that offers a fresh financial future. It is the process of assigning any non-exempt assets over to a Licensed Insolvency Trustee in exchange for clearance of all unsecured debts, including all tax debt. Bankruptcy also offers full protection from creditors and collection agencies to allow you to live a life free from financial worries. At Spergel, we have over thirty years of supporting Canadians to gain help with CRA debt and CRA debt forgiveness.

Open a new bank account

As a temporary measure to gain funds while your bank accounts are frozen, you may wish to open a new account at a different financial institution. Here, you can deposit any funds you receive into this new account until the situation is resolved. You can redirect any direct deposits or paycheques to go into this account so that you can at least access your funds to get by while you work with the CRA to repay your tax debt. You may also choose to open a joint account with a spouse for family living costs including mortgage or rent and so on.

If you have further questions on ‘when does CRA freeze bank accounts?’, book a free consultation with Spergel. Our team of experienced Licensed Insolvency Trustees know how to negotiate with the CRA and resolve tax problems. We will look at how much you owe the CRA and any other debts you may have to decide if a consumer proposal or bankruptcy may be best for you. We can help you to eliminate these debts and begin a fresh financial future.


Chris Galea

Chris Galea is a Chartered Accountant and Insolvency and Restructuring Professional with over 20 years’ experience as an LIT (Licensed Insolvency Trustee). He is also our resident expert on tax debt, COVID debt, and the region of Saskatchewan, Canada. When he’s not at the office educating people about bankruptcies and consumer proposals, Chris is playing pick-up hockey with his friends, spending time with his family, and learning Spanish!

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