Questions and answers on requirement to pay

A requirement to pay is one of the methods the Canada Revenue Agency (CRA) uses to collect debts from taxpayers who do not voluntarily pay the amounts they owe. The term “taxpayer” can have a number of meanings, such as:

  • individuals;
  • corporations;
  • proprietors;
  • partnerships;
  • trusts;
  • estates;
  • trustees;
  • legal representatives;
  • administrators;
  • executors; and
  • heirs.

What follows are some questions and answers about requirements to pay, with examples. Although the answers and examples provide general guidance, the circumstances of when and how a requirement to pay applies depend on the facts of each case and can be complex.

Notices to the reader

  • Important: If you have received a requirement to pay and need help or more information, please call the CRA contact person at the telephone number listed on the upper right-hand corner of the requirement to pay notice. If you cannot reach that person, call 1-800-675-6184.

1. What is a requirement to pay?

A requirement to pay is a legal notice that the CRA sends to a third party when:

  • the CRA believes that the third party owes or will owe money in the future to a taxpayer who has not paid his, her, or its tax debts to the CRA; and
  • the CRA has been unable to collect the taxpayer's debt or make a suitable payment arrangement with the taxpayer.

A requirement to pay refers to the taxpayer as a “tax debtor” and instructs the third party to send the money to the CRA instead of the “tax debtor.” It shows the taxpayer's name, address, and the CRA account number (for example an individual's social insurance number or a company's business number), in the top right-hand corner of the first page of the notice.

There are different types of requirements to pay. The requirement to pay used most often gives the CRA priority over other creditors in most instances. If a secured creditor has a claim against the amount owed, it may have a higher priority over the CRA. However, there is another type of requirement to pay that gives the CRA priority over the interests of secured creditors. These requirements to pay are mainly used to collect source deductions, GST/HST, or Air Travellers Security charges that a taxpayer has failed to pay.

Requirements to pay apply to many different types of payments a third party could make to a taxpayer. Some of these include:

  • salary, wages, commissions, bonuses, or other amounts owing to an employee;
  • reimbursement of expenses owed to an employee;
  • amounts due to a contractor or subcontractor for labour, goods, or services;
  • rent or lease payments;
  • most loan repayments;
  • fees or other amounts owing to a professional (examples include lawyers, accountants, consultants, dentists, veterinarians, and architects);
  • secured loans or advances made by a financial institution;
  • loans or advances made to an employee;
  • loans or advances made to a taxpayer who has been engaged to provide labour, goods, or services;
  • loans or advances made by a corporation to a taxpayer who the corporation is not dealing with at arm's length (see IT-419 for the meaning of arm's length);
  • annuity payments;
  • interest payments;
  • dividend payments;
  • accounts receivable;
  • proceeds of an insurance claim;
  • proceeds from the sale of an asset;
  • proceeds of investments; and
  • amounts on deposit in a bank or other account.

2. Under what statutes can the CRA issue a requirement to pay for tax arrears?

The CRA can issue requirements to pay under the following statutes:

  • Income Tax Act;
  • Excise Tax Act;
  • Customs Act;
  • Excise Act;
  • Excise Act, 2001;
  • Canada Pension Plan;
  • Employment Insurance Act;
  • Air Travellers Security Charge Act;
  • Softwood Lumber Products Export Charge Act; and
  • the related Provincial Income Tax Acts.

3. Why do I have to send money to the CRA instead of the taxpayer?

A requirement to pay is a legal document. You are obligated to comply with it. The CRA sends out a requirement to pay without a court order. In most cases, the CRA issues the requirement to pay through its authority under section 224 of the Income Tax Act or section 317 of the Excise Tax Act. Both of these sections describe the CRA's authorities under the heading of “Garnishment,” and include a number of different rules.

4. Can the tax debtor pursue me financially if I send money to the CRA as a result of the requirement to pay?

No, if you send an amount to the CRA because you received a requirement to pay, the taxpayer cannot pursue you financially. The law states that the amount you owe the taxpayer is reduced by the amount you sent the CRA.

5. The requirement to pay tells me to pay all “moneys” to the Canada Revenue Agency. What are moneys?

In most cases, “moneys” is actual money – dollars and cents. However, the word “moneys” has a wider meaning. It includes all forms of Canadian currency, coins, negotiable cheques, or funds on deposit, having value and used in exchange for property or the payment of debts. Certain assets like bonds, shares of publicly traded companies, buildings, or vehicles are not considered to be “moneys” until they are sold or converted into cash.

6. I received a requirement to pay. Do I need to tell the taxpayer I received it?

You may if you wish. However, the CRA sends a copy of the requirement to pay to the taxpayer.

