Requirement to pay

What it does in practice

When a tax debt stays unpaid, the CRA can ask a third party to redirect money that would otherwise go to you. The CRA lists employers, financial institutions, spouses, business partners, directors, individuals, corporations and other government departments as possible recipients. The CRA applies whatever it receives toward your debt.

The CRA uses three related documents for this: a requirement to pay, an enhanced requirement to pay and a demand on a third party. Which one applies depends on the situation. In every case the CRA says it sends you a copy. That copy is your cue to act quickly, because the third party is legally expected to comply with the original document.

An illustrative example

Suppose a sole proprietor has an unpaid tax balance and one large customer owes the business $4,000 for finished work. These numbers are illustrative. The CRA sends that customer a requirement to pay, and the customer must send the amount to the CRA instead of to the business. The business owner still owes the rest of the debt, and the customer’s payment goes toward it.

The same idea applies to an employer holding wages, or a bank holding a balance. The recipient is not choosing sides. It is legally required to comply.

What recipients must do, and what you should not do

The CRA says a recipient that does not comply becomes responsible for the amount it did not pay. That can happen if it keeps paying you what it owes the CRA, pays someone else on your behalf instead of the CRA, or lends or advances you money within 90 days of receiving the garnishment, as the terms of the requirement set out. If your business receives one about a supplier, customer or employee, treat it as urgent and keep a record of what was paid and when.

A requirement to pay is different from a set-off. The CRA can also ask federal departments to redirect payments owed to you, and it can use federal or provincial credits, benefits and future refunds against a debt, even when you have a payment arrangement. Ignoring the letters does not stop any of these steps.

What to discuss with your accountant

If you receive a copy, bring it, your latest notices of assessment and a list of what you owe by tax year. Ask whether the debt is correct, whether an objection or a payment arrangement is realistic, and how the CRA’s collection actions interact with your cash flow. If you are the recipient, ask how to comply and how to record the payment in your books.