Understanding Requirements to Pay
Being on the receiving end of legal action from the Canada Revenue Agency (“CRA”) can be incredibly stressful. Taxpayers who receive a “Requirement To Pay” are often already aware of an outstanding tax liability and may have received prior correspondence or collection calls from the CRA. At this stage, it is common to feel uncertain about the available options and the appropriate course of action.
A clear understanding of what a requirement to pay entails, and how it operates in practice, is essential to managing the situation effectively and minimizing further escalation.
What Is a Requirement to Pay?
A requirement to pay (“RTP”) is a statutory collection mechanism that permits the CRA to recover unpaid tax debts by directing third parties to remit funds otherwise payable to the taxpayer.
Rather than seeking payment directly from the taxpayer, the CRA may issue an RTP to a third party who holds funds for, or owes money to, the taxpayer. This may include an employer (in respect of wages), a financial institution (in respect of bank accounts), or a client or tenant (in respect of amounts payable). Upon receipt of an RTP, the third party is legally obligated to comply with its terms.
In practical terms, this may result in the garnishment of wages, the freezing and remittance of funds held in bank accounts, or the redirection of payments otherwise due to the taxpayer. Such measures may be implemented with limited advance notice, which can significantly impact a taxpayer’s financial position.
Why the CRA Issues an RTP
The CRA will typically resort to issuing an RTP where a tax liability remains outstanding and prior collection efforts have not resulted in payment or an acceptable payment arrangement. These prior efforts generally include written demands for payment and multiple attempts at direct communication with the taxpayer.
Once a file is escalated to active collections enforcement, the CRA may determine that issuing an RTP is necessary to secure payment. From the CRA’s perspective, this mechanism provides an efficient means of recovering amounts owing where voluntary compliance has not been achieved.
The Importance of Early Action
The issuance of an RTP often represents a significant escalation in the collection process. The involvement of third parties, such as an employer or financial institution, can be intrusive and may have reputational or operational consequences for the taxpayer. Additionally, the immediate impact on cash flow can make it more difficult to meet ongoing financial obligations.
In many cases, however, enforcement action of this nature can be avoided if the underlying tax debt is addressed at an earlier stage. Engaging with the CRA before matters escalate typically allows for greater flexibility in resolving the liability. Once enforcement measures have been implemented, the available options may become more limited and time-sensitive.
Knowing Your Rights
While Collections Officers have broad discretion in administering and enforcing tax debts, that discretion must be exercised in accordance with established administrative principles and the Taxpayer Bill of Rights.
Taxpayers are entitled to be treated professionally, courteously, and fairly, and to receive clear, accurate, and timely information from the CRA. They also have the right to expect that the CRA will consider their individual circumstances when administering tax laws, including when negotiating payment arrangements or taking enforcement action.
Importantly, enforcement measures such as an RTP should not be applied arbitrarily. Where a taxpayer is making reasonable efforts to comply or has proposed a viable payment arrangement, there may be grounds to request that enforcement action be delayed, modified, or reconsidered.
If a taxpayer believes that their rights have not been respected, or that enforcement action has been applied in a manner that is disproportionate or unreasonable, there may be avenues to escalate the matter internally within the CRA or seek professional assistance to address the issue.
Tip #1: Address the Tax Liability Promptly
Upon being notified of an outstanding balance, it is advisable to assess the liability without delay. Where the amount owing is accurate and payment can be made without compromising essential financial obligations, prompt payment may prevent further collection action.
Even where full payment is not feasible, taking early steps to understand the liability and explore available options may reduce the likelihood of escalation.
Tip #2: Maintain Communication with the CRA
While it may be tempting to avoid communication with the CRA, doing so can increase the likelihood of enforcement action. Maintaining an open line of communication, particularly where a Collections Officer has been assigned, can be critical in managing the situation.
Where the taxpayer acknowledges the debt, it may be possible to negotiate a payment arrangement that reflects the taxpayer’s financial circumstances. Demonstrating cooperation and a willingness to address the liability may assist in delaying or preventing the implementation of more intrusive collection measures, including an RTP.
Tip #3: Consider Seeking Professional Assistance
Where the situation becomes complex, or where enforcement action has already been initiated, it may be prudent to seek professional advice. Navigating discussions with the CRA can be challenging, particularly where there is limited flexibility or disagreement regarding the appropriate course of action.
A tax lawyer can assist by communicating with the CRA on the taxpayer’s behalf, clarifying legal obligations, negotiating payment arrangements, and, where appropriate, seeking to modify or withdraw enforcement measures. Professional representation can also provide structure and clarity during what is often a highly stressful process.
Key Takeaway
A requirement to pay is a significant collection tool available to the CRA, but it is not without alternatives. Early engagement, clear communication, and a proactive approach to resolving outstanding tax liabilities can materially affect the outcome.
Failure to address the issue may result in wage garnishments, frozen bank accounts, and increased financial strain. By contrast, timely and informed action can assist in preserving control over the situation and facilitating a more manageable resolution.
**Disclaimer: This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions, you should consult a lawyer.
Bhavika Chadha