7. I received a requirement to pay. How do I respond?

There are a number of possible scenarios. Read the scenarios below and identify the one that applies to you.

Situation 1:  I owe money to the taxpayer and payment is due. What do I do?

Send the amount due to the CRA right away.

Situation 2: I do not owe money to the taxpayer.  What do I do?

Keep a copy of the requirement to pay because you may owe money to the taxpayer in the future. Please call the CRA contact person whose name and phone number are on the requirement to pay for further instructions.

Situation 3: I received a requirement to pay regarding an employee to whom I owe money but who no longer works for me. Do I need to send amounts from his or her final pay?

Yes, you are required to send the CRA money from the employee's final pay. The amount you have to send will depend on the instructions on the first page of the requirement.

If you owe additional money for unpaid vacation pay, severance pay, or other amounts, see 9. How do I calculate the amount I have to pay?, Situation 3 to determine how much you have to withhold.

Situation 4: The taxpayer claims to have made arrangements with the CRA. Do I still need to withhold from the amounts I owe the taxpayer?

Yes, you must comply with the requirement to pay. Send all moneys as instructed unless the CRA advises you in writing that the requirement to pay has been withdrawn.

Situation 5: I am already sending some of the money I am required to pay the taxpayer to another creditor. What do I do?

You must still comply with the requirement to pay.

If there is not enough to pay the other creditor and the CRA, call the contact person whose name and phone number are on the requirement to pay.

Situation 6: The taxpayer filed for bankruptcy. What do I do?

If you receive a phone call from a trustee, continue to honour the requirement to pay until you receive written confirmation that the taxpayer has filed an assignment in bankruptcy, a proposal, or a notice of intention to file a proposal. Call the contact person before you take any action. In some instances, the funds owed to the taxpayer belong to the CRA. If you distribute any moneys, you may become liable.

Situation 7: I am having difficulty identifying the taxpayer. What do I do?

Call the contact person at the CRA right away.

8. I received a requirement to pay. When must I pay the CRA?

You must pay the CRA whenever the amounts you owe to a taxpayer are due and the requirement to pay is still in effect. Read the situations below to find the one that applies to you.

Situation 1: You owe money to a taxpayer, and your payment to him, her, or it is due today.

  • You must pay the CRA the amount due right away.

Situation 2: You owe money to a taxpayer, but your payment to him, her, or it is due at a later date.

Situation 3: Some of the moneys you owe to the taxpayer are due today, and other moneys you owe are due to be paid in the future.

Situation 4: You owe money to a taxpayer and although there is no set payment date, the taxpayer can request or demand payment at any time.

  • You must pay the CRA the amount that the taxpayer can request or demand right away.

Situation 5: You are about to loan or advance money to an employee.

  • The requirement to pay will include an additional paragraph if it applies to loans or advances.
  • If you plan to loan or advance money to an employee within the next 90 days, you are required to send the money to the CRA.

Situation 6: You are about to loan or advance money to a taxpayer who you have engaged, or are going to engage, to provide labour, goods, or services.

  • The requirement to pay will include an additional paragraph if it applies to loans or advances.
  • If you engage a taxpayer to provide labour, goods, or services, and plan to loan or advance money to the taxpayer within the next 90 days, you are required to send the money to the CRA.

Situation 7: You are a financial institution and are about to loan or advance money to a taxpayer.

  • The requirement to pay will include an additional paragraph if it applies to loans or advances.
  • If you plan to loan or advance money within the next 90 days, under a new or existing secured credit arrangement, you are required to send the moneys loaned or advanced to the CRA.
  • If the taxpayer already owes you money on a secured revolving line of credit, you are required to send the CRA any new or additional advances the taxpayer requests or accesses within 90 days.

Situation 8: You are a corporation and are about to loan or advance money to a taxpayer who the corporation is not dealing with at arm's length (see IT-419 for the meaning of arm's length).

  • The requirement to pay will include an additional paragraph if it applies to loans or advances.
  • You are required to send the CRA any amounts to be loaned or advanced within 90 days.

9. How do I calculate the amount I have to pay?

The first page of the requirement to pay will show in bold the maximum amount that you have to withhold from the taxpayer and send to the CRA.  You will have to send this amount to the CRA for each payment that you owe to the taxpayer unless the requirement to pay instructs you to withhold:

  • a fixed amount from each payment;
  • a fixed amount from all amounts paid in a set time period (for example, one month); or
  • a percentage from each payment.

You will have to continue to withhold these amounts and send them to the CRA during the effective period of the requirement, or until the total you have sent equals the maximum amount on the requirement to pay.

