Got a CRA Notice of Collection? Here is What It Means and What to Do | Metus Lykos

A letter from the Canada Revenue Agency is stressful enough on its own. A Notice of Collection is a different level. It means the CRA has decided your debt is overdue and is now preparing to act. And when the CRA acts, it can move faster and hit harder than almost any other creditor in Canada.

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Most people who receive one of these notices feel a mix of panic and confusion. They are not sure what it actually means, what the CRA can legally do next, or how much time they have. This article answers all of that. More importantly, it explains your options for resolving the debt before things escalate.

What Is a CRA Notice of Collection?

A CRA Notice of Collection is an official legal warning sent by the Canada Revenue Agency when you have an outstanding tax debt that has not been paid or resolved. It tells you that the CRA intends to take collection action if the debt is not addressed.

This notice is not the first thing the CRA sends. By the time you receive it, you have likely already received a Notice of Assessment, one or more reminders, and possibly phone calls from a CRA collections officer. The Notice of Collection is the step that comes right before enforcement.

It is different from a simple overdue bill. It is a legal document that gives the CRA authority to pursue you under the Income Tax Act, the Excise Tax Act, or both. Once it is issued, the CRA can begin collection actions at any time during the 180-day period the notice covers. They do not need to warn you again before they act.

Common Reasons People Receive a CRA Notice of Collection

CRA debt takes many forms. A Notice of Collection can be issued for any of the following:

• Unpaid personal income tax: You filed your return but owed money and did not pay, or you did not file at all and the CRA assessed you.
• HST or GST arrears: Self-employed individuals and business owners who collect sales tax and fail to remit it accumulate HST/GST debt quickly.
• COVID-19 benefit overpayments: CERB, CRB, CRCB, and CRSB repayment debts are all treated as CRA debts and are subject to the same collection process.
• Payroll deductions: If you were a business owner who failed to remit payroll deductions (CPP, EI, income tax withheld from employees), the CRA treats this debt seriously and pursues it aggressively.
• Director liability: If you were a director of a corporation that failed to remit source deductions, you may be personally liable for those debts.
• Reassessment: The CRA audited your previous return, increased your tax owing, and you did not pay the reassessed amount.

In every case, the process is the same. The CRA has given you time to respond and you have not paid or made arrangements. The Notice of Collection is the formal trigger for enforcement.

What the CRA Can Do After Sending This Notice

This is the part most people do not fully understand until it is too late. The CRA has collection powers that go far beyond what a regular creditor can do. They do not need to take you to court. They do not need a judge’s approval. Many of their enforcement tools are available immediately once the notice is issued.

Wage Garnishment

The CRA can contact your employer directly and instruct them to withhold a portion of your paycheque and send it to the government. For employees, the CRA can garnish up to 50% of your net pay. For self-employed individuals and contractors, the garnishment can be up to 100% of amounts owed to you by clients or payers.

No court order is required. The CRA sends a Requirement to Pay directly to your employer, who is legally obligated to comply. Your employer will know about your CRA debt. If you have multiple income sources, the CRA can send a Requirement to Pay to each one. To learn more about how this process works and how to stop it, read our guide on wage garnishment in Canada.

Bank Account Seizure

The CRA can also send a Requirement to Pay to your bank or financial institution. This freezes the funds in your account and directs the bank to pay your balance to the CRA. You may log into your account one day and find that your money is gone. Like the wage garnishment, this requires no court order.

The CRA can target chequing accounts, savings accounts, and business accounts. If you have accounts at multiple institutions, they can send requirements to each one.

Property Liens

The CRA can register a lien against your home or other real property. This does not mean they immediately sell your home, but the lien is registered on title. If you try to sell or refinance, the CRA debt must be paid out first. A lien also affects your credit and can complicate any property transactions for years.

Tax Refund Interception

If you are owed a tax refund in a future year, the CRA will automatically apply it against your outstanding debt. The same applies to GST/HST credits and other government benefit payments. You will not receive those amounts until the debt is cleared.

The 180-Day Window: Why Timing Matters

A CRA Notice of Collection is valid for 180 days from the date it is issued. During that window, the CRA can begin enforcement at any point without any additional warning to you. That is roughly six months, but it should not be read as six months to wait. The earlier you act, the more options you have.

If the debt is not resolved within 180 days, the CRA can issue a new Notice of Collection and the clock restarts. There is no upper limit on how many notices they can issue. In practice, the CRA is more likely to escalate enforcement the longer the debt sits unpaid.

Interest also accumulates on unpaid tax debt at the prescribed rate set by the CRA each quarter. The longer the debt remains unresolved, the larger it grows.

What to Do Immediately After Receiving the Notice

Ignoring the notice is the worst thing you can do. Here is what to do right away.

1. Read the notice carefully.
   Check the amount the CRA says you owe and the date the notice was issued. Confirm the debt is actually yours and that the amount is accurate. The CRA does make errors. If the amount is wrong, you have the right to dispute it, but you still need to act quickly while the dispute is being resolved.
2. Do not ignore contact from the CRA.
   A collections officer may be assigned to your file and may attempt to contact you. Communicating with them is generally better than going silent. It signals that you take the debt seriously and may buy you time to arrange a resolution.
3. Do not agree to a payment arrangement you cannot keep.
   The CRA may offer a payment arrangement. Before agreeing to any plan, make sure you can actually afford it. If you miss payments on a CRA arrangement, the arrangement may be cancelled and enforcement can begin immediately.
4. Get legal advice before making any decisions.
   CRA debt comes with serious consequences and limited time. Speaking with a debt lawyer before you commit to any plan is the best way to understand your full range of options, including options that may reduce or eliminate the debt entirely.

