Stopping CRA Garnishments and Bank Freezes: A Practical Guide for Canadian Business Owners

Yes, you can often stop CRA garnishments by filing a Consumer Proposal through a Licensed Insolvency Trustee. This federally regulated process immediately halts collection actions and bank freezes, allowing you to negotiate affordable repayment terms without filing an assignment in bankruptcy.

Once your Consumer Proposal or bankruptcy filing is processed and the CRA receives official notice, active collection enforcement stops and banks will often release frozen accounts shortly after receiving notice of the filing, allowing you to resume normal business operations.

A Consumer Proposal is a legal process where you negotiate with your creditors, including the CRA, to settle your debts for less than the full amount owed. It stops collection enforcement, interest, and garnishments, converting your debt into one manageable monthly payment under the supervision of a Licensed Insolvency Trustee.

Bankruptcy may be appropriate if your income is very low or unpredictable, your tax debt is extremely high, or your business is no longer viable. It immediately stops CRA collections and, at the end of the process, most unsecured tax debt is discharged.

No, perfect records are not required to begin the process. Many self-employed business owners start filings while catching up on paperwork. Your Licensed Insolvency Trustee will guide you on the necessary information to provide during your assessment.

Consumer Proposals and bankruptcies are private and federally regulated processes that are not publicly advertised in the ordinary course. Certain types of bankruptcies, called Ordinary Administration Bankruptcies, do require notice of the bankruptcy to be posted in a newspaper or online (OSB Directive No. 23). All filings, including Consumer Proposals, also appear on the Office of the Superintendent of Bankruptcy public Insolvency Records Search. With those exceptions, the process is not generally publicized outside the insolvency system — by virtue of how it operates, your creditors, the OSB, CRA, and your Trustee are typically the only parties directly involved.

A Licensed Insolvency Trustee (LIT) provides professional guidance, explains all your options, manages the filing process, negotiates with the CRA on your behalf, and helps you choose the best solution tailored to your financial situation.

The fastest legal release in Canada comes from filing a Consumer Proposal or assignment in bankruptcy with a Licensed Insolvency Trustee — the stay of proceedings begins the moment the filing is registered with the Office of the Superintendent of Bankruptcy. Urgent filings can often be completed the same day where sufficient information is available. Calling CRA directly may also work if you can pay or arrange terms, but it depends entirely on the collections officer assigned to your file.

A Requirement to Pay (RTP) is the legal document CRA sends to a third party — your bank, your customer, your tenant, your payment processor — ordering them to redirect money owed to you straight to CRA. A “garnishment” is the colloquial label for the same thing when it is directed at wages or accounts receivable. The practical importance: CRA does not need a court order to issue one, and the third party is legally compelled to comply.

Yes. Section 224 of the Income Tax Act and section 317 of the Excise Tax Act let CRA serve an RTP on anyone who owes you money — including clients, tenants, and even payment processors like Stripe or Square. Your customer is legally obligated to comply or become liable themselves.

For self-employment and contract income, yes, CRA can take up to 100%. For employment wages, CRA typically starts at 30% of net pay under their published policy and can demand more where the taxpayer is non-cooperative. There is no provincial garnishment cap that binds CRA the way one binds private creditors.

No. Once CRA has identified you as a delinquent file, RTPs can be issued to any institution where you become a signing officer. Moving funds can also be characterized as an attempt to defeat creditors and create separate problems. Open communication or a formal filing is safer.

Yes. A sole proprietorship is not a separate legal entity from you, which means every business debt (CRA, suppliers, lease arrears) is your personal debt. The upside: you are personally eligible for a Consumer Proposal, which a corporation is not.

No. Corporations cannot file a Consumer Proposal (which is a Division II filing limited to individuals). A corporation with debts it cannot pay can file a Division I Proposal or go into corporate bankruptcy or receivership. You as the director would address any personal exposure separately, often through your own Consumer Proposal or bankruptcy.

The personal guarantee survives the corporation. If the company defaults and is wound down, the lender will pursue you personally for the guaranteed amount. That personal exposure is generally an unsecured debt that can be included in your own Consumer Proposal or bankruptcy.

Yes, this is “director liability” under section 227.1 of the Income Tax Act and section 323 of the Excise Tax Act. CRA can assess directors personally for unremitted payroll source deductions (income tax withheld, CPP, EI) and unremitted GST/HST. CRA must first try and fail to collect from the corporation, but once that hurdle is cleared, you are jointly and severally liable.

There is a two-year limitation period — CRA cannot assess a director more than two years after the date that person validly resigned. The catch is that the resignation must be properly documented in writing and delivered to the corporation per its governing statute. If you kept signing things or acting as a director after the paper resignation, you may be considered a “de facto” director and the clock does not start.

It is a defence under both the ITA and ETA: a director who exercised the degree of care, skill, and diligence a reasonably prudent person would have exercised in the same circumstances is not liable. In practice, courts want to see documented monitoring — separate trust accounts, regular reporting from your bookkeeper, evidence you flagged remittance problems, etc. Passive directors who “left it to the accountant” almost always lose this argument.

