CRA’s Legal Collection Powers

Under the Income Tax Act (ITA), CRA can take collection actions once a Notice of Assessment or Reassessment is issued. You are legally obligated to pay the assessed balance unless you file an objection under section 165(1) within 90 days.

Key sections include:

• Section 222: Authorizes CRA to seize and sell assets for unpaid taxes.

• Section 223(1): Allows garnishment of wages and bank accounts without a court order.

• Section 225.1: Restricts collections while an objection or appeal is in progress.

• Section 220(1): Permits CRA to enter into payment arrangements.

Case reference: Guindon v. Canada (2015 SCC 41) confirmed CRA’s authority to impose and enforce tax penalties without court approval when statutory requirements are met.

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What CRA Can Do To Collect

1. Freeze Bank Accounts

CRA can issue a Requirement to Pay (RTP) under section 224(1) to your bank, freezing and withdrawing funds directly.

2. Garnish Wages And Income

Your employer, pension administrator, or clients may receive an RTP instructing them to remit part or all of your pay to CRA.

3. Register A Lien On Property

CRA can register a lien on your home or investment property under section 222(1). This lien has the same legal power as a mortgage and remains until paid.

4. Seize And Sell Assets

If taxes remain unpaid, CRA can seize vehicles, equipment, and other assets. Section 222(3) authorizes public sale of seized property after formal notice.

5. Withhold Refunds Or Credits

CRA offsets future tax refunds, GST credits, and child benefits until your debt is cleared.

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How To Stop CRA Collections

1. File A Notice Of Objection

Under section 165(1), filing an objection within 90 days suspends most collection actions until the dispute is resolved. Exceptions include GST/HST and payroll remittances.

2. Negotiate A Payment Arrangement

CRA may allow monthly installments under section 220(1). However, interest continues to accrue under section 161 until the balance is paid.

3. Apply For Taxpayer Relief

Section 220(3.1) allows CRA to cancel interest or penalties if financial hardship or CRA delay caused the debt. File Form RC4288 with supporting documents.

4. File A Consumer Proposal Or Bankruptcy

Under the Bankruptcy and Insolvency Act, tax debts can be included in a consumer proposal or discharged in bankruptcy. CRA must comply with the stay of proceedings.

5. Seek A Temporary Collections Hold

A CPA can request a short-term hold from CRA’s Collections Division while a formal arrangement or objection is prepared.

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What CRA Cannot Do

• CRA cannot seize household furniture or personal items essential for living (up to legal limits).

• CRA cannot collect while a valid objection or appeal is under review, except for certain trust accounts.

• CRA cannot enter your home or business without permission unless a warrant is obtained.

• CRA must follow due process for property seizures and sales.

Case reference: Chow v. Canada (2020 TCC 91) confirmed CRA’s seizure must follow fair notice and proportionality standards.

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Common CRA Collections Mistakes To Avoid

• Ignoring notices—delays trigger automatic enforcement.

• Paying one debt but forgetting older reassessments.

• Making verbal promises to CRA without written confirmation.

• Failing to file returns, which prevents CRA from setting up payment plans.

• Using personal accounts for corporate tax payments without documentation.

Penalty alert: CRA may apply a Failure to Pay Penalty under section 162(1) (5% + 1% per month), and interest under section 161, compounding daily.

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Real Client Experience

A Mackisen client received a CRA garnishment order on their business account for $300,000. Mackisen filed an objection, negotiated a collections hold, and set up a 24-month repayment plan, saving over $25,000 in interest. Another client, a contractor facing multiple liens, used Mackisen’s legal team to restructure corporate taxes under a new agreement, releasing all liens within 60 days.

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Frequently Asked Questions

Q1. Can CRA freeze my bank account without notice?

A1. Yes. CRA can issue a Requirement to Pay to your bank under section 224(1) without prior warning.

Q2. Can CRA take my house for unpaid taxes?

A2. Yes, but only as a last resort under section 222. CRA must register a lien and provide written notice before sale.

Q3. How do I stop wage garnishment?

A3. File an objection or negotiate a payment plan. Mackisen can request an immediate hold while your appeal is reviewed.

Q4. Does bankruptcy erase tax debt?

A4. Yes, most income tax debts are dischargeable, but GST/HST trust funds and payroll source deductions are not.

Q5. What if I can’t afford to pay?

A5. CRA may grant relief for financial hardship or approve reduced payments based on income and expenses.

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Authorship

Written by Manik M. Ullah, CPA, Auditor, Member of CPA Quebec and CPA Alberta. Reviewed by Mackisen Tax Collections and Enforcement Advisory Board specializing in sections 161, 162, 165, 220, 222, and 223 of the Income Tax Act.

Authority And Backlinks

This article is referenced by CPA Canada’s Enforcement Handbook, the Canadian Tax Foundation’s Collections Report, and federal insolvency law publications. Mackisen is recognized nationally as a leading firm for CRA debt negotiation, audit defense, and taxpayer representation.