Received a CRA Notice of Collection? Here’s What to Do Next

No one likes unexpected mail from the Canada Revenue Agency—especially when it’s a Notice of Collection. It can catch you off guard, bring on stress, and leave you unsure of what to do next. But understanding what this notice means and responding quickly can help you avoid serious financial consequences. 

In this article, we’ll explain what the notice is, why you might receive one, and how to efficiently address your tax obligations.

What is a CRA Notice of Collection?

If you owe money to the CRA, you might receive something called a Notice of Collection. This is a formal legal warning to inform you of unpaid taxes and that the CRA intends to take further action to collect the debt. 

After issuing the notice, the CRA will try to reach you by phone. The CRA is required to send one written legal warning and make three separate attempts to give verbal warning to explain the situation, your rights, and the possible consequences if your tax debt remains unpaid. 

When the CRA issues a written legal warning, that letter is valid for 180 days. However, the CRA can start legal action at any time during this notice period—including garnishing your wages or freezing your bank account—so it’s important to act quickly.

Common Reasons for Receiving the Notice​ of Collection

There are a few common reasons why the CRA might send you a Notice of Collection. In many cases, it’s because taxes were filed but not fully paid, leaving a balance owing. Sometimes, it’s the result of not filing a tax return at all, which can prompt the CRA to estimate what you owe based on information they already have. Another common reason is a difference between the income you reported and what the CRA has on file—this often happens if a T4 or T5 slip was missed or information was entered incorrectly. 

Immediate Actions to Take Upon Receiving the Notice

• Review the Notice Carefully

Start by reading the notice thoroughly—ignoring it won’t make it go away. Check that all the information is accurate, including the amount the CRA says you owe, the tax years involved, and any reference numbers listed. Errors can happen, especially if you’ve recently moved, changed your name, or filed a reassessment. If something doesn’t look right, you’ll want to raise those concerns with the CRA.

• Contact the CRA

Once you’ve reviewed the notice, get in touch with the CRA as soon as possible. Reaching out early shows that you’re taking the matter seriously, and it can give you access to more options. You can ask questions, get clarification, and talk about ways to pay what you owe—like setting up a payment arrangement if you can’t pay the full amount right away. Here’s how to get in touch, depending on your type of debt:

• Personal income tax debt: 1-888-863-8657
• Business-related debt (e.g., GST/HST or payroll): 1-877-477-5068

Potential Consequences of Ignoring the Notice

• Wage Garnishment

The CRA has the legal right to take money directly from your paycheque if you owe taxes and don’t make arrangements to pay. This is called wage garnishment. They can contact your employer and require them to send part of your income to the CRA before you even see it. This can leave you with less money for rent, groceries, and other bills each month.

• Bank Account Seizure​

If you ignore the collection notice, the CRA can freeze your bank account and take money straight from it. This is known as a bank account seizure. They’ll notify your bank, and suddenly you might find yourself unable to access your funds. Any money in the account can be withdrawn by the CRA to cover your debt.

• Liens on Property​

If you don’t respond to the CRA, they can register a lien on your home, land, or business property. A lien is a legal claim that secures the amount you owe by tying it to your assets. You still own the property, but you won’t be able to sell it, refinance your mortgage, or use it to secure a loan until the tax debt is paid. A lien can also make it harder to access credit, as lenders will view it as a red flag, resulting in higher interest rates or denied loans.

Options for Resolving Tax Debt

• Payment in Full​

The fastest and simplest way to resolve tax debt is to pay the full amount you owe. You can make a payment through your online banking, your CRA account, or at your financial institution. If you can pay it all off, do it sooner rather than later. Paying in full stops interest from accruing and prevents the CRA from taking further collection action.

• Payment Arrangements​

If you can’t pay your tax debt in full, the CRA may let you set up a monthly payment plan. To do this, you’ll need to contact them and explain your financial situation, including your income, expenses, and any assets you have. This helps them decide what you can realistically afford to pay each month.

Once a payment arrangement is in place, it’s important to stick to it. Missing payments can lead to serious consequences, like wage garnishments or bank account seizure. If something changes and you can’t keep up with the payments, reach out to the CRA as soon as possible.

• Financial Hardship Provisions​

If you’re struggling financially, you may qualify for some relief. The CRA has programs to reduce and even cancel penalties and interest if you can show that paying them would cause serious hardship. To apply, you'll need to prove your financial situation—this could include things like a low income, medical expenses, or unexpected life events. While it won’t erase the actual tax you owe, it can make the total amount easier to manage.

Seeking Professional Assistance

• Licensed Insolvency Trustees

If you’re feeling overwhelmed after receiving a collection notice, you’re not alone, but you don’t have to face it by yourself. There are professionals across Canada who can provide guidance and help you resolve your tax debt.

Licensed Insolvency Trustees (LITs) are government-regulated professionals who can help you manage debt, including what you owe to the CRA. They’re the only financial professionals who are legally authorized to file a consumer proposal or bankruptcy in Canada, which can stop collections and even reduce the amount you owe. They can also explain your rights, review your financial situation, and help you choose the best solution for your situation.

• Credit Counselling Services​

Another option is to speak with a non-profit credit counselling agency, like Credit Canada. We can help you build a realistic budget, understand your finances, and create a plan to tackle debt. 

While our credit counsellors can’t negotiate directly with the CRA about your tax debt, they can work with other unsecured creditors like credit card companies, payday lenders, or personal loan providers to reduce interest or set up more manageable repayment plans for those debts. This can be especially helpful if your tax debt is part of a larger financial issue. Chat with our AI Agent, Mariposa or sign up for our newsletter for expert advice on managing debt.

Preventative Measures for Future Tax Compliance

• Timely Filing and Payment​

Filing your tax return on time and paying what you owe by the deadline is one of the most effective ways to stay in good standing with the CRA. Late filing can lead to penalties and interest charges, which can add up quickly and cause you to take on unnecessary debt. If you’re unable to pay the full amount right away, it’s still important to file on time. There are payment arrangement options available, but the CRA is more likely to work with you when you’ve met your filing obligations. This will also help you avoid getting hit with a collection notice in the future.

• Accurate Record Keeping

Don’t wait until April to start gathering your tax documents. Instead, set up a system—such as a folder on your computer or a physical file—to store everything as it comes in. This includes your T4 from your employer, any T5 or T3 slips for investment income, and receipts for any deductions you plan to claim. Keeping your financial documents organized throughout the year helps ensure you have all the necessary paperwork come tax time and lowers your chances of making mistakes.

Credit Canada is Here to Help

If you receive a Notice of Collection, it’s important to deal with it right away. Review the notice carefully, contact the CRA to discuss payment options, and consider seeking professional help if needed. Remember, the sooner you address the issue, the more solutions you'll have available to avoid serious consequences like wage garnishment, bank account seizures, or property liens. 

Worried about your CRA tax debt? As a trusted non-profit offering free financial counselling, Credit Canada is here to help. Our certified Credit Counsellors can provide non-judgemental, confidential advice tailored to your situation. Contact us today by calling 1(800)267-2272 or talk to our AI Agent, Mariposa.