Because trust amounts are treated differently than ordinary debts. The portion you withheld from employee paycheques (income tax, CPP, EI) and the GST/HST you charged customers were never really your money — you collected them on behalf of the Crown. That gives CRA a “deemed trust” priority over almost all of your assets, including assets pledged to your secured lenders.

Generally no. The deemed trust for unremitted employee source deductions (under section 227(4.1) ITA) survives bankruptcy under section 67(3) of the BIA. That amount typically has to be paid in full out of the estate before other creditors see anything.

Mostly yes, for the corporation. The Supreme Court of Canada confirmed in Callidus Capital v. Canada that a debtor bankruptcy extinguishes the GST/HST deemed trust against the corporation assets. But this does NOT release a director from personal director-liability for the same unremitted GST/HST.

Not automatically. It is extremely common for businesses in distress to “borrow” trust funds to make payroll, and CRA sees it constantly. It becomes more serious if there is deception (false returns, hidden books, transferred assets to family). Discuss the facts honestly with your LIT — the right strategy depends on the specifics.

Yes. CRA can freeze the entire joint account. Your spouse may be able to argue some portion belongs solely to them, but the burden of proof falls on you both, and the process takes time during which the freeze remains in effect.

Not directly, unless your spouse is also liable (co-signer, guarantor, or for another reason). However, if you transferred assets to a spouse or family member for less than fair market value at a time when you owed tax, CRA can pursue that person under section 160 of the Income Tax Act (or section 325 of the Excise Tax Act for GST/HST debt). There is no fixed look-back period for these assessments — what matters is whether you owed tax at the time of the transfer.

Not by the filing itself. The proposal appears only on the filer credit report. Your spouse score is only affected if they were joint on a specific debt — co-signer, guarantor, or supplementary cardholder — because that debt remains their full responsibility.

Yes, you can file a joint Consumer Proposal if you are spouses or common-law partners, your debts are substantially the same, and each of you individually qualifies as a consumer debtor (generally meaning each of your individual debts excluding a mortgage on your principal residence is under $250,000). There are cost and administrative savings to filing jointly when most debts are shared.

Differently than a bank account. For CRA collection actions, CRA can issue an RTP to the institution holding your registered funds; the funds are not liquidated immediately but will be sent to CRA if and when you try to withdraw. In a bankruptcy, the treatment is different: RRSP and RRIF funds are generally protected from your trustee under section 67 of the BIA, except for any contributions made in the 12 months before filing, which are clawed back into the estate. These rules apply in Ontario and British Columbia, and protection of registered funds from creditors varies by province; your Licensed Insolvency Trustee will confirm how the rules apply where you live. TFSAs do not have this BIA protection and form part of your bankruptcy estate.

Generally no — CCB is exempt from garnishment at source. But once it lands in a frozen bank account, it can be captured along with everything else, which is why timing matters.

In most cases, yes — especially if your business is profitable or near profitable. A Consumer Proposal generally protects business assets and lets a sole proprietor continue trading. The LIT and creditors will look at whether the business can support the proposed monthly payment.

In a Consumer Proposal, generally no — that is one of its main advantages. In a bankruptcy, the trustee will look at the equity in each asset against the applicable provincial exemption (tools of the trade exemptions vary by province). In Ontario for 2026, the Execution Act exempts $17,362 of tools and other personal property used to earn income from your occupation ($37,820 for farming operations); these amounts are set by Ontario Regulation 657/05 under the Execution Act (most recently updated through O. Reg. 393/25) and are indexed periodically. Your Licensed Insolvency Trustee will confirm the current figure that applies to your specific equipment.

Yes. Your LIT will work with you to establish a reasonable income level. If your business income jumps during the proposal, that does not automatically increase your payment, but a material change in circumstances can be relevant.

You cannot be a director of a corporation while you are an undischarged bankrupt. You can usually be a shareholder, employee, or officer, but not a director, until you are discharged. A Consumer Proposal does not carry this restriction.

Walking away does not make the personal exposure (director liability, personal guarantees, sole prop debts) disappear. A formal filing is what actually closes those exposures down. “Just letting it die” usually means CRA, the bank, and suppliers come after you personally for years.

CRA is one of the most sophisticated creditors in Canada. They have a dedicated insolvency unit and clear internal policies on what they will and will not accept. They generally vote based on whether the proposal pays them more than bankruptcy would, whether you are current on filings, and whether you are a repeat offender. A proposal that satisfies these tests usually gets accepted.

Yes, more or less. CRA will not negotiate or accept a proposal that includes unfiled returns. Your LIT can file the proposal first to stop enforcement, then help you bring filings up to date — but eventually they must be filed.

Because they do not need a court order. Section 224 (ITA) and section 317 (ETA) let them garnish, freeze, and seize on their own authority. Private creditors must first sue, get a judgment, and get a garnishment order — which can take a year or more.