In some cases, the requirement to pay will also instruct you to send the CRA a fixed amount or a percentage from each payment as well as all amounts upon termination of employment. The following are some examples of how to calculate the amount you need to send to the CRA.

Situations involving employers and employees for all provinces except Quebec

(A Quebec situation follows)

Situation 1: You receive a requirement to pay for a current employee. You have either already received a garnishment for the same employee for child support arrears, or you receive a garnishment for the same employee for child support arrears after you have received the requirement to pay from the CRA.

The CRA collection policy is to give priority to the child support garnishment when there is a case of competing claims involving garnishments for child support arrears. Please call the CRA contact person at the telephone number listed on the upper right-hand corner of the requirement to pay notice and advise them of the competing garnishments. They will provide additional instructions based on the circumstances of the individual case. If you cannot reach that person, call 1-888-863-8657.

Situation 2: You receive a requirement to pay for a current employee. The requirement indicates a maximum amount of $7,500 and instructs you to withhold at a rate of $400 per payment.

  • Deduct the federal income tax, provincial income tax, Canada Pension Plan contributions, and Employment Insurance premiums to determine your employee's net pay:
    • exclude other amounts such as registered pension plans, union dues, employee benefits, Canada Savings Bonds payroll savings, or amounts directed to credit unions or other financial institutions when calculating net pay.
  • After you have calculated the net pay amount, withhold $400 and send it to the CRA.
  • Pay the remainder to your employee.
  • Continue this procedure for all future payments until you have sent the CRA a total of $7,500.

Situation 3: You receive a requirement to pay for a current employee. The requirement indicates a maximum amount of $8,000 and instructs you to withhold at a rate of $600 per month. The employee is paid biweekly.

  • Deduct the federal income tax, provincial income tax, Canada Pension Plan contributions, and Employment Insurance premiums to determine the amount of your employee's net pay:
    • exclude other amounts such as registered pension plans, union dues, employee benefits, Canada Savings Bonds payroll savings, or amounts directed to credit unions or other financial institutions when calculating net pay.
  • After you have calculated the net pay amount, withold $600 and send it to the CRA.
  • Once you have sent $600 to the CRA for a given month, all future amounts for that month should be paid to the employee.
  • Continue with this procedure for each subsequent month until you have sent the CRA a total of $8,000.

Situation 4: You receive a requirement to pay for a former employee. The requirement indicates a maximum amount of $5,000 and instructs you to withhold at a rate of 20% from each payment. The requirement also requires that all additional moneys upon termination of employment are to be sent to the CRA.

  • Deduct the federal income tax, provincial income tax, Canada Pension Plan contributions, and Employment Insurance premiums to determine the amount of your employee's net pay:
    • exclude other amounts such as registered pension plans, union dues, employee benefits, Canada Savings Bonds payroll savings, or amounts directed to credit unions or other financial institutions when calculating net pay.
  • Once you have calculated the net pay amount, withhold 20% from the net pay amount and send it to the CRA.
  • Pay the remaining net pay to your employee.
  • Make all necessary statutory deductions from unpaid vacation pay, severance pay, registered pension contributions being returned, and remit the remaining amount to the CRA, provided the total you have sent does not exceed $5,000.
  • If any residual amount exists after you have paid the CRA a total of $5,000, send it to your employee.

For the province of Quebec

Situation 5: You receive a requirement to pay for a current employee. The requirement indicates a maximum amount of $3,000 and instructs you to withhold at a rate of 30% from each payment. The employee is a single parent with three children and is paid weekly.

$270.29 per week, plus $108.12 per week for the first dependant and $54.06 for any other dependant, if the debtor is supporting his or her spouse, has a dependent child, or is the main support of a relative.

These exemptions are determined on the basis of the monthly amount granted as a social solidarity allowance to single persons under the Individual and Family Assistance Act and are indexed on April 1 each year. Figures taken in this example are valid until March 31st, 2016.

  • In this case, the amount would be $486.53.

    $270.29 (for the taxpayer) + $108.12 (for the first dependant) + $54.06 X 2 (for the other two dependent children) = $486.53

  • Then withhold 30% and remit that amount to the CRA.
  • Deduct the federal income tax, provincial income tax, Quebec Pension Plan contributions, Quebec Parental Insurance Plan, and Employment Insurance premiums.
  • Pay the remaining net pay to your employee.

Situations involving financial institutions

Situation 6:  You are a financial institution and you receive a requirement to pay that indicates a maximum amount of $12,000. The taxpayer has $3,500 deposited in a chequing account and a $50,000 locked-in guaranteed investment that does not mature for another six months. The guaranteed investment pays interest into a savings account on a monthly basis.

