Notice of Collection CRA: What It Means & How to Stop It

Here are 6 things you can do to stop CRA from enforcing its legal remedies:

1. Pay the full amount of the debt

This will immediately and permanently stop CRA's collection activities. If you don't have cash available to make the payment, you may need to liquidate or refinance assets to come up with the payment. If this will take time, communicate with the collection agent and, if possible, get their formal agreement in writing to grant you time.

2. Contact CRA and make a mutually acceptable arrangement to pay over time

Simply making a partial payment is not sufficient, but CRA will usually suspend collection actions while you are actively negotiating an agreement regarding full payment of the debt.

Once an agreement is reached, CRA typically won't take further action as long as you're compliant with the arrangement. However, even if you have a payment arrangement and are making payments, the CRA is still authorized to take amounts from any benefits or credits you receive while you have a debt remaining, and interest will continue to be charged.

For a detailed guide on how to negotiate with CRA including what to say, what to disclose, and how to avoid common mistakes read our post: Negotiating a Payment Arrangement with the CRA.

3. Apply for hardship relief

If CRA is already taking collection actions against you, they may be willing to suspend the action and possibly write off interest and penalties if you can prove that it is causing serious financial harm such as making it impossible to afford the basic necessities of life. This requires significant financial disclosure and is typically only granted in extraordinary circumstances.

4. Provide security against one or more of your assets to CRA

CRA will typically suspend collection action pending resolution of an appeal, for example as long as their position is secured. However, this is usually a temporary solution. If you allow CRA to file a writ against real estate you own and plan to hold long-term, they may eventually take legal action to have it sold if you don't come up with a payment.

5. File a notice of objection or appeal with the Tax Court of Canada

This does not always stop collection actions, but in many cases CRA will stop taking action once they receive your notice of objection or appeal. This grace period will end if the objection or appeal is denied.

6. Make a formal insolvency filing

If the above options are not feasible for you or they fail, you may be insolvent in which case you're eligible to make a formal insolvency filing. Both a Consumer Proposal and bankruptcy provide an immediate stay of proceedings, legally stopping CRA from continuing or starting collection actions.

A consumer proposal allows you to negotiate a settlement with all your creditors including CRA for less than you owe, without losing your assets. Even if CRA rejected a settlement offer directly, a proposal submitted through a Licensed Insolvency Trustee goes to a different CRA department authorized to accept settlement offers. If the majority of creditors by dollar value vote to accept your proposal, CRA must abide by it.

In the case of bankruptcy, most tax debt can be discharged just like other unsecured debts meaning you will no longer have any responsibility to pay it once you receive your discharge. However, if you owe a large amount of tax debt, at least $200,000 where it makes up at least 75% of your total debt, you may be considered a High Tax Debtor, and the matter will need to be addressed by the court before you can obtain your discharge from the bankruptcy.

A CRA Notice of Collection is a legal warning issued by Canada Revenue Agency before they take enforcement action on unpaid tax debt. Once issued, CRA can garnish your wages, freeze your bank account, or file a writ against your home without further warning for 180 days (extendable). We have identified 6 options to stop CRA collection action: pay in full, negotiate a payment arrangement, apply for hardship relief, provide asset security, file a notice of objection, or make a formal insolvency filing (consumer proposal or bankruptcy).

Received a CRA Notice of Collection? Don't wait.

CRA can act quickly once a Notice is issued. The sooner you explore your options, the more options you have. Charla Smith & Company is a Calgary-based Licensed Insolvency Trustee we offer a free, no-obligation consultation to review your situation and explain exactly what your next steps should be.

As you can see, tax debt is not a simple matter. CRA's special collection powers make it difficult to deal with on your own. If you need help assessing your options, reaching out to a Licensed Insolvency Trustee is the best step you can take.

Charla Smith & Company Ltd. is a Calgary-based Licensed Insolvency Trustee, serving the southern Alberta region. We regularly provide advice to individuals dealing with tax debt. Contact us for a free, no-commitment consultation.

Still not sure what to do about your CRA debt?

You don't have to figure this out alone. As a Calgary Licensed Insolvency Trustee, Charla Smith has helped many Albertans navigate CRA debt — from payment arrangements to consumer proposals to bankruptcy. Let's talk about what makes sense for your situation.