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For some Canadians, filing a tax return is not a problem. They may gleefully look forward to the April 30th tax deadline, as they expect a hefty refund. For others, however, April 30th is a dreaded date. That’s because instead of being the recipient of a tax refund, they discover that they owe money to the CRA.

While the impact of an extra tax bill may be negligible for some taxpayers, it can be a great burden for those who are struggling financially and have limited funds. The added weight of another bill may be more than they can handle – and the prospect of being indebted to the CRA can be distressing. Maybe you find yourself in such a predicament.

So, what happens if you don’t pay your taxes in Canada? Are there penalties? Find out what your options are if you can’t afford to pay your taxes.

Find out what’s the maximum tax refund you can get in Canada.

What Happens If You Don’t Pay Your Taxes In Canada?

The penalty for filing a tax return late is 5% of the balance owing, plus 1% for every month the balance is outstanding, up to a maximum of 12 months. Interest accrues daily on the owed balance at the CRA’s prescribed rate, which changes every quarter. 

Let’s say you owe $15,000 in taxes. Even if you’re just one day late paying them, you would be slapped with a $750 fine. The extra charges can really add up if you don’t take care of your outstanding balance right away. 

Even if you’re unable to pay your taxes by the deadline, you should at least file your current year’s return and previous years’ returns if you haven’t done so already. You can’t fully explore your options until you know exactly how much you owe – and the CRA will refuse to work with you to find a solution until your filings are up-to-date.

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Can The CRA Garnish My Wages If I Don’t Pay My Taxes?

Yes, the CRA can collect the taxes you owe by garnishing your wages. In this case, the CRA will require your employer to send the outstanding amount owed to the CRA rather than pay you.

Similarly, they can also garnish your bank account if you don’t pay your taxes or make a payment arrangement with the CRA.

Can The CRA Seize My Assets If I Don’t Pay My Taxes?

Another way that the CRA can recoup the taxes owed is to seize your assets and sell them to recoup their losses. This can include things like your home, vacation property, vehicle, boat, and other valuable assets.

Before the CRA can do so, they will have to give you notice. Generally, they have to give you 3 verbal warnings and 1 written warning before taking any legal action. 

Is Not Paying Taxes A Crime In Canada?

You are legally required to file your income taxes in Canada. If you don’t, you could face a lot more than just interest on outstanding amounts owed. 

Tax evasion — which involves knowingly falsifying or omitting information on your income tax returns — is a crime in Canada. If you’re found guilty of tax evasion, you’ll have to pay the full amount owed (plus interest). You may also be fined up to 200% of the taxes and possibly face jail time up to five years.

Do I Still Have To File My Taxes If I Don’t Owe Anything?

Even if you don’t owe anything, you could still face consequences if you file late. While you won’t be charged interest since you don’t owe anything, you could be missing out on government benefits, such as the Canada Child Benefit (CCB) or GST/HST credit. So, even though you might not have to pay penalty fees, you could lose money in other ways. 

Can I Appeal The Taxes I Owe?

If you don’t agree with the amount of taxes you owe, you may have the option to appeal the tax amount you owe. You can exercise this option within 90 days from the date of the notice of confirmation, reassessment, or redetermination. 

If you miss the deadline to file an appeal, you can apply for an extension. In this case, you have one year and 90 days to apply, from the date of the notice of confirmation, reassessment, or redetermination.

What Can You Do If You Can’t Pay Your Taxes? 

If sending a lump-sum payment to settle your tax liability is not possible, there are other options you can explore, which are detailed below.

Request Taxpayer Relief 

If you’re in a dire situation financially, you can make a formal request to the CRA to have your interest charges and late filing penalties waived. You can also ask the CRA to accept a late-filed tax return or request a tax reassessment to claim refunds beyond the allowable 3-year period. 

Under ordinary circumstances, the CRA disallows taxpayers from claiming a refund on a return filed three years after its due date. But the CRA may let this slide depending on your circumstances. 

To be eligible for these tax relief provisions, you must prove that you’re unable to fulfill your payment obligations due to:

  • Extraordinary circumstances
  • Specific actions of the CRA
  • Exceptional financial hardship resulting in an inability to pay
  • Other circumstances 

You can apply to have your case considered by completing form RC4288 – Request for Taxpayer Relief – and submitting it to your local tax office. Be sure to provide as many details as possible and include all the necessary documentation. The time limit to file your application is 10 years from the tax year in which you’re asking for leniency.

Check out these 17 ways you can reduce your tax debt.

Make Payment Arrangements With The CRA

The CRA offers support and guidance for taxpayers who are dealing with tax payment issues. The agency understands that taxpayers routinely experience challenges with their finances and, as a result, offers flexible payment plans. 

