Can CRA Garnish Personal Wages on a Business Insolvency?

It is not unusual for business owners, either incorporated or not, to begin to miss tax installments, either income tax, HST or payroll taxes, as a way to manage cash flow when they are in trouble. This often results in a large tax liability to CRA.

If the business is incorporated, and the corporation declares bankruptcy, any assets in the corporation would be liquidated and used to pay the corporate debts, including the debt owed to Canada Revenue Agency (CRA).

If there are not sufficient funds in the corporation to pay CRA, the director’s of the corporation become personally liable for all “deemed trust” amounts owing to CRA.  In simple terms a deemed trust is any amount that the business has collected on behalf of CRA and not remitted to the Canada Revenue Agency.

HST is money collected from customers on behalf of CRA, and the employee portion of payroll taxes are amounts collected from employees that should be remitted to CRA, so both of those amounts are deemed trusts.  If they are not paid, CRA can pursue the directors for payment, and CRA does have the power to garnishee wages.

The answer is the same whether or not the corporation declares bankruptcy; CRA can still pursue the directors for unpaid deemed trust amounts. If you are working at a new business, and collecting wages, they can take action to garnish  your wages from your new employment.

If you owe money to Revenue Canada as a result of a failed business, you should attempt to work out payment arrangements with CRA to pay the amount owing.

If that’s not possible, you can eliminate tax debts with both a personal bankruptcy and consumer proposal.

Consult with a licensed Ontario bankruptcy trustee to discuss your options.