Understanding a demand on third party
When the Canada Revenue Agency (CRA) has been unable to collect an outstanding debt, they can issue a demand on third party (DTP) once they have obtained a provincial judgement or a certificate from the Federal Court. This allows them to take funds that a third party owes you or holds for you. A third party could include a person or organization such as your employer, your bank or other sources of income.
A DTP instructs the third party to send the money to the CRA instead of to the individual.
A DTP applies to many different types of payments a third party could owe to an individual. This includes but is not limited to:
- salary, wages, commissions, bonuses
- money held in financial institution
- rent or lease payments
- annuity, interest, dividend payments
- proceeds of an insurance claim
- investment proceeds
If you send an amount to the CRA because you received a DTP, the taxpayer cannot pursue you financially. The amount you owe the taxpayer is reduced by the amount you send to the CRA. You may advise the taxpayer if you wish, however the CRA sends a copy of the DTP to the taxpayer.
Since the DTP is a legal document, you are obligated to comply with it. If you fail to deduct or pay the CRA as instructed, you become liable for the amount. The CRA will take action to collect that amount from you if this occurs.
The first page of the DTP will show the total amount owed to the CRA by the individual and either an amount or percentage to deduct from each payment you owe to them. You need to continue to deduct these amounts and send them to the CRA until the total you have sent equals the maximum amount on the DTP.
You must pay the CRA whenever the amounts you owe to an individual are due and the DTP is still in effect.
The individual is a current employee
The CRA sends a copy of the demand on third party to the individual, therefore you are not obligated to advise your employee you received a DTP. You must comply with the DTP unless the CRA advises you in writing that the DTP has been withdrawn.
- Deduct the individual’s pay per the instructions on the DTP.
- Mail your payment to the address on the DTP.
The individual already has another garnishment
The DTP gives the CRA priority over most other creditors. If the individual has another garnishment call the Collection Contact Officer on the DTP immediately.
The individual filed for bankruptcy
- Continue to honour the DTP until you receive written confirmation that the individual has filed an assignment in bankruptcy, a proposal, or a notice of intention to file a proposal. Once you have received written conformation, call the contact person on the DTP before you take any action. In some instances, the funds owed to your employee belong to the CRA. If you distribute any monies, you may become liable for the individual’s debt.
The individual is no longer an employee
If you do not owe money to the individual
- Fill out the section of the DTP with the reason for not complying with the demand.
- Mail it to the CRA at the address on the DTP.
If you owe money to the individual
(for example, final pay, vacation, severance or other amounts have not been paid)
- Deduct 30% (even if the DTP was for a different percentage or amount) of the net pay up to the amount owed to CRA.
- Fill out the section of the DTP explaining why it is the final payment to the individual and that this is why you cannot comply with the full demand (since this is the last payment).
- Mail the payment and the form to the Matane address on the DTP.
- Write the account number shown on the remittance form on the front of your cheque or money order.
- Make your cheque or money order payable to the Receiver General for Canada.
- Mail the remittance form with your cheque or money order to the CRA at the address indicated on the remittance form.
- Keep a record of the amount and the date of your payment.
The demand on third party is valid until:
- you no longer owe amounts to the individual, and no other amounts will become owing (complete the form attached to the DTP and send it to the CRA)
- the total amount you have sent to the CRA equals the maximum amount shown on the demand on third party
- you receive a withdrawal letter from the CRA indicating the DTP is no longer in effect
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.
If you need more information, call the CRA Collection Contact Officer at the telephone number listed on the DTP.
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