Frozen Bank Account from CRAIf you have been engaged in a dance with CRA then you may be feeling concerned with the holidays coming up.  A lot of people really feel the financial pressure over the holidays – expectations to buy gifts, celebrate, travel to be with family, etc. When a tax debt is present, these feelings become intensified because CRA does not stop taking enforcement action against taxpayers simply because it is the holiday season.

The top 3 forms of collection action taken by the CRA are property liens, wage garnishments and frozen bank accounts (including RRSP). CRA is also taking enforcement actions on tax debts sooner than ever before; just this past year we saw a client whose account was frozen based on a tax return, filed on time for 2012, where the account had run out of post-dated cheques and had missed only 2 monthly installment payments.

While a property lien is a HUGE problem and has to be addressed, a frozen bank account or wage garnishment can cause instant financial devastation, if this happens over the holidays it can destroy people.

Why more so at this time of year?  The people you need to help you fix the problem – bankers, mortgage brokers and lenders, family members and the CRA collectors themselves (or their managers who they need approval from) are often travelling, busy and generally not as available.

The biggest way to avoid a frozen bank account or wage garnishment is to not disclose the information to CRA. The most common way that CRA learns of a taxpayer’s assets is from the taxpayer. Here is the common trick:

  1. You contact CRA because as a responsible person you want to make payment arrangements you also want to avoid them coming after you. Maybe you cannot pay in full but you could offer a monthly payment – that should work, right? Wrong!
  2. CRA will say that they are willing to consider (note the subtle way they do not really commit) a payment arrangement only if you complete a financial disclosure form (which provides your CRA “Enemy” with all the ammunition they need to shoot you with: your employment information, current address, income, expenses, a list of everything you own and where it is, debts, etc.)
  3. You complete this document openly and honestly and return it to CRA.  Usually the taxpayer feels they are “lucky, I got a really understanding CRA agent and look my honesty is paying off they are working with me, wow I must be an even better negotiator than I had thought”.  How wrong you are.  Read on ….
  4. Next, CRA does one of two things: 

    a. Accepts a monthly payment arrangement – but only temporarily. Which means it does not cover the whole debt and there is no commitment (and usually no discussion with CRA) from CRA about how the balance will be dealt with.  These are usually affordable payments that you will think set a precedent for how the entire problem will be resolved over time.  CRA demands post-dated cheques to do so. You provide them in good faith.

    • Now CRA knows: where you live (and run a public search to see if you own your home so they can place a lien on your house without telling you), where you work (wage garnishment and major embarrassment) and where you bank (frozen bank account so you incur NSF fees, late payment charges and cannot make mortgage, rent or car payments).
    • Then when this temporary arrangement has been properly paid by you, CRA will often refuse to renew it and demand a significantly higher payment.  If you cannot meet these new demands you will face all the consequences of CRA collection action that we discussed above.

    b. Review your disclosure and decide what they think you can afford to pay them. Which will of course be a monthly payment amount significantly higher than what you had in mind (or can actually afford). If you cannot meet these new demands you will face all the consequences of CRA collection action that we discussed above.

  5. Once your file lands in CRA’s collection department it is dangerous idea to try negotiating with them directly.  CRA have a very experienced and carefully constructed collection teams who do this all day every day. The CRA techniques include tricking you into divulging information that will result in placing you at risk for serious legal action.

    The best way to avoid a frozen bank account over the holiday season is to consult a professional with the experience of resolving tax problems to get a plan in place to deal with your tax debt.

    For more about how to deal with a frozen bank account, please contact Tax Solutions Canada today by calling 1.888.868.1400.