Owing money is stressful, and it feels even heavier when the debt is owed to the government. The Canada Revenue Agency (CRA) has a reputation for firm and fast collection practices. When you fall behind, interest and penalties start adding up quickly, turning a tax bill into something even harder to manage. In some cases, the total can grow so much that a tax loan becomes a practical way to regain control.
This guide breaks down how tax loans work in Canada, when they make sense, and how they can help you manage or eliminate your CRA debt before it spirals further.
Key Points You Should Know About Tax Loans
- A tax loan can help you pay your income taxes on time to avoid penalties from the CRA.
- A tax loan is a good alternative if you can’t make payment arrangements with the CRA.
- You can spread the cost of your tax loan over a long period to keep your payments affordable and within your budget.
- Tax loans are available from banks, credit unions, and online alternative lenders.
What Are Tax Loans?
Technically, a tax loan is just like any other type of personal loan. The purpose is to gain access to the money needed to repay the government at an affordable rate.
| Tax Loans: Defined – What it is: A tax loan is a personal loan used specifically to pay off income taxes owed to the Canada Revenue Agency (CRA). – What it’s used for: Helps taxpayers pay their CRA balance in full upfront, stopping penalties and interest while allowing repayment over time through fixed monthly payments. – How it differs from CRA payment plans: Unlike CRA payment arrangements, which continue to accrue interest and penalties, a tax loan replaces CRA debt with a structured loan, often offering more predictable payments and less stress. |
Tax Loans For Consumers With Good Credit
For consumers with good credit, finding an affordable unsecured personal loan shouldn’t be too difficult. Your local bank will likely have an option for you.
Your main goal should be to find a lender who you trust and like working with. Once you apply and get approved, you’ll be transferred the money and then can use it to pay back the CRA.
Tax Loans For Consumers With Poor Credit
For individuals with poor credit or who have struggled financially in the past, it can be more difficult to find an affordable loan. Affordability is important when it comes to finding a loan to pay off your taxes, so you may need to provide collateral or get someone to co-sign your loan.
| How To Check Your Credit Score Before you apply for a tax loan in Canada, it’s essential that you know where your credit stands. This will allow you to understand what kind of lenders and loans you can qualify for. Similarly, if you have bad credit, you can try to improve it before applying for a tax loan. Thankfully, there are many platforms you can check your credit score for free in Canada, including Loans Canada’s Compare Hub. |
Where Can You Get A Tax Loan In Canada?
Generally speaking, you have three main options when it comes to applying for a personal loan:
- Banks: Banks are best when you have strong credit, stable income, and time to wait for approval. They offer the lowest interest rates, but they’re strict with requirements and slower to fund.
- Credit Unions: Credit unions are ideal if you want competitive rates but prefer a more flexible, community‑focused lender. They’re often more willing to work with those with bad credit.
- Alternative Lenders: These lenders are useful when your credit score is low or you’ve been declined elsewhere. Rates are higher, but they can help you deal with urgent CRA pressure.
Depending on your financial situation, any of these lenders may be a good option for you to consider.
Remember, finding the right loan involves consideration and understanding of your current financial situation and future goals. Whatever financial product and lender you choose should align with your budget and goals.
Filters
- Amount
- Up to $35,000
- Rate
- 9.99% – 34.95%
- Term
- 6 – 84 Months
- Amount
- Up to $60,000†
- Rate
- 19.99% – 34.99%*
- Term
- 6 – 120 months
- Amount
- $500 – $10,000
- Rate
- Up to 34.99%
- Term
- Up to 60 months
Is Using A Loan To Pay Off Your Taxes A Good Choice?
As with all personal finance decisions, the right choice depends entirely on your unique situation.
Pros Of Tax Loans:
- Affordable Payments. With a personal loan, you’ll be able to pay off the CRA right away and then make affordable payments to your lender each month. You can avoid the added stress of owing money to the government.
- Flexible Loan Terms. Personal loans tend to have terms anywhere between one and five years, depending on the lender.
- Variable Loan Amounts. As with the loan terms, the loan amounts are very flexible. You should be able to get the amount you need to cover your tax bill.
Cons Of Tax Loans:
- Fees. The terms and conditions of a loan can have a lot of fees. Make sure to read the agreement in its entirety before accepting it. Otherwise, you could end up paying more than you budgeted for.
- More Debt. If you can’t afford the cost of a loan right now, do not apply for a loan. You’ll just be adding more debt to the pile, making your financial situation worse.
- Potentially High Interest Rates. High rates are always a possibility, especially if your credit score is low. Be sure to compare multiple options to ensure you get the lowest interest rate possible.
Tax Loan Alternatives
Sometimes a tax loan is not an option due to inability to get approved, poor credit, or simply because a loan is not the right option. Fortunately, there are other solutions to handling your tax debt.
Payment Plan with CRA
A payment plan can be negotiated with the CRA so long as the plan results in the complete repayment of your tax debt. Under this option, you will still be required to pay applicable penalties and interest.