Your Debt Relief Options When You Have CRA Debt

There is no single right answer for everyone. The best option depends on the size of your CRA debt, your other debts, your income, and your assets. Here is an honest breakdown of what is available.

Pay the Debt in Full

If you can pay the full amount immediately, that stops all collection activity. The CRA will confirm the debt is cleared and close the file. This is the simplest resolution, but for most people receiving a Notice of Collection, it is not realistic. If it were, they would have already paid.

Payment Arrangement with the CRA

You can contact the CRA and ask to set up a payment plan. The CRA will consider arrangements based on your ability to pay. They may ask you to provide details about your income and expenses before agreeing. Payment arrangements do not reduce the debt and interest continues to accumulate. They also do not provide any legal protection if your financial situation changes.

Consumer Proposal

A Consumer Proposal is a government-regulated legal process under the Bankruptcy and Insolvency Act (BIA). It allows you to formally offer your creditors a reduced amount, spread over up to five years. The moment a Consumer Proposal is filed, a Stay of Proceedings takes effect. This is a federal legal order that immediately stops all collection activity, including CRA wage garnishments, bank seizures, and calls.

Critically, CRA debt is included in a Consumer Proposal. The CRA becomes one of your creditors in the process. If the majority of creditors (by value) vote to accept your proposal, the CRA is bound by it even if they voted against it. This is one of the few legal tools that can stop the CRA and reduce what you owe to them at the same time. Learn more about how this works through our Consumer Proposal service.

Division 1 Proposal

If your unsecured debt exceeds $250,000, a Consumer Proposal is not available and a Division 1 Proposal may be the appropriate option. This is a more complex court-supervised process, but it works on a similar principle: a formal offer to creditors, a Stay of Proceedings, and the possibility of legally settling the debt for less than the full amount. We explain how this works through our Division 1 Proposal service.

Bankruptcy

Personal bankruptcy can discharge most tax debts, including amounts owed to the CRA. However, bankruptcy carries significant consequences for your credit, your assets, and in some cases your career. For most people with CRA debt, a Consumer Proposal is a better option because it protects more assets and carries a lesser credit impact. Bankruptcy should not be ruled out, but it should not be the first option considered.

Comparing Your Options

Can CRA Debt Be Included in a Consumer Proposal?

Yes. This is one of the most important things to understand about your options. CRA debt, including income tax arrears, HST/GST owing, COVID benefit repayments, and payroll remittance debts, can all be included in a Consumer Proposal.

The CRA is a creditor like any other in the Consumer Proposal process. They receive notice of the proposal and have the right to vote on it. If your proposal is accepted by the majority of creditors (by dollar value), the CRA is legally bound by it. They cannot continue collecting or garnishing wages once the Stay of Proceedings is in place.

One important nuance: payroll remittance debts (source deductions you were required to withhold and remit as a business owner or director) are treated as a priority claim and are handled slightly differently. If you have this type of CRA debt, getting legal advice on how it would be addressed in a Consumer Proposal is particularly important.

Why Working with a Debt Lawyer Is Different

Many people facing CRA debt are told to speak with a Licensed Insolvency Trustee (LIT). A trustee is a government-licensed professional who administers insolvency proceedings. But there is an important distinction: a trustee is legally required to act impartially. Their duty is to the process, not exclusively to you.

We are a debt law firm. Our legal duty runs entirely to you, the client. That changes the nature of the advice and the representation you receive. We do not administer your insolvency; we provide legal counsel throughout, advocate for your interests, and help you understand which option protects you most effectively. Read about how this difference plays out in practice in our guide comparing Licensed Insolvency Trustees vs. debt lawyers.

Frequently Asked Questions

What is a CRA Notice of Collection?

A CRA Notice of Collection is a formal legal warning issued by the Canada Revenue Agency when you have an outstanding tax debt. It signals that the CRA is prepared to take enforcement action, including wage garnishment and bank account seizure, without any further notice. The notice is valid for 180 days from the date it is issued.

How long does the CRA have to collect a tax debt?

The CRA generally has 10 years from the date a tax debt is confirmed (for example, the date of a Notice of Assessment) to collect it. However, the limitation period can be extended in certain circumstances, including if you leave Canada, if you make a payment, or if collection action is taken. Do not assume an old debt has expired without getting legal advice.

Can the CRA garnish my wages without a court order?

Yes. The CRA has special statutory authority under the Income Tax Act and Excise Tax Act to garnish wages, freeze bank accounts, and intercept tax refunds without going to court first. This makes CRA debt more urgent to deal with than most other forms of debt.

Can CRA debt be included in a Consumer Proposal?

Yes. CRA debt, including income tax arrears, HST/GST debt, and COVID benefit repayments, can be included in a Consumer Proposal. The CRA participates in the process as a creditor and is bound by the outcome if the proposal is accepted by the majority of creditors by value.

What happens if I ignore a CRA Notice of Collection?

If you do nothing, the CRA can begin enforcement at any point during the 180-day notice period. This may include garnishing your wages, freezing your bank accounts, registering a lien on your property, or intercepting your tax refund. After the 180 days, the CRA can issue a new notice and continue. The debt grows with interest throughout. Ignoring the notice does not make the problem go away.