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How Do You Remove A CRA Freeze On Your Bank Accounts?

November 23, 2017

If you have unpaid tax debt, the CRA can freeze your bank account without notice and without limits as to how long. There are things you can do to unfreeze your bank account if you disagree with the amount the CRA says your owed.

CRA Frozen Bank Accounts

In instances where taxpayers do not voluntarily pay what they owe, the CRA can take legal action to seize assets. By issuing a legal notice called a Requirement to Pay, the CRA can demand funds from a third party to pay a taxpayer’s arrears. When issued to a bank, a Requirement to Pay legally compels the bank to freeze a taxpayer’s bank account and forward all funds to the CRA.

Why Do Bank Accounts Get Frozen?

Under the law, the CRA has the right to freeze bank accounts pursuant to section 224 of the Income Tax Act or section 317 of the Excise Tax Act. The CRA does this in instances where taxpayers fail to pay their taxes. Often done without warning, the CRA uses the element of surprise to prevent taxpayers from shifting funds before they can be captured. Once a bank account is frozen, all funds are seized by the CRA and the account becomes inoperable. Any funds deposited into a bank account after it is frozen, are immediately sent to the CRA, until the tax arrears are paid in full.

Can CRA Freeze Bank Accounts Without Notice?

A frozen bank account can quickly become a huge issue. When a bank account is frozen, you don’t have access to the money that is saved in it. It’s quite evident that this can very easily become a big problem. If your bank account has been frozen, it’s only natural that you’d want to restore access to it as soon as possible. It’s also very natural that you’d have a lot of questions. Here are some answers to common CRA freeze bank account questions.

Who Can Freeze your Bank Account?

If you have unpaid debt, your bank account can be frozen. The money that is in the account is then used to pay off your debts and you won’t have access to your funds until the situation with your creditor has been resolved. When a creditor such as the CRA freeze a bank account, the account holder no longer has access to the funds stored in it. This can obviously be a very difficult situation. If you can’t get access to your money, you won’t be able to pay your bills, afford your expenses, pay your rent, and much more. Most people can not go very long without access to their bank account, and thus, a frozen bank account is a very serious situation that should be properly resolved as soon as possible.

So, who can freeze your bank account?

  • A bank
    • Banks can restrict you from accessing the money in your account if you owe a debt to the bank. For instance, if you have a mortgage, line of credit, or credit card with the bank and you are not paying your bills, your bank can freeze access to your account and take the money that you owe out of your savings. You’ll likely find this fact noted in the fine print of your loan.
  • The Canada Revenue Agency
    • The Canada Revenue Agency (CRA) can freeze a bank account if you owe tax debt that you have not paid. The CRA considers tax debts owed to the agency to be very important and if you are not paying your debt, or not communicating with the CRA in a way that the agency deems suitable, it can freeze your access and start applying the money in your account towards your tax debt.
    • This is one of the more common ways that a person finds their bank account frozen. The CRA uses this tactic to encourage people to do whatever possible to resolve their tax situation. The agency knows that most people can’t survive for very long without access to their bank account.
  • Other creditors
    • Other creditors that you owe money to can freeze your bank account if they are able to obtain a judgement against you in court. This includes creditors such as credit card companies, payday lenders, and other creditors. However, this process is complicated and lengthy and, therefore, relatively uncommon. Most creditors will not spend the time, energy, and money necessary to obtain a court’s judgement against you. They will typically use other methods to get the money that is owed to them, such as using a collection agency to attempt to collect the debt.

Canada Revenue Agency (CRA) Vs Other Creditors

The main difference between the Canada Revenue Agency (CRA) and any other creditor is that the CRA can freeze the funds in your bank account without a court order. This is a very strong power and one of the ways that the CRA pressures people into paying their debts. Since they don’t need to go to court to freeze an account, they are much more likely to use this method than other creditors.

One of the most common questions we hear is “can CRA freeze bank accounts without notice?” and the answer to this question is yes. In fact, in many instances, the CRA prefers to freeze a bank account without notice because that prevents people from moving their funds to a different account before their access is

locked. And, as mentioned, since the CRA does not need a court order to freeze your bank account, the agency takes this step more often than other creditors. It is a very strong tool that the agency takes advantage of when it deems necessary to do so.

When the CRA decides to freeze a bank account, it sends a “Requirement to Pay” notice to the bank. You will receive a copy of this notice as well. The notice instructs the bank to freeze access to the account and to direct money to the CRA as requested. And, remember, can CRA freeze bank accounts without notice? Yes!

How Long Can a Bank Account be Frozen in Canada?

There’s no limit as to how long can a bank account be frozen in Canada, in terms of the length of time. Once the bank receives the Requirement to Pay notice, it must send the sum indicated in the letter to the CRA. If you have enough money in the bank to cover the total tax debt, your bank account will become accessible again once the CRA receives the money that is owed to it.