  • Send the $3,500 on deposit in the chequing account to the CRA right away.
  • Send the interest amounts being deposited into the savings account to the CRA as they become available.
  • When the locked-in guaranteed investment matures, determine how much you have already sent the CRA and deduct that amount from the $12,000. Send the remaining amount to the CRA before releasing the rest of the investment funds to the taxpayer.

Situation 7:  You are a financial institution and you receive a requirement to pay indicating a maximum amount of $15,000. The requirement also indicates that loans or advances made within 90 days that are secured must be sent to the CRA. The taxpayer has a secured line of credit with a significant balance available, as well as $5,000 deposited into a chequing account. The taxpayer requests an advance of $7,500 against his line of credit. Other deposits are made to the taxpayer's account at a later date.

  • Send the $5,000 on deposit in the chequing account to the CRA right away.
  • Send the $7,500 advance requested by the taxpayer to the CRA right away.
  • Send the CRA amounts in the future as deposits become available or as you receive additional requests for advances from the secured line of credit until you have sent the CRA a total of $15,000, the maximum amount identified on the requirement to pay.

Situation 8:  A stock brokerage holds an investment account and buys and sells publicly traded shares on behalf of a taxpayer. The brokerage receives a requirement to pay indicating a maximum amount of $30,000. There is no fixed amount or percentage identified on the requirement. The taxpayer's investment portfolio consists of $250,000 in publicly traded shares, and $5,000 in moneys. Some of the shares pay regular dividends. The taxpayer gives occasional instructions to buy and sell shares.

  • Send the $5,000 on deposit to the CRA right away.
  • Send the dividends to the CRA as they become available.
  • If the taxpayer provides more funds, or if the taxpayer instructs you to sell some of their shares, send those moneys to the CRA as they become available.
  • Once you have sent the CRA a total of $30,000, do not pay any further amounts.

Other situations

Situation 9: You receive a requirement to pay for a taxpayer who you have contracted to undertake janitorial services. The requirement to pay indicates a maximum amount of $15,000 and instructs you to withhold at a rate of 50% from each payment.  The requirement also requires that all amounts loaned or advanced to the taxpayer within the next 90 days are to be sent to the CRA. You receive monthly invoices from the taxpayer.

  • Withhold 50 percent of each amount that you owe to the taxpayer and send that amount to the CRA. Send the difference to the taxpayer.
  • If you loan or advance money to the taxpayer (for example, a deposit for a future contract) send the entire amount of your loan or advance to the CRA, up to the maximum amount on the requirement.

Situation 10:  You are a tenant of an apartment building and you receive a requirement to pay for your landlord. The requirement to pay indicates a maximum amount of $25,000 and instructs you to withhold or deduct 100% from each payment.

  • Send the entire amount of your rent to the CRA when your rent becomes due. Send future rent payments to the CRA as your rent becomes due until you have sent a total of $25,000.

Situation 11:  You hire a company to install a fence around your property and you receive a requirement to pay for the fencing company. The requirement to pay indicates a maximum amount of $5,000 and instructs you to withhold at the rate of 50% from each payment you owe. The total value of the contract to provide materials and to install the fence is $15,000 and the contract stipulates that you will be given three invoices, each in the amount of $5,000.

  • For each $5,000 invoice you receive, withhold 50% and send it to the CRA.
  • Send the remaining $2,500 to the taxpayer until you have sent to the CRA the maximum amount of $5000 on the requirement to pay.  After that occurs, send 100% of your payment to the taxpayer.

10. How do I pay?

Mail your payment to the CRA by following these steps:

  1. Write the account number shown on the remittance form on the front of your cheque or money order.
  2. Make your cheque or money order payable to the Receiver General.
  3. Mail the remittance form with your cheque or money order to the CRA. The CRA's address is indicated on the back of the remittance form.
  4. Keep a record of the amount and the date of your payment.

11. How long is the requirement to pay in effect?

Some requirements to pay are valid for one year, and some are valid for 90 days. Others can be valid for more than a year because they continue to be valid until the taxpayer's debt is paid in full, or the CRA receives full payment of the taxpayer's debt. Look for the following terms on the first page of the notice to determine the effective period:

  1. forthwith, the moneys otherwise and immediately payable to the tax debtor which you are required to pay (pay right away when payment is due; this term is valid for 1 year);
  2. all other moneys otherwise payable to the tax debtor which you will be, within one year, liable to pay, as and when the moneys become payable (pay when future moneys are due; this term is valid for one year);
  3. where the moneys referred to in (1) and (2) include interest, rent, remuneration, a dividend, an annuity or other periodic payment, all such payments to be made by you to the tax debtor at any time during or after the one year period until the liability is satisfied (this term continues to be valid until the maximum amount identified on the requirement has been sent or you no longer owe amounts to the taxpayer); and
  4. the moneys that within 90 days you would otherwise loan or advance to, or pay on behalf of the tax debtor, and if you are a bank, credit union, trust company, or other similar person, when the tax debtor is indebted and has granted security in respect of the indebtedness (pay when a loan or advance is made or requested; this term is valid for 90 days).

