Once a tax debt is established, the CRA can take legal action and certify that debt in federal courts. This will be done after several requests by phone and in writing to the taxpayer. If there is no tax payment plan proposed by the taxpayer, it will empower the CRA to attack your assets as lien against your tax debts. The seizing of your assets may begin with a CRA bank freeze.
When you open a bank account in Canada, you are asked to furnish a Social Insurance Number, confirming that you are a resident of Canada. This number is used as a database which the CRA taps into to determine the details of your bank and your accounts. The CRA also keeps this data through any cheques you may have sent to the agency towards tax payments in the past. People also sign up for reasons of tax refund deposits or social benefit payments. There are various ways that the Agency can use to find out methods of your bank details and affect a CRA bank freeze.
Once your tax arrears have been certified by the CRA, they have the full power to the funds you hold in your bank accounts. CRA sends a Third Party Requirement to Pay (RTP) letter to your assigned bank. Once the bank gets this letter, they have to surrender the money to the CRA as a requirement for the sum as indicated in the letter. Your bank account is free for you to use once the required amount is sent to the CRA by your bank and the CRA bank freeze is released.
If the balance in your bank account is less than the sum demanded in the letter, the bank has to forward the entire sum in the account as on the date it receives the RTP. All deposits made to your account after this date will be forwarded also to the CRA until the sum demanded is paid in full.
If the CRA is not aware of any other bank account of yours, that particular bank account will not be affected by the CRA bank freeze. If your bank account happens to be a joint account where another person is also operating at the same time, you still face a CRA bank freeze for that account and the bank will be forced to honour the demand as per the RTP. It is, therefore, not a good idea to have a joint cheque account in a bank for any mortgage or insurance deductions when you feel that there may be a risk of a CRA bank freeze.
The CRA is empowered to affect a CRA bank freeze only to those bank accounts that are pertaining to you. It cannot freeze the bank accounts of your spouse or any other relations. The use of a credit card that has been issued by your bank does not get affected by the CRA bank freeze because the card is actually issued on behalf of Visa, MasterCard or American Express. A bank account RTP is limited only to that bank account. In very rare cases where there is a huge amount of tax funds as default, there is a possibility that the CRA bank freeze may also spread to other credit lines of yours.