Written by: Darryl Rankin
The Canada Revenue Agency (CRA) has various weapons at its disposal when trying to collect money from a person who has a tax debt, whether income tax or GST/HST.
One of these weapons is the Garnishment notice, also known as a “Requirement to Pay” or a Third-Party Garnishment. This can be issued under section 224 of the Income Tax Act or, for GST/HST debts, under section 317 of the Excise Tax Act.
If your or your company receive a garnishment notice referring to one of these sections, and the entity that receives the notice is liable to pay any money to the tax debtor, then it must pay that amount of money (up to the limit of the tax debt listed in the garnishment notice) to the CRA. If it does not, it can be assessed by the CRA for that amount of money.
Most people understand that they must pay the CRA rather than paying the tax debtor.
What is often not understood, however, is that the person who receives the notice will be liable even if they do not pay anything to the tax debtor, provided a liability to pay the tax debtor exists.
This has happened in several reported Court cases. Even though the person who received the garnishment notice paid nothing to the tax debtor, they were liable to pay the CRA because they owed money to the tax debtor.
So if you receive a garnishment notice, you cannot avoid liability to the CRA by simply not paying anything further to the tax debtor. If the debt exists, you must pay the CRA or face an assessment. And if you’re assessed, the CRA can then seize the money from your bank account or anyone who owes money to you.
This newsletter content should be used for general informational purposes only and not as a substitute for consultation with professional tax, legal, or other competent advisors. Before making any decision or taking any action based upon the information contained on this website, you should consult with a DMA professional.
If you need further information about anything in the newsletter, please get in touch with your DMA advisor, and we will be pleased to assist you. If you are not a current DMA client, please click here to contact us.