How to Stop a CRA Wage Garnishment

Posted on December 19, 2023 by Mihir (Mike) Chande, CPA, CA, CIRP, Licensed Insolvency Trustee

Wage garnishment is a legal process the Canada Revenue Agency (CRA) uses to collect outstanding tax debts. A wage garnishment involves the CRA contacting the debtor’s employer to send a portion of their wage directly to the CRA.

You may wonder, “How much can CRA garnish from wages?” The government has the right to garnish up to 50% of income. So, understanding how to stop wage garnishment is critical because it can result in lower take-home pay, making it difficult to afford basic living expenses and pay off debts. Chande Debt Solutions is a recognized, licensed insolvency trustee firm that assists clients with debt-related difficulties, such as stopping a wage garnishment.

Our team resolves wage garnishment difficulties by offering tailored debt solutions, allowing customers to achieve financial clarity on fixing it. Clients can find individualized ways to reduce the burden of wage garnishment and move toward debt-free status. Want to learn how to stop wage garnishments? Keep reading to learn more.

Understanding CRA Wage Garnishment

CRA wage garnishment is a legal process used by the CRA to collect unpaid taxes from individuals who owe outstanding tax debts to the government. Wage garnishment ensures taxes are collected by taking money directly from an individual’s income or salary. When a taxpayer fails to pay their taxes or ignores repeated requests for payment from the CRA, this process is triggered.

When an individual owes taxes to the CRA and fails to pay the taxes owed, the CRA may pursue legal action to recover the tax obligation. They send a legal document called a Requirement to Pay Notice (RTP) to the taxpayer’s employer, advising them to withhold a portion of the employee’s earnings and forward it to the CRA immediately. The garnishment will continue until the tax debt is paid off or alternative arrangements with the CRA are established to pay the outstanding amount.

Therefore, wage garnishment can substantially impact people’s financial stability. A percentage of their salary may be withheld, resulting in a decrease in take-home pay, making it harder to fund critical living expenses such as rent, utilities, groceries, and other bills. Tax debt interest may also build over time, making it harder to pay it off. Wage garnishment can add stress and financial strain, potentially complicating debt management and other financial responsibilities. It can also impact credit scores, making it challenging to receive new credit or loans in the future.

Reasons for CRA Wage Garnishment

CRA wage garnishment can be triggered for various reasons linked to income taxes and tax filings. The following are some examples:

  • Non-payment or Late Payment of Income Taxes: If a person fails to pay their income taxes on time or make the required tax payments, the CRA may use wage garnishment to collect the outstanding tax obligation.
  • Failure to File Tax Returns: Individuals in Canada must legally file tax returns. If a taxpayer fails to file a tax return for one or more years, the CRA may take enforcement measures, such as wage garnishment, to ensure compliance and recover any taxes owed.
  • Discrepancies or Errors in Tax Filings: If the CRA discovers discrepancies or errors in an individual’s tax filings, they may seek payment for the proper tax amount. If the taxpayer fails to correct the mistakes or settle the tax liability, wage garnishment may be used to recover the owing taxes.
  • Unresolved Tax Debt or Outstanding Balances: Individuals having unresolved tax obligations or outstanding amounts with the CRA may be subject to wage garnishment. If alternative methods of collecting the tax debt, including payment arrangements or voluntary payments, have been ineffective, the CRA will take this step.
garnishments

Consequences of CRA Wage Garnishment

It can seriously and profoundly affect individuals facing the CRA garnishing wages. Among the most significant consequences are:

  • Reduction of Disposable Income: Wage garnishment directly influences an individual’s take-home pay because a percentage of their salary is withheld to clear the outstanding tax bill. This decrease in disposable income might make it difficult to manage day-to-day expenses, resulting in financial distress and lifestyle changes.
  • Financial Hardships and Difficulties Meeting Basic Needs: Individuals with a reduced salary may struggle to fund necessary living expenses such as rent or mortgage payments, energy bills, groceries, and medical costs. As a result, it may cause financial difficulties and raise the likelihood of continued debt accumulation.
  • Damage to Credit Scores and Overall Financial Health: Wage garnishment is frequently reported to credit agencies, which can substantially influence an individual’s credit scores and overall financial health. Lower credit ratings make it difficult to receive credit and loans in the future, making it unlikely to achieve favourable interest rates or financial help.
  • CRA Legal Actions for Non-Compliance: If the taxpayer continues to ignore their tax responsibilities following wage garnishment, the CRA may intensify enforcement actions. This could entail taking additional legal steps to satisfy the tax debt, such as garnishing bank accounts or seizing assets.

Negotiating with the CRA

Participating in productive negotiations with the CRA is critical while dealing with CRA garnishment or other tax-related difficulties. 