However, if you don’t have enough in your account to pay off your tax debt in full, the account will remain frozen and the bank will be required to send at least a portion of any deposits that are made to the bank (such as paycheques deposited by your employer) directly to the CRA. This can continue until your tax debt is paid in full or the bank receives some other legal notice that the account can be unfrozen. If you’re wondering how to unfreeze bank account Canada, the answer is that the CRA must be satisfied and this can sometimes be difficult to do.

Negotiating with CRA to Remove a Freeze on a Bank Account

One way to have your account unfrozen is to arrange a payment schedule with the CRA and to stick to this schedule. However, it’s important to use caution when doing this. Generally speaking, the CRA won’t negotiate repayment plans unless the correct strategy is implemented by the taxpayer (or their advisor). The job of the CRA collector is to collect the taxes now. The CRA has to be pushed to agree to a plan in most cases. This means the agency is tough to negotiate with. Taxpayers who try to negotiate with CRA directly often find themselves no further ahead – and often far worse off.

The CRA knows that people need access to their bank accounts. They understand that, if your account is frozen, you will desperately want to restore your access. This means that, once they have taken this step, they have the advantage in negotiations. Since the Requirement to Pay can only be lifted if the financial institution receives a legal notice that unlocks the account, most people will agree to whatever the CRA offers in exchange for their account being unfrozen. Unfortunately, this can result in different – and potentially more serious – issues down the road.

A common CRA collection tactic used when they do not know what you can afford to repay is to offer you a short-term payment plan. However, before agreeing to such a plan, the agency will require that you disclose your income, employer, assets, bank, etc. Once that short-term period is over, the CRA may then make unaffordable demands. The agency considers tax debt to be the primary debt and wants it to be repaid first, even if doing so comes at the expense of the rest of your financial life. If the agency requires unreasonable terms, and you cannot meet those demands, CRA agents may refuse to negotiate further and seize your assets including freezing your bank account.  Remember, CRA do not need a Court Order (like other creditors) to do so – they can act aggressively and by surprise. If your account has already been frozen, their aggressive tactics could cause you to agree to terms that you cannot afford.

Therefore, it’s critical that you always work with a professional and get advice before you communicate or negotiate with the CRA.

Can the Bank Ignore an Order to Freeze my Bank Account?

If you owe tax debt, the CRA is legally able to order a bank to freeze your account. If you owe taxes to CRA, and they send a Requirement to Pay to your bank, the bank must immediately freeze your account or they will face penalties.

Can CRA freeze bank accounts without notice? Yes, and the bank is required to comply or it would be breaking the law. Of course, an order to freeze a bank account can lead to serious negative consequences in your life.

Imagine the shock you feel and the very real chaos in your life when you find out by complete surprise that your bank account has been frozen.  As mentioned, one of the most-asked questions we hear is “can my bank freeze my account without notifying me?” The answer is yes! While the bank has to comply with the order of the Canada Revenue Agency (CRA), the CRA does not have to give you advance notice. The agency has the unquestioned ability to go after anything you have if they believe that you owe them money.

Since banks have no choice under the law but to comply, this puts you in a very difficult situation financially. If your mortgage or rent payments are taken out of your bank account automatically, and these accounts are frozen, you won’t be able to pay your living expenses. In addition to not being able to make payments, you’ll likely also be penalized for missing payments. This will make your financial situation even more difficult than it already is. The same is true for your phone bill, cable bill, utility bill, car payments, and any other bills that are automatically withdrawn from your account. With your account frozen, your life becomes very tough to manage.

You also will not be able to take out cash, write cheques, or make debit transactions from a frozen account. This means you won’t be able to buy groceries, gas, clothing, or basically anything else. As you can see, a frozen bank account puts your entire life on hold.

This is why the CRA uses this tactic on people who owe tax debt. The CRA freeze bank account method is successful because the bank cannot legally ignore or refuse to follow the Requirement to Pay. They have no choice but to freeze your account and put your life on hold. This means that, in order to get your life back, you’ll need to work something out with the CRA. The agency knows you will probably be desperate to regain access to your account and it uses this as leverage. Since you’re likely to do almost anything to get your life going again, you will be more willing to accept whatever payment plan the CRA offers. This could be incredibly detrimental to your financial future since the CRA considers the debt owed to it to be the most important. It wants this debt repaid at the expense of any other financial commitments. If you agree to a bad deal with the CRA, you could find yourself responsible for sending a large portion of your income to the CRA each month, which will make it nearly impossible to afford the rest of your life expenses.

That’s why it’s critical to use care and to work with an experienced professional when attempting to negotiate with the CRA.

Can the CRA Take All the Money in your Account?

