Receiving a demand letter from the Canada Revenue Agency (CRA) is a stressful experience. Whether it’s due to unpaid taxes, penalties, or other debts, it’s important to understand how to respond. In this article, we outline the steps you need to take when dealing with a demand letter from the CRA. We also include a downloadable resource for a complete checklist and email template.
How do I respond to a demand letter from the CRA?
Stay calm and contact the CRA as soon as possible. Revenue Canada (CRA) is the most powerful creditor in Canada; when they send demand letters for payment, you should take these demands very seriously. Ignoring the letter or delaying your response will lead to additional penalties and further complications.
Here are the steps to responding to a demand letter from the CRA:
- Contact the CRA
- Discuss payment options
- Gather all required information
- Starting paying back what you owe
Contact the CRA after reading the demand letter
Start by reading the demand letter thoroughly. Understanding the details of the debt or issue raised by the CRA is essential to formulating an appropriate response.
Next, you’ll want to contact the CRA. Most of the time, the CRA will provide a number where you call them. Otherwise, you can call 1-800-959-8281.
Discuss payment options with the CRA
Next, take the time to think about a payment plan that is reasonable for you. Do not commit to a payment plan you can’t meet. Once the payment plan is in place, the CRA expects those payments to be made. Missing payments and not communicating with CRA when they reach out are all grounds for CRA to pursue the tax debt through legal action.
Gather relevant documents
Collect all the necessary documents related to the issue addressed in the letter. This may include tax returns, receipts, invoices, or other relevant financial records. Having these documents on hand will help you provide accurate information when addressing the CRA’s concerns.
Start paying back what you owe in the CRA demand letter
This is going to be obvious, but you’ll want to start paying back what you owe based on your payment plan.
Frequently Asked Questions
What can happen if I don’t pay my CRA debt?
The CRA has the power to take several enforcement actions to collect the outstanding amounts, including:
- Charge interest compounding daily, as well as penalties for late-filed returns
- Apply a refundable credit (such as a GST/HST Credit) to your debt
- Seize your bank account, or place a freeze on its funds
- Garnish your income (this may be applied to employment or self-employment earnings as well as CPP, OAS and EI benefits)
- Register a lien on your property
- Initiate the seizure and sale of your assets
Failing to pay your CRA debt will result in serious consequences. It is crucial to address your CRA debts promptly to avoid these unwanted outcomes. Responding to demand letters and working towards a resolution is the first step in avoiding further action from the CRA.
When will the CRA start pursuing legal action against you?
Before pursuing legal action, the CRA must do the following:
- make 3 attempts to give verbal legal warning by phone
- send 1 written legal warning letter
The Canada Revenue Agency (CRA) provides notice, or legal warning, that it will take legal action against you without further notice if you do not pay your tax debt or call the CRA to make a payment arrangement.
The CRA may garnish your income, garnish your bank account, seize and sell your assets, or use any other means under the laws that apply to collect the amount you owe.
The CRA typically resorts to legal action as a last resort when all other attempts to collect the debt have failed. While the specific timeline can vary depending on the circumstances.
Does CRA ever forgive debt?
No. The CRA does not offer any debt forgiveness, and will expect you to pay your debts in full. When you’re negotiating a payment arrangement with the CRA, you’ll be required to come up with a plan that involves paying off the debt completely. The CRA will not reduce your debt balance under any circumstance.
Can you include tax debt you owe to the CRA in a consumer proposal?
A consumer proposal is a formal, legally binding procedure that allows individuals to settle their debts with creditors. However, tax debts owed to the CRA cannot be included in a consumer proposal. Tax debts, including outstanding taxes, penalties, and interest owed to the CRA, must be paid separately and cannot be discharged through a consumer proposal.
What to do if you haven’t filed your taxes and receive a demand letter from the CRA
File your taxes right away. Not filing taxes because you are trying to avoid adding to what you already owe is an extremely bad idea – just bite the bullet and do it. CRA is very powerful and can access extreme means of collection action very quickly aka it does not need to obtain a court order to start a wage garnishment and provincial limit on how much income may be garnished do not apply to the CRA
Here are some basic steps:
1. File your outstanding tax returns: Complete and file any outstanding tax returns immediately. Failure to file your taxes can result in penalties, interest charges, and other enforcement actions by the CRA.
2. Seek assistance if needed: If you require assistance with filing your taxes or aren’t sure how to best handle the situation, consult with a tax professional or an accountant. They can help you navigate the process and ensure compliance with the CRA’s requirements.
Will CRA unfreeze my bank account?
The CRA has the power to freeze your bank account indefinitely for outstanding debts. However, the CRA may be prompted to unfreeze your bank account when:
- You’ve repaid your debt balance in full.
- You’re reached a payment arrangement with the CRA.
- You’ve filed for a consumer proposal.
- You’ve filed for bankruptcy.
Conclusion
Receiving a demand letter from the CRA can be concerning, but by understanding the necessary steps to respond and addressing the issue promptly, you can work towards resolving the matter and avoiding further penalties or legal action. It is crucial to read the letter carefully, gather relevant documents, seek professional guidance if needed, respond within the given timeframe, and keep copies of all correspondence. By taking these steps, you can effectively manage your CRA debt and move towards a resolution.
