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It happens out of the blue. One day you’re trying to pay your groceries and your card keeps getting declined. You call your bank and the teller’s answer makes your knees buckle. Turns out the Canada Revenue Agency (CRA) has frozen your account and you can no longer access the funds stored in it.
Can the CRA freeze your bank accounts without notice? Why does this happen? What can you do when this happens? And how can you avoid it? Read on to find out the answers to these questions and more.
Why CRA Can Freeze Your Bank Accounts
If you owe taxes to the CRA and you haven’t made payment arrangements with a CRA account manager, the Agency can freeze your bank accounts. CRA has the legal right to freeze your bank accounts without notifying you ahead of time and without going to court.
The first step in this process is issuing a Requirement to Pay. CRA sends you and your bank a copy of the Requirement, letting both of you know that you owe money to the Agency. This notice directs the bank to freeze your account and forward the money in your account directly to the CRA.
Once it receives the Requirement, your bank has the legal obligation to comply and direct to CRA the funds on deposit up to the amount you owe. The bank will also freeze and send your future deposits to CRA until your debt is paid or the bank receives a legal notification to stop freezing your funds.
What Can You Do To Avoid This?
- Pay The Tax Debt – You should contact the CRA to make payment arrangements if you can pay the tax debt. This includes setting up installed payments. But you might not be able to afford the tax payment if your situation has reached this point. If this is the case, you might need help to deal with your underlying tax debt problem
- Switch Accounts – You could open a new account at a different bank and deposit all your income in that account until your situation is resolved. You can update your automatic payment details and direct deposits to go through this account.
- Consider Filing a Consumer Proposal Or Bankruptcy – You can file for a consumer proposal or bankruptcy if you are unable to pay your tax debt. CRA will settle tax debts in a consumer proposal, and tax debts may be discharged in a bankruptcy.
The Bankruptcy & Insolvency Act imposes a stay of proceedings that blocks the CRA from freezing your accounts. If you file a consumer proposal or bankruptcy, your Licensed Insolvency Trustee will notify your bank and the CRA that you have filed an insolvency proceeding, which will make them unfreeze the account.
However, you should open a new account even if you file a consumer proposal or bankruptcy. The purpose of the legal insolvency proceeding is to stop the CRA from finding your new account and freezing that as well.
It’s important to note that a tax lawyer cannot help unfreeze your accounts unless the CRA approves. This requires you to pay the full amount of taxes you owe, assuming that you’re not disputing the CRA’s assessment of your taxes.
Filing a consumer proposal or bankruptcy are the only sure ways to get tax debt relief. Contact one of our Licensed Insolvency Trustees to discuss your options.
Other Useful Things You Should Know (FAQ)
Will CRA Freeze Joint Bank Accounts?
CRA cannot freeze joint bank accounts if only one of the account holders is indebted to it. If you are indebted to the CRA and are concerned about the savings in your bank account while working on a repayment arrangement, opening a joint account could help you secure your family living costs like your rent or mortgage.
Will CRA Seize My TFSA or RRSP?
TFSA and RRSP are registered investments and are treated differently than bank accounts. Even though the CRA can issue a Requirement to Pay to the institution that manages your funds, the investments are not liquidated and sent to the CRA as soon as the institution receives the notice. However, the institution will send your funds to the CRA if you attempt to redeem your investment.
Will CRA Take All The Money In My Account?
CRA will freeze your bank account until your tax debt is paid or until you reach a suitable agreement. If the funds saved in your account do not cover your debt, the CRA will take all that money and keep your account frozen until the situation is resolved.
If, on the other hand, the funds in your account surpass the value of your debt, the CRA will make the bank transfer the money necessary to cover the debt without freezing your account.
Keep in mind that the bank is obligated to transfer the money, even if that sum could have otherwise paid for your mortgage, rent, groceries, or gas. You will simply have to find a way to live without it.
Will CRA Seize My Canada Child Benefit?
The CRA usually doesn’t seize the funds in your Canada Child Benefit to collect a tax debt. However, any money deposited in a bank account can be seized if the account is frozen by CRA. And if you receive an overpayment from the Canada Child Benefit, the CRA might apply your current payments to the previous overpayment.
How To Unfreeze Your Bank Accounts
If you cannot reach a suitable arrangement with the CRA to repay your tax debt and convince them to lift the hold on your bank account, you should discuss your options with a Licensed Insolvency Trustee.
We offer free, no-obligation consultations. Once you book a consultation, one of our LITs will review your situation and help you decide if a consumer proposal, bankruptcy, or other options might offer you a fresh financial start.