As mentioned, in most cases, a CRA freeze bank account order remains in place until your tax debt is paid or a suitable (in the eyes of the CRA) arrangement is made to have the debt repaid in a timely manner. How to unfreeze bank account Canada is to pay your taxes or come to an agreement with the CRA. This can be easier said than done.

Once the Requirement to Pay is received by the bank, the bank is required to send the CRA the money that has been requested from any account in your name at the institution. If you have a chequing and a savings account at the same bank, for example, both accounts will be frozen and the money that is in those accounts will be sent to the CRA to pay off your tax debt until the situation is resolved. This is money that you may have otherwise spent on rent, groceries, gas, or just about anything else. In one quick action, your funds will be sent to the CRA and you will have to find a way to live without this money.

If you don’t have enough in your account to pay off your tax debt in full, the account will remain frozen until the situation is resolved. This means that not only will you have to live without the money that the CRA applied to your tax debt, but you will also have to function without access to your bank accounts.

Remember, the banks have no choice in this matter. Under the law, they must do what the CRA asks.

Can the CRA Take Money From your RRSP and TFSA Accounts?

One potential exemption is RRSP and TFSA accounts. Even if these types of investment accounts are held at the same financial institution as your bank accounts, they are considered different from bank accounts. Thus, these investments will not immediately be sent to the CRA. However, if you attempt to redeem the investment and take the money out of your RRSP or TFSA, these funds will be included in the Requirement to Pay and sent to the CRA.

If you have accounts at different banks, the CRA will likely send simultaneous Requirement to Pay notices to each institution. If there is an account that the CRA is unaware of, this account may not be frozen, but this situation isn’t something that you should count on occurring. The CRA has many different ways to find out information about you and, even if it doesn’t know about an account right now, there’s a very good chance that it will find out. The CRA’s strong collection powers and vast reach make it nearly impossible to hide for very long.

Note that the CRA can also issue a Requirement to Pay to other institutions that can cash cheques, not just bank accounts. For instance, if the agency learns that you are cashing your cheques at a cheque cashing service to avoid making deposits to a frozen bank account, it will require this service forward any cheques it receives to the agency as well.

One situation where the CRA may not freeze your bank account, even if you owe tax debt, is if you have a joint account. If your spouse, for example, is also named on the account, but only you owe tax debt, the CRA may not take action on this account. However, if both you and your spouse named on the account owe the CRA, it can freeze the joint account.

How to Unfreeze a Bank Account In Canada?

If your bank account has been frozen, of course you will want to regain access to it. You’ll need the money in your account to afford life’s expenses and the longer your account is frozen, the more difficult daily life will become.

The only way how to unfreeze bank account Canada is to either pay your tax debt in full or to come to an agreement with the CRA that the agency considers suitable. This is often quite difficult to accomplish.

The CRA is traditionally very difficult to negotiate with. The agency wants the money that is owed to it and it has the powers necessary to make life tough for people who owe tax debt. Since it has these very strong powers, it knows that it can be tough in negotiations. It holds significant leverage and it uses what it has to get taxpayers to comply.

Unfortunately, stories like that of Marion Hill are all too common in Canada. Marion was a diabetic retiree living off a fixed income. She had a small debt with CRA and tried to negotiate a repayment plan with them. The collector with CRA refused to entertain a repayment plan, as they often do, and demanded payment in full.

Not too long thereafter and without notice, Marion’s bank account was frozen and her assets were seized by CRA. Only after an exposé conducted by Global News did CRA agree to return the money they seized and work with Marion to get her financial assistance.

You see, Marion got lucky because a national news network agreed to air her story. However, there are thousands of people in Canada just like Marion who are not so lucky. We get calls daily from taxpayers who have had bank accounts frozen, wages garnished, liens placed on their homes, assets frozen, and more.

The CRA not only has significant leverage in negotiations, but CRA agents also understand the ins and outs of Canadian tax law in ways that few regular taxpayers ever could. The CRA takes advantage of this situation and uses their knowledge combined with their experience and their strong collection powers to negotiate deals that are favourable to the CRA, and ones that are often difficult for taxpayers to handle. They will never accept less than is owed to them and they are very unlikely to even agree to a payment plan at all. If they do agree to a plan, this plan will almost always place the tax debt first. That means the CRA won’t be concerned if you can’t afford the rest of your bills and expenses as long as it gets the money it is owed. This often leads to very tough financial situations for people.

If you have found yourself owing money to CRA, and you cannot pay the way CRA wants to be paid, or if you are otherwise being treated unfairly, contact us to find out what we can do to help. Not everyone should have to convince a national news network to air their dirty laundry. Instead, work with experienced professionals who know how to negotiate with the CRA. We level the playing field by having the knowledge and skill necessary to resolve tax problems.