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If you have tax debt from previous years or the current year, it’s important that you handle it sooner rather than later. The Canada Revenue Agency (CRA) is the body responsible for handling Canadian taxes and they will escalate the situation dramatically if you don’t deal with your tax debt. If you’re unsure how much you owe in CRA money or how to manage your tax debt, you’ll find everything you need to know in this article.

How Much Do You Owe The CRA Money?

Before you can determine how much you owe the CRA, you’ll need to file your tax return. If you haven’t filed your taxes for a few years, you’ll need to file returns from previous years too. Keep in mind that a tax year is from January to December. 

April 30th is the filing deadline for personal income tax returns in Canada. If you have self-employment income, the deadline to file your income tax return is June 15th. 

What Happens If You Don’t File Your Taxes?

Unfortunately, filing late does result in penalties. The CRA fines you 5% of the balance owing, plus 1% for each full month your return is late with a limit of 12 months. You should always file on time to avoid penalties as they can make your tax debt larger. 

If you’re expecting a large tax liability, you may be nervous or intimidated to file your tax return. However, you cannot handle the debt until you file your tax return. The CRA will not address your debt or help you with a solution if you do not file. It can be a burden to file taxes, but the sooner you do, the quicker you can eliminate your tax debt. 

How Do You Know You Owe The CRA Money?

Once you file your taxes, you will receive a Notice of Assessment for every year you filed. Any penalties or interest will be added to your Notice of Assessment. If you owe tax, you’ll also receive a letter requesting you to make a payment or contact the CRA. 

The CRA has an online portal that has information about your taxes, you can also see how much you owe in the portal after you’ve filed all your returns. To access your tax payable balance, log in to your CRA MyAccount and select the Accounts and Payments tab. Under this tab, select Account Balance and Statement of Account, you should see your balance owing there. 

How To Pay Off Your Tax Debt?

The CRA offers various ways to pay, as listed below. You can choose whichever option works best for you. Keep in mind that some forms of payment can take several days or weeks to process so allow for processing time. 

  • In-person
  • Bank
  • Cheque
  • Online (Interac, Visa Debit, MasterCard Debit, PayPal, e-Transfer, credit card)

Can You Use A Personal Loan To Pay Off Your Tax Debt?

Yes, a personal loan can be used to cover an expense or consolidate debt including tax debt. With it, you can not only spread your tax debt over several months or years, but you can use it to consolidate other high-interest debt. You can get a personal loan from a bank or private lender if your credit score or personal finances aren’t in great shape. 

What To Do If You Can’t Afford To Pay Off Your Tax Debt In Full?

After you’ve determined how much you owe the CRA, you’ll need to assess whether you can afford to pay it in full or not. If you can’t afford your taxes, don’t panic. The CRA appears daunting on the outside, but they are actually quite accommodating when it comes to payment. All they ask for is communication. Even if you can’t work something out with the CRA, you have other options. 

Payment Arrangements

Consumers who are in debt to the CRA, but can’t afford it, can make arrangements to pay off what you owe over a predetermined period of time. In order for this to happen, you need to prove that you have unsuccessfully tried to pay back what you owe.

If they are willing to make a payment arrangement, the CRA will review your financial details and create a plan that works for both parties. After creating an arrangement with the CRA, you must keep up with your end of the deal and file future tax returns on time.

For more information about payment arrangements with the CRA, click here.

Partial Payment

If you can only afford to pay part of your tax debt, you will need to make a payment arrangement with the CRA as well. You can make your first partial payment with the CRA to start the process. The CRA will apply your payment to your oldest tax balance unless you advise them to apply it to another tax debt. 

Relief Programs

Under very special circumstances, the CRA may relieve you from penalties and interest on tax debt. Note that this program does not relieve you of all your debt, only penalties and interest.

As mentioned, the relief program only applies to individuals in very special circumstances. The taxpayer must demonstrate an inability to pay due to financial difficulty and extraordinary conditions. Personal illness, severe emotional or mental stress, and natural disasters resulting in a taxpayer’s inability to pay tax debt are examples of extraordinary conditions. 

Consumer Proposals, Tax Forgiveness, And Settlement

When dealing with a consumer who has tax debt, The CRA typically requires full payment of the total amount due.