Keep a copy of the requirement to pay for the entire period it is in effect and for at least one (1) year. You may owe amounts to the taxpayer in the future, while the requirement to pay is still in effect.

12. When do my obligations under the requirement to pay end?

Your obligations end when:

  • you no longer owe amounts to the taxpayer, and no other amounts become owing during the effective period of the requirement to pay;
  • the total amount you have sent to the CRA equals the maximum amount shown on the requirement to pay;
  • the requirement to pay expires; or
  • you receive a written withdrawal from the CRA indicating the requirement to pay is no longer in effect.

13. Does the CRA pay any costs I incur to comply with the requirement to pay?

No, the CRA does not pay any costs you incur to comply with the requirement to pay.

14. What happens if I do not comply with the requirement to pay?

You become liable for the amount you did not pay to the CRA, and the CRA will take action to collect that amount from you.

You become liable if you:

  • do not pay the CRA when you owe money to a taxpayer;
  • continue to pay the taxpayer amounts you are legally required to pay to the CRA;
  • pay someone else on behalf of the taxpayer, such as a relative or another creditor instead of the CRA; or
  • loan or advance moneys to the taxpayer within 90 days, if the specific paragraph is included on the requirement to pay.

15. What if I have already sent a payment when I receive the withdrawal of the requirement to pay?

Call the contact person on the requirement to pay. Give them the amount and date of your payment.

16. What if I make a mistake and paid more than I am required to pay?

If you miscalculated your payments, call the CRA contact person whose name and number appear on the requirement to pay.

17. Can a requirement to pay apply to a house, a car, jewellery, or other non-liquid assets? Do they have to be sold to pay the requirement?

Do not sell assets like houses, cars, jewellery, stocks, bonds, or other assets unless you have instructions to do so from the taxpayer or another person who has the authority to give instructions. The requirement to pay applies to the sale proceeds if the assets are sold and converted into cash while the requirement to pay is in effect.

Example: A requirement to pay does not apply to a taxpayer's house. However, if the sale of the house occurs while the requirement to pay is in effect, then the requirement to pay applies to the proceeds of sale that remain after valid mortgages registered against the property have been paid. You will have to send the sale proceeds to the CRA. Send any excess over and above the maximum amount identified on the requirement to pay to the taxpayer.

18. Can a requirement to pay apply to investments?

It depends on the type of investment and the terms of the requirement to pay. Your obligations depend on the following:

  • the type of investment held;
  • the actions of the taxpayer; and
  • the terms of the requirement to pay.

If the investment is money on deposit for a fixed term (for example, a guaranteed investment certificate (GIC)), you must send money to the CRA:

  • when you receive the requirement to pay if the taxpayer is allowed to cash in the GIC before the maturity date; or
  • at the end of the fixed term when the GIC matures, provided the requirement to pay is still in effect.

The CRA can take legal action if you:

  • re-invest the money into a new investment when the deposit for the fixed term matures rather than sending the money to the CRA; or
  • sell the investment and:
    • keep the moneys in the taxpayer's investment account; or
    • pay the proceeds of sale to the taxpayer or another person on behalf of the taxpayer.

If the investment includes stocks and bonds with no fixed term, do not collapse the taxpayer's investments to comply with the requirement to pay. Instead, you are required to send the following to the CRA:

  • money that is cash, when you receive the requirement to pay;
  • money deposited into the account in the future, while the requirement to pay is still in effect;
  • the proceeds of sale if the taxpayer instructs you to sell some or all of their investments or purchase new investments while the requirement to pay is still in effect; and
  • the proceeds of sale if the stocks are sold, and the instructions were from someone other than the taxpayer.

 

Important:

You will be required to pay the CRA if:

  • the investment matures, rolls over (for example, an individual who leaves a company and moves his or her retirement moneys from the employer account to a private account; no tax implications), is reinvested, or paid; and
  • the taxpayer has given consent to close the investment and pay the CRA.

If the taxpayer's investment account is a margin account, you should get help from the CRA contact person whose name and number appear on the requirement to pay.

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