You’ve discovered that the Canada Revenue Agency has obtained a court order to seize your assets in payment of overdue taxes and the first step they took was to freeze your bank account. In most cases, CRA freezes your bank account for one simple reason: to get your attention. In my experience as a bankruptcy trustee in Canada, it’s not the amount of money that you owe Revenue Canada that will cause them to freeze your bank account. It’s more likely that you have ignored previous demands to pay, have not filed your taxes for one or more years, or you are not co-operating with CRA, and they believe they need to get your attention.
How To Deal With CRA Once Your Account Is Frozen
The key is to act quickly. If you continue to ignore CRA demands, they will likely seize your other assets perhaps putting a lien on your home or issuing a wage garnishment. Here are 4 steps to take if your account has been frozen:
- Open a new bank account at a new bank (where you don’t owe any money). It is always prudent to have a “back up” account in the event that any creditor attempts to seize or freeze your account. It is possible that CRA has notified all banks, so initially it may not be wise to deposit money in this account, but you should open it now in the event that the steps listed below are not successful.
- Call CRA. Talk to the collector and determine why they have frozen your bank account, and ask what you can do to have it un-frozen. If the issue is missing tax returns, CRA may agree to release your bank account if you agree to file the missing returns within the next week. If you owe money, they may agree to a payment plan in return for un-freezing your bank account.
- Determine what you can afford to pay. As a general rule, CRA will only consider a payment plan with you if you have exhausted all other options available for raising money including borrowing and selling off assets. In addition, they usually require you to commit to paying all of your tax arrears within the next year. If you need more than a year, they probably won’t work with you, which leads to the final step.
- If you don’t think you can pay back your outstanding tax arrears within the time required by CRA, you may need to file a consumer proposal or personal bankruptcy. Both a proposal and a bankruptcy are legal processes that allow your consumer proposal administrator or bankruptcy trustee to issue a “stay of proceedings” to both CRA and the bank to un-freeze your account. (Since it may take a period of time for the bank to respond, an alternate bank account is suggested, as noted in the first point above).
Once you have filed your proposal or bankruptcy it is essential that you have a plan in place to file and pay all future taxes owing. We strongly suggest that you meet with a licensed bankruptcy trustee to review these options in detail.