Tax debt is unsecured which means a taxpayer can file a consumer proposal to help relieve the burden of the debt. This will need to be done with the help of a Licensed Insolvency Trustee. The CRA will accept or reject your proposal based on the taxpayer’s circumstances, income and other assets. This is the only way to settle tax debt for less than the full amount. 

Bankruptcy

Finally, if you’ve tried all else and still cannot repay your tax debt, you can consider filing for bankruptcy. If you can’t afford to pay your taxes, you might be struggling with other aspects of your finances which means bankruptcy may be an ideal option. When you are discharged from bankruptcy, you will be completely debt-free which means you’ll be free from tax debt too. 

What If I Choose Not To Pay Off My Tax Debt?

If you choose not to pay your tax debt, the CRA will take legal action. The CRA actually has more power than your average lender which could cause serious financial and legal hardship for you. Legal action typically starts 90 days after the mailing date of the taxpayer’s Notice of Assessment or Reassessment and you have failed to communicate with the CRA.

Verbal And Written Warnings

Before moving forward with legal action, the CRA must do both of the following: 

Make three attempts by phone to give verbal legal warning 

Send one written letter containing a legal warning

Once these actions have been performed, the CRA can pursue further legal action. Once the CRA has commenced with legal action, they usually will not stop. 

Garnishment Of Wages

The CRA is able to send a requirement to pay (RTP) to an individual, employer, bank, etc, that holds funds on your behalf or that owes your money. The RTP provides instructions to the third party to direct a certain amount of money to the CRA. Once the money is received by the CRA, they will apply it to your debt. 

Asset Seizure

The CRA is allowed to get a certificate that confirms what you owe them. The certificate will make your debt public record which allows the CRA to place liens on your assets or seize assets. If this happens to you, the CRA usually will send you a notification by mail that your debt has been certified in Federal Court. The letter will also state that if you do not resolve your account, the CRA can take further legal action to collect the debt. 

The CRA can place a lien on any of your assets or personal property including your home. If a lien is registered, the amount of debt owing will be secured and establishes creditor priority in the event of an asset or personal property sale. In other words, if you sell an asset or personal property with a CRA lien on it, the CRA will receive funds to repay tax debt before you receive any funds. 

Finally, the CRA can obtain a writ or memorial which allows them to seize and sell your assets and personal property to repay your tax debt. The proceeds of the sale will also be used to pay the bailiff hired to sell your assets on behalf of the CRA. If any debts are still outstanding, you will be required to pay it as well.

Bottom Line

As you can see, the CRA takes tax debt quite seriously and is one of the creditors you don’t want to mess with. To avoid legal action, it’s best to communicate with the CRA. The CRA typically uses legal action to get the taxpayer’s attention so they can resolve their tax debt. If they’re hearing from you, they are less likely to escalate the situation.

Tax Debt FAQs

Will owing money to the CRA affect my credit score?

The CRA generally won’t report unpaid taxes to the credit bureaus. However, if your unpaid taxes lead to a court case or are sold to a collection agency, it may negatively hurt your credit score. The CRA may report a tax lien on your credit report which can negatively affect your credit scores.

How long can you owe the CRA money?

In Canada, there’s something called the collections limitation period (CLP). This is the time the CRA can try to collect unpaid taxes from someone. While the time varies based on the type of tax debt, individual tax debt has a 10-year CLP.

How many warnings will you get before CRA takes legal action?

Generally, the CRA will only take legal action 90 days after you’ve received your notice of assessment or reassessment. However, before the CRA can take legal action, the CRA will first send you one letter with a warning and must make 3 attempts to warn you by phone.
Veronica Ott avatar on Loans Canada
Veronica Ott

Veronica is a writer who specializes in creating unique and educational personal finance content. She has extensive experience writing blog posts for companies in the financial sector. Veronica's background is in accounting as she graduated from Western University in 2017 with a degree in accounting. She is passionate about using her accounting expertise to help others with their personal finance questions and issues and enjoys using her writing to educate Canadian readers. When Veronica is not writing, she enjoys film, reading, travelling, going to the gym, and listening to music.

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