Understanding and Halting a Wage Garnishment in Canada Without Engaging Legal Counsel
Wage garnishment in Canada is a common debt recovery strategy employed by creditors, and notably, the Canada Revenue Agency (CRA). This method, which involves the direct deduction of money from an employee’s earnings, can be a daunting experience for the debtor. However, it’s possible to stop a wage garnishment in Canada without hiring a lawyer. This article offers an in-depth insight into this topic.
1. CRA Garnishment: An Overview
The Canada Revenue Agency (CRA) has a unique ability to impose a garnishment without obtaining a court order. The process commences when the CRA issues a ‘Requirement to Pay’ notice to a third party, often the debtor’s employer. Upon receiving this notice, the employer is obligated to withhold a specified portion of the debtor’s earnings and remit it to the CRA.
There are diverse forms of “Requirement to Pay”, including:
Salary garnishment: This involves the deduction of wages, commissions, bonuses, etc. owed to an employee.
Contractor or subcontractor payments: Payments due for goods and services delivered can be garnished.
Accounts receivable redirection: Payments due to the debtor are sent directly to the CRA.
Redirection of other income: Proceeds from rent, lease payments, interest income, loan repayments, or asset sales can be redirected to the CRA.
Bank account freeze: The CRA can freeze a debtor’s bank account.
2. Notification of a CRA Wage Garnishment
The CRA sends a copy of the ‘Requirement to Pay’ notice to the debtor. This usually follows earlier notices of assessment and collection letters from the CRA. However, the CRA can start garnishing your wages without any further formal notice if you fail to pay or negotiate payment arrangements with them.
Once an employer receives a CRA payroll garnishment notice, they must comply immediately. The employer is not required to inform you that they received the order.
3. CRA Garnishment Amounts
The CRA can garnish up to 50% of your salary if you’re an employee, and up to 100% of your income if you’re a contract worker. If you’re self-employed and bill clients, the CRA can redirect 100% of your accounts receivable to settle past tax debts.
4. Taxes Collectable via a CRA Garnishment
Several types of tax debt and government overpayments can be collected via a CRA garnishment, including:
- Income tax debt;
- GST/HST/PST debts;
- Withholding taxes;
- Customs duties and taxes;
- Employment insurance (EI) and Canada Pension (CPP) overpayments.
5. Halting a CRA Wage Garnishment
Halting a CRA garnishment involves invoking the Bankruptcy & Insolvency Act (BIA). There are two primary methods to stop a CRA garnishment and clear the tax debt:
- File a consumer proposal;
- File personal bankruptcy.
Both options provide a legal stay of proceedings that ceases the garnishment, even one currently being processed. After filing under the BIA, a Licensed Insolvency Trustee sends a copy of the filing to your employer, providing legal notification to stop withholding funds.
6. Filing a Consumer Proposal
A consumer proposal allows you to negotiate an agreement with the CRA to repay a portion of your debt over a specified period. If the CRA approves your proposal, they will stop the garnishment.
7. Filing Personal Bankruptcy
When you file personal bankruptcy, the CRA will submit a claim and your tax debts will be discharged after you receive your bankruptcy discharge. The garnishment will stop upon filing.
8. The Process to Halt a CRA Wage Garnishment
To stop a CRA garnishment, follow these steps:
- Contact a Licensed Insolvency Trustee and inform them about your pending or current garnishment.
- Ask your employer who should be contacted to halt the garnishment once you file and obtain their contact details.
Attend a free consultation with the Trustee, who will gather the necessary information for your bankruptcy or proposal filing.
Sign the bankruptcy or proposal documents, which the Trustee will then file with the government. This initiates the stay of proceedings, often on the same or next day.
The Trustee will immediately notify your employer to stop the garnishment.
9. Timing is Critical
Acting promptly can prevent further wage deductions. If the correct person at your workplace is notified before remitting the funds to the CRA, the Trustee may be able to get the withdrawn funds returned.
10. Seeking Help
If you’re dealing with the CRA and feel unable to pay your tax debts, a Licensed Insolvency Trustee can help. They can provide a free, no-obligation consultation, guiding you on how to stop a wage garnishment in Canada without hiring a lawyer.