The first step is to contact the CRA proactively to address the outstanding tax debt. Finding a solution requires open dialogue. Making contact demonstrates a willingness to address the issue and may result in more flexible payment options.

If financial difficulties have contributed to the tax debt or have hampered payment, clarifying these conditions to the CRA is critical. Providing extensive details about the issues encountered will assist the CRA in better understanding the case and considering leniency or alternate solutions.

Requesting a payment plan may be an alternative for repaying the tax debt in manageable payments over a specific period. The CRA may agree to a reasonable payment plan that suits the individual’s financial capabilities if the individual demonstrates a commitment to repay the tax obligations through regular payments. Based on our recent experience and what our clients have advised us, CRA has requested that the payment plan not exceed 12 months.

Seeking Professional Assistance

Debt reduction firms like Chande Debt Solutions can work with you to stop wage garnishes, tax debt, and all interests and penalties. They have skilled financial consultants who are familiar with the complexities of the tax system and the negotiating process with the CRA. These specialists may effectively negotiate with the CRA by giving pertinent financial information explaining the individual’s problems for appropriate debt payment arrangements compatible with the client’s financial capabilities.

Hiring a specialist to handle salary garnishment situations has various advantages:

  • Automatic Legal Protection: A formal filing will provide automatic legal protection (referred to as a stay of proceeding), and as a result, all garnishments will stop, frozen bank accounts will be unlocked, and future negotiations with the CRA will be with the debt relief professional.
  • Expertise and Experience: Debt relief organizations have extensive knowledge of tax regulations, debt resolution procedures, and negotiation techniques. Their expertise and experience can considerably increase the likelihood of a favourable outcome with the CRA.
  • Reduced Stress and Burden: Dealing with the CRA and wage garnishment can be a stressful, complicated and overwhelming experience. Individuals who hire specialists can relieve themselves of the strain of negotiating and focus on their daily lives with greater peace of mind.
  • Tailored Solutions: Professionals examine individuals’ unique financial circumstances to generate personalized solutions. These solutions guarantee that any deal reached with the CRA is customized to the individual’s personal requirements and ability to pay.

Exploring Debt Consolidation and Settlement Options

Debt consolidation is consolidating various debts into a single loan or repayment plan. It simplifies debt management by establishing a clear payment schedule and frequently provides cheaper interest rates, making it easier for individuals to manage their tax debts and other responsibilities.

Consolidating tax debts can simplify financial administration, reduce the number of creditors, and perhaps cut overall interest rates. Individuals should, however, carefully assess their financial condition and the terms of the consolidation program to ensure that they are compatible with their ability to repay.

Debt settlement is an alternative option, as it entails negotiating with creditors to pay a one-time, reduced lump payment to help resolve the tax debt. However, our experts at Chande Debt Solutions don’t generally recommend debt settlements, as the fees charged by the agent may impact savings and aren’t guaranteed solutions. They often do not bind all creditors should they choose not to participate in the debt settlement.

Frequently Asked Questions (FAQs) About CRA Wage Garnishment

What is the process of wage garnishment by CRA?

The CRA uses wage garnishment to collect unpaid taxes. The CRA can notify the debtor’s employer to withhold a percentage of an unpaid taxpayer’s salary and send it to the CRA to settle the tax debt.

Can I negotiate with CRA to stop wage garnishment?

CRA wage garnishment can be negotiated. Communicate with the CRA promptly, explain your financial circumstances, and investigate alternate payment arrangements or debt settlement solutions that match your budget.

How can I prove financial hardship to CRA?

The CRA may require income statements, expenses, and life events to indicate financial hardship. Genuine financial distress can improve CRA resolution chances.

Will wage garnishment affect my credit score?

Wage garnishment can negatively impact your credit score. Garnishment may be reported to credit bureaus, lowering your credit score and making it harder to obtain new credit or loans.

Can I appeal or dispute CRA’s decision for wage garnishment?

You can appeal if you believe CRA’s wage garnishment decision was incorrect or disagree with the amount owed. Appealing requires seeking legal counsel advice and providing evidence to support the appeals process.

What are the advantages of hiring a debt relief agency?

A debt relief business like Chande Debt Solutions will help negotiate with the CRA, create customized debt settlement plans and improve wage garnishment and tax debt outcomes.

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Mihir (Mike) Chande, CPA, CA, CIRP, Licensed Insolvency Trustee Mike, a Chartered Accountant, began his insolvency career in the Corporate Insolvency and Restructuring group at one of Canada’s largest insolvency firms. After gaining extensive experience, he founded Chande Debt Solutions to offer personalized and empathetic debt relief services to clients seeking an alternative to traditional solutions.

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