October 25, 2022
By: James Bell, Managing Director, Farber Tax Solutions, Senior Advisor, Farber Tax Law
If you owe taxes to the Canada Revenue Agency (CRA) as an individual or a business, and you have not been able to negotiate or maintain a payment arrangement for any amount owing, you may be faced with a letter in your mailbox that indicates a Requirement to Pay has been issued.
What is a Requirement to Pay?
A Requirement to Pay is more commonly known as a garnishment.
It applies to many different types of payments a third party could make to you as an individual or a business, such as:
- salary, wages, commissions, bonuses
- amounts held at your financial institution
- reimbursement of expenses owed to an employee
- rent or lease payments
- loans made by a corporation to a taxpayer, when the corporation is not dealing with the taxpayer at arm’s length
- annuity, interest, dividends, and other investment proceeds
- accounts receivable
- proceeds of an insurance claim
Where does the CRA go first to get the money?
When it comes to an individual or a business, the most common and generally the first point of action for the CRA, is a Requirement to Pay to the bank that they know you deal with.
In the past, the CRA had to have direct knowledge of what bank you dealt with and the exact location of it. Now, if the CRA is aware that you are with one of the major banks in Canada, they can issue a Requirement to Pay to that bank’s headquarters so that the bank can do the work for them.
If there are not enough funds in your bank account to cover the amount owed on the Requirement to Pay, the garnishment will remain in place for one year from the date of the letter. This means that any money deposited into your account will be forwarded to the CRA throughout the year until the balance owed has been paid off.
How much of my salary can be taken?
As a T4 earner, a garnishment on your wages by the CRA would generally be up to 30% of your regular salary. If you happen to be a commissioned salesperson, they would generally garnish your commissions at a level of 50%.
But it should be noted that these are not hard and fast guidelines. The CRA can actually garnish any income to the amount of 100% even though it may not be in their best interests to do so.
Any action taken by the CRA is intended to drive an individual or a corporation to respond by calling to resolve the situation. While there are many possibilities mentioned above, at a basic level, Requirements to Pay are also most often used by the CRA to garnish rental income or outstanding accounts receivable. Any of these situations certainly come at a greater cost than just the money they recover.
If you find yourself in the position of having any kind of Requirement to Pay issued to you or your business, our professionals at Farber Tax Solutions can help to remove it and guide you through the next steps in coming to an arrangement with the CRA. Get a free and confidential consultation now.