There is a 10-year collection limitation from the date the debt is “collectible,” but the clock resets every time you acknowledge the debt, make a partial payment, or CRA takes a collection action. Practically, this means an old debt rarely dies on its own.

You generally do not pay the trustee out of pocket. The LIT fee is set by federal tariff under the BIA and is paid out of the monthly payments your creditors approve. The “cost” you experience is just the monthly payment itself, which is structured to be affordable based on your income.

You are not eligible for a Consumer Proposal but you may be a candidate for a Division I Proposal under the BIA. Division I Proposals are similar in concept but more involved procedurally — for instance, if creditors reject a Division I Proposal, you are deemed to have made an assignment in bankruptcy. The strategic considerations are different and your LIT will walk through them.

Yes. Many self-employed business owners begin filings before catching up on returns. Your LIT will help organize what is needed — you do not need pristine books to walk into the first meeting.

A Consumer Proposal lasts up to 60 months. It can be paid faster (there is no penalty for early payoff) but creditors typically want to see meaningful repayment, so most proposals run 36 to 60 months. A first-time bankruptcy without surplus income generally runs 9 months; with surplus income, 21 months.

There is no catch — under the BIA and OSB Directive 33, Licensed Insolvency Trustees may offer free initial consultations, and most firms do. The meeting is a fact-gathering and options session. You are under no obligation to file anything.

A Consumer Proposal: three years after you finish paying it, or six years from the filing date, whichever is earlier. A first-time bankruptcy: six years from discharge. A second bankruptcy: 14 years.

Yes. Qualifying for a mortgage after a Consumer Proposal is realistic, particularly if you have actively rebuilt your credit after completion (secured credit card, on-time payments). Timing depends on the lender, the size of your down payment, and the rest of your application. Some lenders specialize in this market.

Yes, after discharge. Many entrepreneurs file, get discharged, and start their next venture immediately. Suppliers and banks may want a personal guarantee or cash terms for a while, but that diminishes over time as you rebuild.

Generally no. Consumer Proposals and summary administration bankruptcies are not announced or published in newspapers. They appear on the OSB Insolvency Records Search (a paid public database), and your direct creditors are notified, but there is no broadcast. Ordinary administration bankruptcies require publication of a notice of the first meeting of creditors per OSB Directive No. 23, but most personal/small business filings do not fall into this category.

Possibly — some professional regulators have specific reporting requirements or restrictions for licensees who become bankrupt. A Consumer Proposal usually has fewer professional consequences than bankruptcy. Check your regulatory body rules and discuss with your LIT before filing.

You can miss up to two payments without consequence. If you miss three, the proposal is automatically deemed annulled and all your original debts come back. Before that happens, your LIT can file an amended proposal asking creditors to accept a lower payment.

Inheritances and lottery winnings received during the proposal do not typically increase your payment unless your proposal says so (most do not). Tax refunds for the year of filing are typically applied against the proposal claim by CRA. Your LIT can give you specifics.

There is no direct conversion mechanism, but the path exists. You can stop making payments, which results in the proposal being annulled, and then file a fresh assignment in bankruptcy with your Licensed Insolvency Trustee. The strategic considerations — timing, whether to amend the proposal first, whether bankruptcy actually improves your position — are exactly the kind of judgment call your LIT walks you through before you commit to either path.

It depends on how the first one ended. If you fully completed your previous Consumer Proposal, there is technically no limit on the number of Consumer Proposals you can file over the course of your life, and each new one is assessed on its merits. If your previous Consumer Proposal was annulled — cancelled for non-payment or by court order — special rules apply that generally prevent a second Consumer Proposal from being filed without a court order. Multiple bankruptcies, by contrast, carry escalating consequences (longer time to discharge, longer credit impact).

Under section 220(3.1) of the ITA, CRA has discretion to waive or cancel penalties and interest (not principal) in cases of financial hardship, serious illness, CRA error, or extraordinary circumstances like natural disasters. It does not reduce the underlying tax owed, but for some people, removing the penalties and interest makes a manageable balance out of an unmanageable one.

If you genuinely believe CRA assessment is wrong, filing a Notice of Objection within 90 days of the Notice of Assessment is the right path. For income tax (not GST/HST or payroll), filing an objection generally suspends collection while the objection is being considered. Note that an objection does not help if you agree you owe the money and just cannot pay it.

No. CRA will not negotiate the principal tax amount outside a formal insolvency process. A tax lawyer can dispute an assessment, negotiate payment terms, or argue penalty/interest relief — but they cannot legally settle the principal for less. Only a Consumer Proposal, Division I Proposal, or bankruptcy filed through a Licensed Insolvency Trustee can do that.

Approach with extreme caution. Only Licensed Insolvency Trustees are legally permitted to settle CRA debt for less than the full amount, and only through a formal BIA proceeding. Companies marketing “tax debt settlement” often charge upfront fees and then refer you to an LIT anyway — the same LIT you could have called directly for free.