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It’s a tremendous violation of your personal property. One day you use your debit card at the gas station, or the grocery store, and the transaction is declined. You call your bank, and the answer makes your blood run cold. The Canada Revenue Agency has secured a court order to seize personal assets in payment of your tax arrears, and the first – and easiest - target is your bank account. There’s nothing the bank can do until you come to terms with the CRA.
Here’s a summary of what the CRA can seize, why they can do it, and what it will take to get your bank account working again.
Why CRA freezes your bank account.
After repeated requests, usually by telephone and by letter, for payment in full or an arrangement to pay over time, the CRA will stop playing nice and take legal action by certifying the debt in the federal court. This empowers them to go after your assets as payment against your tax debt. You will likely receive notification of this registration in the mail. But you might not receive it before the CRA has already moved to seize your easiest asset – your bank account.
How CRA freezes your account
When you opened your bank account, you were asked to provide a Social Insurance Number. This number confirms that you are a Canadian resident. It also provides a database that the CRA can tap into to find out where you bank and your account numbers. The CRA can also get this information from any cheques you have sent to them as payment of tax balances. And if you signed up for automatic deposit of tax refunds or social benefits payments – the CRA already knows where you bank.
Once the CRA has certified you tax arrears, they are legally empowered to demand the surrender of funds held in your bank account. To do this, the CRA sends a Third Party Requirement To Pay (RTP) letter to your bank. The letter looks likes this.
(click on letter to enlarge)
What the Bank must do
Once the bank receives this letter, they are required by law to send the CRA money from any bank account in your name, up to, but not in excess of, the sum indicated in the letter. Once the bank has forwarded that amount to the CRA, your account(s) are free for you to use.
If the balance in your account(s) is less than the total demanded, the bank will forward what money is there as of the date the bank receives the RTP. Any deposits you make to the account(s) thereafter will continue to be forwarded to CRA, until the full sum demanded has been paid.
Accounts at Other Banks
A RTP sent to Scotiabank, for example, will not affect any accounts you hold at other banks (such as Royal Bank, TD Bank, CICB, etc). If the CRA is unaware that you have accounts at more than one bank, those accounts remain available for you to use. However, CRA often issues RTPs simultaneously to all the banks they have on file for you.
Yes, CRA can freeze a joint account.
If your bank account(s) is also in the name of another person, for instance in your name and your spouse’s name, the CRA can still freeze that account, and the bank is required to honour the RTP demand. If you think you’re at any risk of a bank account seizure, maybe a joint chequing account for the mortgage and the car insurance payment isn’t such a good idea.
No, a RTP on your bank account doesn’t allow the CRA to freeze your wife’s account, too.
Tax is a personal matter. If you owe tax, your wife is not automatically also on the hook for your tax debt. A RTP to your bank for your tax arrears will only affect accounts that are in your name. Your wife’s accounts, so long as it’s not a joint account with you, are not affected. (Note: There are ways for the CRA to try to come after your wife for your debt, but it’s not automatic. The CRA would have to prove that she received the benefit of an asset from you without paying for, or earning it. Then they would have to asses her under s.160 of the Income Tax Act. She would have the opportunity to object and prove why she did not receive the benefit of an asset transfer.)
Your credit card is likely not affected.
Your bank issued you the credit card. But it was really on behalf of VISA, or MasterCard, etc. So a bank account RTP is restricted just to the bank account(s) in your name. In rare circumstances, and especially if you owe a very large amount of money, the CRA may also issue a RTP on credit lines or a credit card. But this would have to be specified additionally on the RTP demand.
You can open a new account at a different bank to access your money.
A new account at a new (different) bank is not subject to the RTP. You can open a new account and deposit your cheques there. In time CRA may discover that bank account. But it will take them time. Unless you write the CRA a cheque from your new bank account. In which case they may go after the new account sooner than later.
MoneyMart isn’t a safe tax haven.
Some people are so smart they stop using a bank account and cash all their cheques at the MoneyMart, or the Cash Store, etc. After a time, CRA will wise on to that, and will issue the RTP to MoneyMart, who then, like the bank, is required by law to forward the proceeds of any cheque you cash to the CRA.
How to get the CRA to remove the freeze on your bank account.
The faster you come to terms with the CRA, the faster you can get your cash flowing again and your bank account freed up. CRA will want payment in full, or your offer of suitable payment terms, usually secured by post-dated cheques, before they agree to release the RTP on your account(s). You’ll need to speak to the friendly CRA collection contact specified on the RTP letter to make these arrangements. Alternatively, if you’ve hired sometime to help fix your tax problem – a tax lawyer is a good choice – your representative will negotiate with the CRA person. You will need to ensure that your representative has a copy of the RTP letter and the collection contact’s name.
Once an agreement with CRA is confirmed, the CRA will fax this lovely letter to your bank. (It’s a form letter and it’s always the same.)
(click on letter to enlarge)
Once the bank recieves this fax, the RTP is supposed to lifted immediately. But it's safest to call your bank and make sure the letter has been actioned in the back rooms.
And what about the money CRA took from your account?
Once it’s gone, it’s gone. Unless you eventually successfully demonstrate, through an appeal or an objection that your assessment was wrong and you never owed that tax. In that event, any overpayment to your tax account will eventually be credited back to you.
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