You can contact the CRA to work out a payment arrangement that works for you. To initiate a payment arrangement, follow these steps:

  1. Go to the CRA website and use the payment arrangement calculator to determine your optimal payment schedule. 
  2. Contact the CRA to arrange your payment schedule. The CRA typically allows you to pay your tax debt over five years, including all applicable interest and fees. They may ask you to provide your financial details, such as proof of income, expenses, assets, and liabilities, to support your case. Be honest about your present circumstances and negotiate a fair and reasonable payment plan. 
  3. Once a payment plan has been established, ensure you commit to it by making timely payments. You can make payments by setting up pre-authorized debits or by using the CRA’s automated TeleArrangement service.

Check out if you have any unclaimed cheques with the CRA.

Use a Personal Loan

Sometimes the only way to pay off your tax debt is to borrow money. If you’re unable to negotiate a payment plan with the CRA, obtaining a personal loan is a great alternative. 

A personal loan can help you pay off your tax debt by spreading your costs over a period of time. Depending on the size of your tax debt, you could spread it over 6 months to 5 years with your personal loan. 

Moreover, interest rates on personal loans are typically lower than those on credit cards. And if you have good credit, you may be able to snag an even lower rate.

The most efficient way to find an affordable loan is to use an online loan comparison platform. By providing just a few details, you can access a wide range of lenders and select the loan most suitable for you.

Check out these tax loans in Canada.

Use the Equity in Your Home

If you own a home, consider using your property’s equity to pay off your tax debt. This strategy is advantageous when interest rates are low. 

There are three ways to access your home equity:

  • Refinance your mortgage: When you refinance your mortgage, you can use a portion of the funds to pay off your tax debt. Keep in mind that refinancing involves breaking your mortgage contract, which may trigger expensive prepayment penalties. 
  • Home equity loan: This is a loan backed by the equity in your home. Because your home acts as collateral for the loan, you should strive to pay it back sooner rather than later once you use the funds to settle your tax debt.
  • Home equity line of credit (HELOC): Much like a home equity loan, a HELOC is backed by the equity in your home. You can borrow as much as you like, up to a prescribed maximum.

Find out if you can consolidate your tax debt

Use A Credit Card

Using a credit card to pay off your tax debt is not optimal due to the high-interest rates. However, it’s preferable to have your wages garnished or liens placed on your assets, so it’s worth considering.

Examine what rate you’ll be paying on your current card. The typical credit card rate in Canada is 19.99%. Some cards charge rates higher than 30%. Interest charges can accumulate quickly, especially if you anticipate carrying a balance for many years. 

Your best bet is to apply for a low-interest credit card. Some cards also offer the ability to collect points or receive cashback, which is a nice bonus to look for as well.

The CRA doesn’t accept credit cards as a payment method; you must use a third-party service provider to process your payment, which will cost you a small fee.

File A Consumer Proposal

What can you do if you’ve exhausted all options to secure the funds required to pay off your tax debt? If the situation escalates to this point, you can file a consumer proposal to negotiate a reduction in your tax debt with the CRA. 

Bottom Line

If you owe a significant amount of taxes to the CRA, there are various routes you can take to pay off the debt.

Assuming your tax filing is up-to-date, you should first explore the cheapest and least demanding options. These include arranging a fair and affordable payment plan with the CRA and asking for financial relief, resulting in you better managing the debt. Should those methods fail, you can try to secure a loan, use a credit card, or file a consumer proposal.

Taxpayer FAQs

What if you refuse to pay your taxes?

The CRA can exercise considerable power to collect unpaid taxes. Should you fail to pay what you owe, they can freeze your bank account and garnish your wages to settle the balance. If you have limited or no income, they can also seize your assets, such as your home, and place liens on them.

Can I get rid of my tax debt through bankruptcy?

Yes, like many other kinds of debt, your taxes can be discharged through bankruptcy. However, bankruptcy will seriously impair your credit score and remain on your credit report for six to seven years. It will take a considerable amount of time and effort to rebuild your credit score. For this reason, bankruptcy should be considered only as a last resort.

How do I know how much tax I owe?

Once your tax filings are up-to-date, the CRA will issue a Notice of Assessment (NOA), which is a document that summarizes your filed returns. The NOA will also state any taxes, penalties, and interest you owe. You can also check how much tax you owe by logging into your CRA My Account on the CRA’s website.
Mark Gregorski avatar on Loans Canada
Mark Gregorski

Mark is a writer who specializes in writing content for companies in the financial services industry. He has written articles about personal finance, mortgages, and real estate and is passionate about educating people on how to make smart financial decisions. Mark graduated from the Northern Alberta Institute of Technology with a degree in finance and has more than ten years' experience as an accountant. Outside of writing, he enjoys playing poker, going to the gym, composing music, and learning about digital marketing.

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