Taxpayer Relief Provisions
This program provides relief from interest and penalties, but not the principal part of your taxes. In order to qualify, you must prove extraordinary circumstances and financial struggle that further support your inability to repay your entire tax owing. You may need a tax lawyer to assist you with this option.
Consumer Proposal Or Bankruptcy
If you file a consumer proposal or bankruptcy, the CRA will relieve you from your tax debt. Both options must be filed through a Licensed Insolvency Trustee.
Consequences Of Not Paying Personal Taxes On Time
In Canada, the deadline to file your personal tax return and pay your taxes is April 30th of every year. If you fail to meet this deadline, the following penalties will apply to you:
- Late filing penalty of 5% of the balance owing
- Penalty of 1% of the balance owing for every full month you don’t file (applicable for 12 months)
- Additional interest charged on top of the above penalties
- Daily interest compounded on the balance owing (rates vary depending on the CRA’s guidelines and decisions)
- Tax refund held back until you file your tax return, even if you don’t owe taxes on the return in question
Can CRA Debt Negatively Affect Your Credit Score?
Owing money to the CRA is typically not reflected on your credit report or your credit score. That’s because there is a privacy policy in place with the CRA that limits how much they can share with credit bureaus and other entities. This includes personal tax information.
That said, if you owe income taxes to the CRA, there are other issues you may have to deal with that could indirectly affect your credit score:
- Litigation: The CRA could take you to court to collect the taxes owed. If that happens, your tax debt would be available on public record. Since the credit bureaus collect and report on public record issues, this information could affect your credit report and credit score.
- Collection Agency Involvement: Your credit score could also be impacted if the CRA enlists the services of a collection agency to collect your tax debt, which could also appear on your credit report.
- Tax Lien: The CRA could also put a tax lien on your credit report, which will also affect your credit score.
Can I Use My Home Equity To Pay My Taxes?
If you’re a homeowner and have accumulated a sizable amount of equity in your home, you can tap into it to pay off a hefty tax bill.
Home equity loans are secured, so they’re easier to get approved for than unsecured loans. Because they’re backed by your home, home equity loans also tend to come with lower interest rates because of the reduced risk, and loan amounts are typically much higher, too.
To qualify for a home equity loan to pay off your tax debt, you’ll need at least 20% equity in your home. The lender will also want to have your home appraised to make sure it’s worth at least as much as the loan provided. If approved, you can use your home equity to pay your tax debt, then continue making regular installment payments to pay off your home equity loan.
| Note: Using home equity to borrow can help you pay off your taxes owed, but it also puts your property at risk if you can’t keep up with payments. Make sure you’re confident that you can make loan payments before using your home as collateral. |
Tips On Using Tax Loans
When you carry tax debt, the best thing you can do is pay it off as soon as possible. This will minimize any negative repercussions from the CRA. As such, a tax loan may be a viable option.
However, it’s important that you use these loans wisely to avoid getting yourself further into debt. Before applying for a tax loan, keep the following tips in mind:
- Make Sure Payments Are Affordable. A tax loan will require monthly payments to repay the loan amount, plus any interest charges. Make sure these payments fit comfortably within your budget before taking out a tax loan.
- Consider All Other Debt. Taking out a tax loan means adding more debt to the pile. While the intention is to use the funds from a tax loan to pay off what you owe the CRA, you’re still taking out a loan. Make sure the addition of a new loan will not be too much for you to handle financially, especially if you’re already carrying other debt.
- Be Careful With Your Collateral. If you’re using a secured loan to pay off your tax debt, such as a home equity loan, be sure to keep up with your loan payments. Your collateral is at risk if you default on your loan. So, if your home is securing the loan, for instance, you could risk losing it if you fall behind on your loan payments.
Final Thoughts
A tax loan can provide you with some breathing room when CRA interest and penalties start piling up, giving you a structured way to regain control of your finances. With a predictable repayment plan, you can stop the debt from growing and focus on moving forward. This option could be a practical step toward restoring your finances and getting some peace of mind.
Tax Loan FAQs
What is an instant tax refund?
When can I get a tax loan?
Can I get a tax loan with bad credit?
Is there a penalty for late tax filing if you don’t owe anything?
Can a tax loan cover CRA interest and penalties?
®Fairstone Financial Inc. is a wholly owned subsidiary of Fairstone Bank of Canada.
*Interest rates are subject to change. Actual Annual Percentage Rate (APR) varies based on the province of residence and individual factors like credit details and loan amount. The interest rate on an unsecured personal loan is 31.99% in BC.
†On approved credit. Terms and conditions apply. Interest rates vary by province/territory and from customer to customer based on factors like credit score and borrowing history. See Fairstone’s website for details.
Fairstone Financial Inc. holds high-cost credit licenses in AB, MB (License #85047, expiring 20-02-2026) and QC; it has applied for a high-cost credit grantor license in NL. For license information by province, visit Fairstone.ca/HCCG
In Ontario, Fairstone Financial Inc. is licensed as mortgage brokerage 10821.
In Nova Scotia, Fairstone Financial Inc. is licensed as mortgage lender #2021-3000028.
