Just like any other creditor, if you owe tax debt to the Canada Revenue Agency, they can – and will – take a number of different actions to try and collect the money they are owed. Two of the most common forms of doing so include freezing your bank account, and carrying out a wage garnishment. A wage garnishment is the process of a creditor deducting payments directly from your employer to go towards paying off your debts. Unlike other creditors, the CRA does not need any kind of authorization to do so. Both actions can cause a lot of financial problems, as well as putting on financial pressure and causing stress. So, can the CRA garnish your wages? And how do you stop a wage garnishment? In this article, we will explore both of these questions.
Can the CRA garnish wages?
Put simply, yes, the CRA can garnish wages. Unlike other creditors, they can put a wage garnishment in place without a court order. The process of a CRA wage garnishment starts when the CRA issues a Requirement to Pay notice to a third party – most likely your employer. Your employer then must legally deduct the funds from your paycheque to go to the CRA. It is not just your paycheque that wage garnishments can apply to. It can apply to any of the following:
- Your salary, wages, commission, bonuses, or expenses
- Your payments if you are a contractor or subcontractor for goods, services, time, and labour
- Accounts receivable
- Any payments due to you in rent, lease payments, interest, loan repayments, and so on
Does the CRA notify you of a wage garnishment?
The CRA will notify you of a wage garnishment. Typically, a copy of the notice of wage garnishment will be mailed to you. It is also likely that prior to a wage garnishment threat, you will have been sent notices of assessment, and collection letters from the CRA. That said, the CRA can begin a wage garnishment against you without any additional notice to you if you do not pay your tax debt or attempt to make your repayments to them. As soon as your employer receives a CRA wage garnishment notice, they legally must deduct your wages to go towards your tax debt repayment. Your employer does not have a duty to let you know. As many debtors do not check their mail, often they do not know their wages are being garnished until they go to take out money from their account.
How much can the CRA garnish your wages?
Generally speaking, the CRA can and will garnish up to 50% of your wages if you are an employee. If you are a contractor, the situation is a little different – the CRA can garnish up to 100% of your income. If you are self-employed with your own clients, once again the CRA may garnish all of your accounts receivable in order to repay your outstanding tax debt.
Which taxes can the CRA collect via a wage garnishment?
The CRA is able to begin a wage garnishment for different types of tax debt including the following:
- Income tax debt
- GST, HST, and PST debts
- Employment insurance (EI)
- Canada Pension (CPP) overpayments
- Withholding tax
- Customs duties and taxes
How do you stop a wage garnishment?
If you are unable to make your tax debt repayments, you will be pleased to know it is still possible to stop a wage garnishment. There are two primary methods of doing so, via legal debt relief solutions in line with the Bankruptcy and Insolvency Act. These are either filing a consumer proposal, or filing bankruptcy. Both these forms of debt relief generate a stay of proceedings, which offers protection from creditors. A stay of proceedings stops wage garnishments, and legally prevents creditors or collection agencies from contacting you to try and reclaim their money. This covers wage garnishments at any stage – either threats or those that are in progress. As soon as you file either a consumer proposal or bankruptcy, your Licensed Insolvency Trustee will inform your employer who will then stop deducting payments from your wages. The first thing you should do to stop a wage garnishment is to reach out to a reputable Licensed Insolvency Trustee. They will help you to decide whether bankruptcy or a consumer proposal is best for your circumstances. A bankruptcy will mean your tax debts are cleared after discharge, and a consumer proposal means you need to make a reasonable tax debt settlement offer to the CRA. Your trustee will then file the associated paperwork to begin the stay of proceedings immediately, and will let your employer know you have filed and to stop the wage garnishment.
What do you do if the CRA freezes your bank account?
If you find that the CRA has decided to freeze your bank account, a Requirement to Pay will be issued to your bank. As a consequence, your bank will legally need to freeze your account. For you, this means you can no longer access the money in your bank account. Any direct debits or pre-authorized payments will be frozen too, meaning they will no longer be made. The bank can unfreeze your account once it has transferred the funds listed in the Requirement to Pay to the CRA. Depending on the amount this is, it could take several months or years.
What do you do if the CRA threatens to take action?
Facing a wage garnishment or even having your bank account frozen and being unable to make payments can have a number of different consequences. On top of struggling with tax debt and being hassled by the CRA, it can be embarrassing as your employer or clients will learn about your tax debt. A frozen bank account can also lead to issues with your bank, and can lead to a poor credit score too. A reduction in your wages is only going to make repaying your debts more difficult, and could lead to other issues. If you are being threatened with, or are undergoing, any action from the CRA, you should reach out to an experienced Licensed Insolvency Trustee immediately. Due to the powers of the CRA, you need to act quickly to resolve the situation. At Spergel, unlike other bankruptcy firms, you will be assigned your own bankruptcy trustee to walk you through your options instead of being passed from person to person. We can stop any actions from the CRA and assist you in clearing your debt for a fresh financial future.
Wondering can the CRA garnish your wages and what to do next about your tax debt? Book a free consultation with Spergel – the sooner you act, the sooner we can help you stop your wage garnishment and clear your tax debt. We have over thirty years of experience in dealing with CRA debts and helping Canadians become debt free, and we can help you too – you owe it to yourself.