A notice of collection from the CRA is a formal warning that your tax debt is overdue and the Canada Revenue Agency may take legal action—such as garnishing wages or freezing bank accounts—if you don’t arrange payment.
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If you fall behind on your taxes, you’ll likely end up dealing with the Canada Revenue Agency. One of the most common questions people have is about the notice of collection. It’s a term you might see in letters and online searches, or hear from others who’ve faced tax debt, but what does it actually mean?
This article will explain what a CRA notice of collection is, how the process works, what actions the CRA can take, and—most importantly—what your options are if you receive one.
Jump to:
- What is a notice of collection from the CRA?
- How does the CRA’s collection process work?
- When can the CRA issue a notice of collection?
- What information does a CRA notice of collection include?
- What can the CRA do after sending a notice of collection?
- How long does a notice of collection remain valid?
- What should you do if you receive a CRA notice of collection?
- Can you negotiate payment with the CRA?
- Can a consumer proposal or bankruptcy stop CRA collections?
- Does the CRA offer relief programs?
- What should you do if the CRA notice of collection is wrong?
What is a notice of collection from the CRA?
A notice of collection is a formal communication from the CRA telling you that you have an outstanding balance they expect you to pay. It usually comes after you’ve received a Notice of Assessment or Reassessment showing that you owe tax, and after the CRA has sent reminders or demand letters.
The notice of collection is the CRA’s way of saying they’re ready to escalate if you don’t make arrangements. At this stage, ignoring the debt can result in serious consequences such as wage garnishments, bank account freezes, or liens on property.
How does the CRA’s collection process work?
The CRA’s collection process works in three key steps:
Step 1: Notice of assessment or reassessment
After you file your tax return, the CRA issues a Notice of Assessment. If you owe taxes, this document sets out how much and the due date. If you don’t file, the CRA can issue a Notice of Reassessment based on their estimates.
Step 2: Initial reminders and calls
If you miss the due date, the CRA will usually send written reminders or attempt to contact you by phone. Interest and penalties begin to accumulate at this stage.
Step 3: Legal warning and notice of collection
If the balance remains unpaid, the CRA will send a notice of collection to legally warn you that enforcement powers may be used next.
When can the CRA issue a notice of collection?
The CRA can issue a notice of collection shortly after your tax debt becomes overdue. There is no lengthy grace period once a debt can be legally collected. Once a notice is issued, the CRA has broad powers to enforce repayment without needing a court order.
Common situations where notices are issued include:
- Unpaid income tax after filing a return
- GST/HST owing for businesses
- Payroll deductions not remitted by employers
- Penalties or interest that were left unpaid
What information does a CRA notice of collection include?
A typical notice of collection from the CRA will state:
- The amount you owe, including penalties and interest
- Reference numbers for account details
- Instructions on how to pay
- A deadline or timeframe for action
- A warning that legal action may follow if no payment or arrangement is made
What can the CRA do after sending a notice of collection?
The CRA has stronger collection powers than most creditors, and once a notice of collection is issued, it may take one or more of the following actions:
Garnishment of wages
The CRA can issue a requirement to pay directly to your employer. A portion of your wages will be sent to the CRA until the debt is cleared.
Freezing or seizing bank accounts
The CRA can contact your financial institution and freeze or seize funds from your bank account. This can happen quickly, often without further warning.
Registering liens or seizing assets
The CRA can register a lien against your home or other property. In extreme cases, they can seize and sell assets to recover unpaid taxes.
How long does a notice of collection remain valid?
There are time limits on how long a CRA collection remains valid. Generally, the CRA has a 10-year limitation period to collect a tax debt. However, this period can restart if you acknowledge the debt or make a partial payment. The notice of collection itself is not a one-time warning; the CRA can keep pursuing the debt until it is resolved or legally uncollectible.
What should you do if you receive a CRA notice of collection?
If you receive a CRA notice of collection, the most important thing is not to ignore it. Taking quick action can help you avoid more serious enforcement actions. Here are some important steps to take:
- Read the notice carefully, checking the details, amount, and deadline.
- Make sure it’s accurate and matches your own records.
- Contact the CRA to confirm your options for repayment or arrangements.
- Seek professional advice from a Licensed Insolvency Trustee if you can’t pay.
Can you negotiate payment with the CRA?
Yes. The CRA lets you set up a payment arrangement if you can’t pay in full immediately. This typically involves spreading payments out over time. When negotiating, the CRA will look at your income, expenses, and assets. They expect you to pay as quickly as reasonably possible, and interest will continue to accrue. For many people, these arrangements are still unaffordable, and that’s when formal debt relief solutions through an LIT may be necessary.
Can a consumer proposal or bankruptcy stop CRA collections?
Yes. Filing a formal insolvency proceeding with a Licensed Insolvency Trustee (LIT) provides immediate protection from CRA collection actions. As soon as either a consumer proposal or bankruptcy is filed, the CRA is legally required to stop wage garnishments, bank account freezes, or any other enforcement measures. Here’s a closer look at each option:
Consumer proposals for CRA collections
A consumer proposal is a legally binding agreement made through an LIT. You offer to repay a portion of your debt over a period of up to five years, based on what you can reasonably afford. If the majority of your creditors (including the CRA) vote to accept your proposal, it becomes binding on all of them.
For many people, this is a practical way to deal with tax debt, since:
- The CRA is required to suspend all collections once the proposal is filed.
- Interest stops accumulating.
- You make one affordable monthly payment through the LIT.
It allows you to keep your assets and gives you breathing room to deal with your debt in a structured way.
Bankruptcy for CRA collections
Bankruptcy is another legal option that provides immediate protection from CRA enforcement. Unlike a consumer proposal, bankruptcy involves surrendering certain assets and following specific duties over a set period of time. At the end of the process, eligible tax debts can be discharged, meaning you are no longer legally required to pay them.
This may be the right path if your debts are too high to realistically manage through a consumer proposal.
Should I choose bankruptcy or a consumer proposal for CRA collections?
Both solutions stop CRA collections, but the best option for you depends on factors like:
- The size of your debt
- Your income and ability to make payments
- The value of your assets
- Your long-term financial goals
A Licensed Insolvency Trustee can review your situation and explain which route provides the most effective relief.
Does the CRA offer relief programs?
The CRA has a program called Taxpayer Relief. Under this policy, you may be eligible to have penalties or interest waived if you meet certain criteria, such as:
- Extraordinary financial hardship
- CRA delays or errors
- Serious illness or natural disasters
It’s important to note that the relief program does not reduce the underlying tax debt; it only addresses penalties and interest.
What should you do if the CRA notice of collection is wrong?
If you believe the CRA made an error, you have the right to dispute or object. Your options include:
- Filing a formal objection within 90 days of your notice of assessment or reassessment
- Requesting a review if the debt relates to benefits or credits
- Appealing to the Tax Court of Canada if necessary
Received a notice of collection? Get help today
A notice of collection means the CRA is prepared to use its legal powers to recover what you owe. While this can feel overwhelming, you do have options. Whether through a payment arrangement, taxpayer relief, or formal debt relief like a consumer proposal, there are ways to regain control.
If you’ve received a notice of collection from the CRA, don’t wait until enforcement begins. Speak with a Licensed Insolvency Trustee at Harris & Partners to understand your options and take the right next step.
