You owe taxes to CRA and haven’t been able to make payment arrangements with a CRA account manager. One of the collection rights available to the Canada Revenue Agency is the ability to freeze bank accounts.
CRA can freeze your bank account without going to court and without notifying you ahead of time. The process begins with a Requirement to Pay. CRA will send a copy of this notice to you and to your bank. This tells the bank that you owe money to the Canada Revenue Agency and directs the bank to freeze the account and then forward any money in the account directly to the CRA.
Your bank is legally obligated to comply with a Requirement to Pay once received and will direct to CRA the funds on deposit up to the amount of the debt. Any future deposits can also be frozen and sent to the CRA until the tax debt is paid or the bank receives some form of legal notification to stop.
Here’s what you can do:
- Open a new account at a different bank. Deposit all new monies you receive into this account for living expenses until the situation is resolved. Update any direct deposits and automatic payments to go to this account.
- If you can pay the tax, contact the CRA to make payment arrangements. This can include setting up agreed installment payments. However, if your situation has gone this far, typically you may not be able to afford this and may need more help to deal with the underlying tax debt problem.
- Assuming you are unable to pay your tax obligation, you can file a bankruptcy or consumer proposal. Tax debts can be discharged in a bankruptcy and CRA will settle tax debts through a consumer proposal.
The Bankruptcy & Insolvency Act provides a stay of proceedings that stops the CRA from freezing your assets. If you file a bankruptcy or proposal, your trustee will notify the bank (and the CRA) that you have filed a legal insolvency proceeding and have them unfreeze the account. However, in most cases you should have already set up a new account. The purpose of filing is to stop the CRA from finding your new account and freezing those balances as well.
A tax lawyer cannot help you unfreeze an account unless the CRA agrees. This will require that you repay the full amount of taxes owing (assuming you are not disputing the assessment). The only way to get tax debt relief is to file bankruptcy or consumer proposal with a Licensed Insolvency Trustee.
If you’d like to see if a proposal or bankruptcy is your best way to deal with a tax debt, contact a Licensed Insolvency Trustee near you.
Some other things you may need to know
Can CRA freeze joint bank accounts?
If only you are indebted to the CRA, then the CRA will not be able to seize monies from a joint bank account you have with a spouse or anyone else.
If you are currently working with CRA on a repayment arrangement and are concerned about your bank account, you could consider opening a joint account for family living costs like your mortgage or rent.
Can CRA seize my RRSP & TFSA?
Registered investments like an RRSP or TFSA are treated differently than funds held in a bank account. CRA can send a Requirement to Pay to the institution where your investments are held. The investments are not immediately liquidated and sent to CRA. However, the funds will be sent to CRA if you attempt to voluntarily redeem the investment.
Can CRA take my child tax benefit now called the Canada Child Benefit?
The CRA generally won’t seize your Canada Child Benefit to collect on a tax debt. However, money deposited to a bank account can be seized from the account if is frozen by a Requirement to Pay from CRA.
A different issue is where you have an overpayment from the Canada Child Benefit. In that case, the CRA can apply your current benefit payments to the previous overpayment.
Unfreeze your accounts and future earnings
If you cannot make arrangements with the CRA to repay your tax obligation and have them voluntarily remove the hold on your bank account, it’s time to talk to a Licensed Insolvency Trustee about your options.
We offer free, no-obligation consultations. We can take a look at how much you owe the Canada Revenue Agency, as well as your other debts, and help you decide if a bankruptcy or proposal is the right way to eliminate those debts and gain a fresh start.