Compared to other creditors, the Canada Revenue Agency (CRA) has the most extensive powers of debt collection. One of their collection tools for unpaid taxes is a wage garnishment. There are however solutions to help you stop or avoid a CRA garnishment, protect your income, and resolve your tax debts.

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What is a CRA Garnishment?

A CRA garnishment is a legal tool the Canada Revenue Agency can use to collect unpaid tax debt. The process begins with a Requirement to Pay notice issued by the Canada Revenue Agency to a third party, such as your employer, who is required to deduct or withhold funds from your pay and send the money directly to the CRA.

Unlike most creditors, the CRA doesn’t need a court order to redirect money from your wages, bank accounts, or other sources of income. If you owe taxes and haven’t made acceptable payment arrangements, the CRA can act quickly to recover what’s owed.

The Canada Revenue Agency is responsible for the collection of more than just income tax. They can also issue a wage garnishment for any of the following tax obligations or government overpayments:

Income tax debt
GST/HST/PST debts
Withholding taxes
Customs duties and taxes
Employment insurance (EI) and Canada Pension (CPP) overpayments

How a CRA Garnishment Works

Requirement to Pay (RTP)

The CRA sends a “requirement to pay” notice to a third party, typically your employer or bank. This notice instructs them to forward a portion of your income or funds directly to the CRA instead of to you.

How Much Can Be Garnished?

If you’re an employee, the CRA can take up to 50% of your net pay. If you’re a contractor or self-employed, up to 100% of your income (e.g., from invoices or accounts receivable) could be redirected.

The Canada Revenue Agency can garnish salary, wages, commissions, bonuses, expenses etc. owed to an employee.

Garnishment of Bank Accounts & Other Assets

There are many other types of income and assets that can be seized as part of a requirement to pay:

Bank Account Freezes: The CRA can issue a requirement to pay notice to your bank, leading to frozen or withdrawn funds.
Other Income Sources: The CRA may also intercept sources like rental income, payments due to a contractor or subcontractor for goods and services, investment proceeds, accounts receivable, even proceeds from the sale of assets.
Liens: In addition to seizing funds, the CRA can register a lien on your home or other property, making it difficult to sell or refinance without first clearing your tax debt.
Set-off: If you’re expecting certain government payments or a tax refund, the CRA has the right of set-off, meaning they’ll keep that amount and apply it to your debt.

The CRA Debt Collection Process

Because many people who are experiencing debt problems often don’t open their mail, it’s not unusual for them not to be aware their wages have been garnisheed until they go to deposit their cheque or withdraw funds from their bank account. However, the Canada Revenue Agency does follow specific CRA garnishment rules before taking legal action:

Notices & Collection Letters: The CRA typically mails notices of assessment and warning letters to the taxpayer before resorting to garnishment. Ignoring these letters or delaying a response increases the risk of a garnishment.

No Court Order Needed: Unlike other creditors, the CRA automatically has the authority to garnish your wages or freeze your account without a court order.

Limitation Period: CRA debts can have a 6- or 10-year limitation period for collection. The length of the limitation period depends on the type of debt you owe. Income tax and GST remittances can be collected for 10 years. Some debts, like CPP and OAS overpayments, have no limitation period. Specific circumstances can restart or extend the limitation period including making a payment, proposing a payment arrangement, filing an appeal or requesting a reassessment.

Credit Score Reporting: The Canada Revenue Agency generally does not report tax arrears to Canada’s credit bureaus, although they may report student loan payment arrears.

Steps To Take if You Receive a Garnishment Notice

Contact the CRA
Call the CRA to confirm the debt amount and details of your garnishment. Understanding exactly what you owe is the first step in taking control.
Ensure All Tax Returns Are Filed
If you have any unfiled returns, submit them right away. The CRA generally won’t discuss a payment plan or reduce enforcement without a complete picture of your tax situation.
Make Payment Arrangements
If you can afford to repay the debt in full or in structured installments, you may be able to prevent or end the garnishment. The CRA will sometimes accept a monthly payment plan if it fits your budget.
Seek Professional Advice
If you’re unsure about the best way to stop a CRA garnishment or manage your tax debt, it can help to speak with a financial professional. Two types of experts you might consult are:
- Tax Lawyer: A tax lawyer can help if you need to dispute the amount of debt the CRA says you owe or if you want to negotiate a repayment plan. However, a lawyer cannot reduce the principal tax debt through a legal proceeding because the CRA will not settle taxes owing outside of a formal insolvency process.
- Licensed Insolvency Trustee (LIT): An LIT is the only professional authorized to file a consumer proposal or personal bankruptcy. Both of these solutions immediately stop CRA wage garnishments under federal law.

Options to Stop a CRA Wage Garnishment

Pay Outstanding Taxes

If you can pay off your tax debt, this is the most direct way to end enforcement.
You can also request consideration for financial hardship, which may lead to reduced penalties or interest, although the CRA won’t forgive the principal amount outside of a formal insolvency proceeding.

Consumer Proposal

A consumer proposal is the only option that allows the Canada Revenue Agency to write-off tax debt.
It can only be filed through an Licensed Insolvency Trustee.
It immediately halts all wage garnishments. You then negotiate a reduced, single monthly payment that consolidates your debts.
With a consumer proposal, you can preserve assets while making a deal to reduce your tax debt.

Personal Bankruptcy

Bankruptcy also stops CRA wage garnishments right away.
Once completed, eligible tax debts are discharged, offering a fresh start if your financial situation is severe.

Reach Out for Help

A CRA wage garnishment can feel overwhelming, but it’s not permanent. By taking quick action – whether that’s contacting the CRA, making payment arrangements, or exploring a consumer proposal or bankruptcy – you can regain control of your finances. If you have questions or need help deciding on the right approach, reach out to a Licensed Insolvency Trustee like Hoyes Michalos. You don’t have to face this alone. A free consultation can help you understand all your options, put a stop to CRA garnishments, and start fresh financially.

Need help right away? Contact us to book a free, no-obligation consultation and find out how we can help you stop a CRA garnishment, reduce your tax debt, and get back on track.

How to Stop a CRA Wage Garnishment