True Story – Canadian’s Bank Account Frozen Over a $4,000 Tax Debt that was only 7 Months Overdue (And CRA Had Cheques!)

We came across an individual recently (we promised not to disclose their information) who had a horrendous experience with CRA, one that was so ridiculous that we asked for their permission to post the story.

Jan (name changed) is self-employed and filed her T1 Gens for her 2012 tax year in April 2013, before the tax deadline. She had a small tax debt owing of $10,000.00. When she received her acknowledgement and Notice of Assessment in June of 2013, she promptly made out 10 cheques to CRA in the amount of $1,000 per month, making copies and sending them to CRA by registered mail. CRA commenced cashing the cheques and by January of 2014 Jan’s tax debt was only approximately $4,000.00. Jan was out of the country and unbeknownst to him/her the cheques stopped coming out of the bank account. Around March of 2014 (3 months after the last cheque came out of the bank account), Jan returned to the country, went to the bank and learned that his/her bank account was frozen by CRA.

First, the bank teller said that there was an issue with Jan’s bank account and then went to get a supervisor. The whole thing was extremely embarrassing. In Jan's case, she had the $4,000 available so CRA received their money right away. Infuriated by the entire situation, Jan called CRA and was told that they didn’t have a record of the last 4 cheques and so when they ran out they proceeded to freeze the account. CRA also acknowledged not sending Jan any notice that they would be freezing the bank account or any sort of demand to pay. The only paperwork Jan had received up until the account was frozen was regular monthly statements.

In this instance, Jan was lucky because she had the money to pay. However, many people in similar situations do not. Those who experience having their bank accounts frozen over much larger amounts of tax debt can face a very serious problem.

The key things to note here are:

1) CRA didn’t need a court order to seize Jan’s bank account.

2) CRA didn’t send any notice or warning to Jan (they do have a form that they often send out called a Requirement to Pay which usually comes around the time an account is frozen).

3) CRA often does not wait for long periods of time before taking enforcement action. If they are in a position to collect on a debt they will do so.

A frozen bank account is both embarrassing and inconvenient, especially when you have other bill payments coming out of it. This can quickly cause significant financial strain, and should be dealt with immediately.

If CRA has taken enforcement action against you, or you are afraid that they are going to soon, please contact Tax Solutions Canada today by calling 1-888-868-1400.

How Does CRA Find Out Where You Bank?

If you have had your bank account frozen by CRA through a Requirement to Pay and are wondering how they found out where you bank, well it is far easier then you may think. 

Here are the top 3 ways that CRA can find out where you bank: 

1.      Through your payments to them: Any time you send a payment to CRA (even if it is a joint account), they will obtain your banking information which they can use against you at a later date. Even if you have a joint account, CRA can still issue a Requirement to Pay and freeze it at any point in time.

2.      Through a financial disclosure statement: When CRA agents initially contact you to collect a debt, they will appear open to making a repayment arrangement with you. They may allow you to make a short term payment plan that you can afford, in exchange for a financial disclosure statement. The financial disclosure statement will require you to disclose where you bank.

3.      Through the “shotgun” approach: In Canada there are only 5 main banks – Royal Bank, TD Canada Trust, Bank of Montreal, Scotia Bank and CIBC. CRA can simply send a letter to all the 5 banks’ head offices to inquire as to whether or not you have an account there.

If you owe money to CRA and know that you cannot pay in full and will need to make a monthly payment arrangement, you are going to have to take action to protect yourself if you don’t want them to obtain your banking information. 

Owing money to CRA is no fun at all. Your best chance at being successful is to understand that you are dealing with a massive bureaucracy that has immense powers under federal law and infinite resources all designed to collect from taxpayers. You are going to have to be extremely careful about each and every interaction you have with them, and keep interaction with them at a bare minimum if you want to avoid life-altering enforcement action. 

For more information about how to avoid having your bank account frozen or to discuss a tax problem, please visit www.taxsolutionscanada.com or call 1-888-868-1400.