The Canada Revenue Agency can collect unpaid tax debt through a requirement to pay or a garnishment, which directs a third party to send money to the CRA. This guide explains the process, the difference between the two tools, and where to get help.
The Canada Revenue Agency (CRA) has strong powers to collect unpaid tax debt. If you owe personal or corporate tax and do not pay or arrange a payment plan, the CRA can issue a requirement to pay — often called a garnishment — to your bank, employer, or another third party. That third party must then send money to the CRA instead of to you. This guide explains how CRA collection works, the difference between a requirement to pay and a court-ordered garnishment, and where to find free help.
- Assessment and notice: The CRA assesses your tax and sends a notice of assessment. If you do not pay by the due date, the amount becomes a debt.
- Reminders and contact: The CRA may send reminder letters or call you. This is your chance to pay, set up a payment arrangement, or dispute the debt.
- Requirement to pay: If you ignore the debt, the CRA can issue a requirement to pay to a third party, such as your bank or employer. The third party must pay the CRA from money they owe you.
- Continued collection: The CRA can also offset future refunds, GST/HST credits, or other government payments. In some cases, it can seize assets or take legal action.
What triggers CRA collection action?
The CRA typically starts collection after a tax debt is past due. You might have filed a return but not paid the balance, or the CRA reassessed you and you disagree. Filing an objection or appeal does not always stop collection, though you can ask for a hold. The CRA will send a notice of assessment. If you cannot pay in full, contact the CRA before they take action. You can ask for a payment plan. The CRA may accept if you show you cannot pay now. If you do nothing, collection escalates. The CRA can also use a requirement to pay to collect from third parties without going to court. This is different from a private creditor, who usually needs a court order to garnish your wages.
Requirement to pay vs garnishment: what's the difference?
In everyday language, people say "CRA garnishment." Legally, the CRA uses a "requirement to pay" under the Income Tax Act. This is an administrative demand, not a court order. A traditional garnishment is usually a court order obtained by a creditor after a lawsuit. The CRA does not need to go to court to issue a requirement to pay. It can also issue a requirement to pay to a third party who owes you money, like a bank, an employer, or a client. The effect is similar: money is diverted to the CRA. But the process and legal basis differ. If you receive a requirement to pay, it is not a court document, but it has legal force. The third party must comply or face penalties. For official details, see the Canada Revenue Agency.
How the CRA garnishment process works step by step
The CRA can issue a requirement to pay to multiple third parties and for different debts, such as income tax, GST/HST, and payroll deductions. It can also issue a requirement to pay to someone who owes you money. If you are self-employed, your clients can receive a requirement to pay. The CRA can also offset refunds. The key point: you do not need to be sued. The CRA's administrative power is broad. If you receive one, contact the CRA immediately to discuss options. Ignoring it will not make it go away. The table below compares a CRA requirement to pay with a court-ordered garnishment.
| Feature | CRA requirement to pay | Court-ordered garnishment |
|---|---|---|
| Who issues it | CRA, under federal tax law | A court, after a creditor sues you |
| Court involvement | None required | Required |
| Who receives it | Bank, employer, or other third party | Bank, employer, or other third party |
| Effect | Third party must pay the CRA | Third party must pay the creditor |
| Common name | "CRA garnishment" | Garnishment or wage garnishment |
What income and assets can the CRA garnish?
The CRA can garnish wages, bank accounts, accounts receivable, and other money owed to you. However, some income may be protected. For example, certain social assistance payments or portions of wages needed for basic living expenses may be exempt. The exact rules depend on the type of income and your province. The CRA must follow its own policies and the law. If you believe a garnishment is causing undue hardship, you can ask the CRA for relief. There is a process called "taxpayer relief" for situations beyond your control. You can also contact the Financial Consumer Agency of Canada for general information on managing debt. Note that the CRA can issue a requirement to pay to a bank where you have an account, including a joint account, though the bank may need to determine ownership. If you are struggling with multiple debts, see our guide to bad credit loans and use our loan payment calculator to plan.
Where to get help with CRA tax debt
If you owe tax debt and cannot pay, do not wait. Contact the CRA to discuss a payment plan. The CRA has a debt management line and can review your financial situation. You can also apply for taxpayer relief if you have suffered hardship due to circumstances beyond your control, such as illness, job loss, or natural disaster. The Office of Consumer Affairs provides general consumer information. Free credit counselling is available from non-profit organizations across Canada. Legal aid or a tax lawyer may help if you are facing severe collection action. The Taxpayers' Ombudsperson can review service issues with the CRA. Remember that you have rights, and you can ask for a review of collection decisions. For more on borrowing and credit, explore our guide to co-signing.
Common mistakes to avoid
- Ignoring CRA letters. The CRA will escalate to a requirement to pay.
- Assuming a requirement to pay is a mistake. It is a legal demand and must be taken seriously.
- Not contacting the CRA. You can often set up a payment plan.
- Thinking only wages can be garnished. Bank accounts and receivables can also be targeted.
- Failing to seek free help. Credit counsellors and legal aid can assist.