A wage garnishment is when a creditor seizes some, or all of your earnings to pay off your amount owing. It is often used by the Canada Revenue Agency (“CRA”) to collect outstanding balances owed to them. Garnishments are not just limited to your employer; a garnishment can be served on your bank, or your receivables in an effort to seize the money.
CRA Wage Garnishment
The CRA’s process by which they garnish wages is vastly different from the processes followed by other creditors. Other creditors must initially obtain a judgment against you in court, thus providing you with knowledge of the ensuing garnishment. Other creditors are also required to provide you with formal notice before they commence garnishments. Once formal notice has been provided, and your employer has been notified of the garnishment, they must begin to forward the appropriate portion of your wages to the appropriate creditor to pay off your debt.
Alternatively, with CRA garnishments, no Order of the court is required to commence garnishments on a taxpayer. Instead, a notice is sent directly to one’s employer notifying them of the garnishment. This is called a “requirement to pay”, or an “RTP”.
Your employer is then immediately required by law to comply with the garnishment of your wages. If one’s employer refuses to comply with the garnishment, they could face legal action. Unfortunately, this process leads to some taxpayers being unaware that the CRA has implemented garnishment until they receive a paycheque that is less than expected.
CRA Wage Garnishment – Employment or Independent Contractor
If you are an employee on payroll, with taxes deducted at source, the CRA can garnish up to 50% of your wages. Meanwhile, if you are a sub-contractor, or receive a different form of income, the CRA can garnish up to 100% of said income. An example of this, would be if you received pension income.
Other types of wages that can be garnished include severance or termination pay, because they arise as a result of your employment. For Ontario residents, the Ontario Works Act establishes that basic financial assistance is not subject to garnishment, attachment, execution or seizure by the CRA, as of right now. The only exception to this rule is support orders under s.20 of the Family Responsibility and Support Arrears Enforcement Act which can be garnished.
Long term disability payments provided through a “company disability pension” are considered by the law to be a replacement for lost wages. Thus, they are considered to be wages and can be garnished as deemed fit by the CRA. That said, income support under the Ontario Disability Support Program (ODSP) Act, is not subject to garnishment, attachment, execution or seizure, except for support orders as mentioned in the previous paragraph.
Important to note, for the most part, you will be notified of your tax debt to the CRA well in advance of any potential garnishments. Ample steps are normally taken before garnishments are taken from your income.
CRA Wage Garnishment – What can I do?
The best way to prevent garnishment of wages is to pay your debt in full. Often, this can be done by obtaining a loan to pay off the garnisheeing creditor in full. If you cannot pay your tax debt in full, you have other options. Two of which are making a consumer proposal or setting up a payment plan. Often, an experienced lawyer can help negotiate a repayment plan with your creditor or the CRA. Another option is bankruptcy, which also helps protect you from your debts.
If your wages are being garnished, or the CRA is threatening to garnish your wages, call us! We can help!
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.