CRA collections — what happens next

Tax debt does not sit still. It moves through a defined sequence, and each step is harder to reverse than the last. Knowing the sequence tells you how much room you have — and where the exits are.

Step one: interest, offsets and warnings

Interest is charged on most unpaid balances, and penalties may apply on top where a return was filed late or a payment deadline was missed. Before any of the dramatic steps, the CRA also quietly applies refunds and government credit payments you would otherwise receive — a GST/HST credit, for example — against your balance. That is a set-off, and it happens automatically.

Before starting legal action, the CRA will generally make at least one attempt to give a verbal legal warning by phone, and send one written legal warning letter. A legal warning is valid for 180 days, and the CRA can begin legal action at any point during that window even if the balance changes.

Step two: garnishment

A garnishment lets the CRA intercept funds a third party owes you. In practice that means a requirement to pay served on your employer, your bank, or a customer who owes your business money. It does not require a court order in the way most creditors’ remedies do, and the first you often hear of it is from the party who received it.

Step three: liens and seizure

Before the CRA can place a lien on or seize assets, it must first legally certify the amount owing — through a provincial judgment or a certificate from the Federal Court. Once the debt is certified, the CRA can register a lien against your assets and property. A lien secures the debt and establishes the CRA’s priority as a creditor: when the asset is sold, the debt is paid from the proceeds before you see any of them.

The CRA can also make another person or entity responsible for your debt in defined circumstances, and where a debt is judged to be at risk it can apply to a court for a jeopardy order allowing immediate action.

How to stop it

1. File everything. Unfiled returns block most options and keep penalties running. If a year was assessed without you, see arbitrary assessments.
2. Call before the warning expires. Where you cannot pay in full and can explain your financial situation, a collections officer will work with you on a plan based on your ability to pay.
3. Set up a payment arrangement. This is the mechanism that stops escalation. Our guide to payment arrangements when you cannot pay covers what the CRA asks for.
4. Keep the arrangement. Missing scheduled payments puts you back at the start of the legal-action path.
5. Ask about relief where it applies. Penalties and interest can be cancelled or waived in defined circumstances, which is a separate request from the debt itself.

Does an objection stop collections?

Partly, and not for everyone. Where you file an objection, the CRA normally postpones collection action on the disputed amount until 90 days after it sends its decision. But that postponement does not apply to amounts you were required to withhold and remit, and the CRA can continue to collect amounts assessed on corporate accounts even where an objection or Tax Court appeal has been filed. Interest generally continues to run in any case. The mechanics are in how to file a notice of objection.

How long a debt can be collected

The collections limitation period is 6 or 10 years depending on the type of debt. Individual tax, corporate tax and GST/HST remittance debts carry a 10-year period; payroll debt carries 6. The clock does not simply run down, though: it restarts on a long list of events, including making a voluntary payment, acknowledging the debt in writing, proposing a payment arrangement, filing an objection or appeal, or the CRA issuing a garnishment or applying a refund to your balance. Waiting it out is not a strategy.

The bottom line

Collections escalate on a predictable path, and every step of it is easier to prevent than reverse. The one thing that reliably stops the sequence is contact: file the outstanding returns, call, and put an arrangement in place you can actually keep. If the underlying issue is that the business cannot fund its tax bill, that is a planning problem, and it is worth fixing with advisory support rather than another year of the same.

This article is general information for Canadian business owners and is current as of July 2026. It is not tax, legal or accounting advice, and it does not create a client relationship. Tax rules change and your situation is unique — please speak with a CPA before acting on anything here.