What Happens If You Owe the CRA Money and Cannot Pay?

Your Options When You Cannot Pay CRA Tax Debt

If you owe money to the Canada Revenue Agency (CRA) but cannot pay the full balance immediately, ignoring the debt is usually the worst option.

Depending on your circumstances, you may be able to arrange payments over time, challenge an incorrect assessment, request relief from eligible penalties and interest, explore remission in exceptional circumstances, or obtain insolvency advice where the debt cannot realistically be repaid.

This guide explains the main options available when you owe the CRA money and cannot pay.

For legal assistance with an active tax debt or collection matter, visit our CRA collections and tax debt lawyers page.

Quick Answer: What Should You Do First?

Confirm what you owe: review your CRA account, Notice of Assessment, Notice of Reassessment, or other debt notice.
Determine whether the debt is correct: inability to pay and disagreement with an assessment are different legal issues.
Do not ignore CRA contact: collection action may escalate if no acceptable payment arrangement or other resolution is in place.
Assess what you can realistically pay: the CRA may consider a payment arrangement based on your financial circumstances.
Consider penalty and interest relief: taxpayer relief may be available in qualifying circumstances.
Get professional advice where necessary: particularly if the debt is substantial, collections have begun, or insolvency may be an issue.

What Happens When You Owe Money to the CRA?

When a tax or other CRA-administered debt becomes payable and remains unpaid, interest may continue to accrue and the CRA may begin collection activity.

Depending on the type of debt and circumstances, the CRA may:

Apply tax refunds or certain government payments against the balance;
Contact you to request payment;
Require financial information;
Enter into a payment arrangement;
Issue a Requirement to Pay to an employer, bank, customer, or other third party;
Register the debt against property;
Seize and sell assets where permitted; or
Take other collection action authorized by law.

The CRA generally provides legal warnings before beginning certain collection actions, although different rules can apply to debts such as payroll source deductions and GST/HST remittances.

For official information, see the CRA’s guidance on what happens if you do not pay your debt.

Does CRA Interest Keep Accumulating?

Generally, yes.

Interest is charged on many unpaid CRA balances and normally continues to accrue until the balance is paid or relief is granted under an applicable provision.

Making a partial payment can reduce the balance on which future interest is calculated.

The CRA publishes current prescribed interest rates here: CRA prescribed interest rates.

Option 1: Make a CRA Payment Arrangement

If you cannot pay the entire balance immediately, the CRA may agree to a payment arrangement that allows the debt to be paid over time.

The CRA may consider:

Your income;
Your regular living or business expenses;
Your assets;
Your liabilities;
Your ability to borrow or obtain funds;
The amount of the debt; and
Your proposed payment schedule.

A payment arrangement does not normally reduce the principal tax debt, and interest generally continues to accrue on the unpaid balance.

For official information, see the CRA’s payment arrangement guidance.

Can You Set Up a CRA Payment Plan Online?

Depending on the type and amount of debt, some taxpayers may be able to manage their balance or arrange payments through CRA online services.

The CRA’s Manage balance service may be available for certain personal income-tax and benefit debts and can allow eligible taxpayers to review their balance, make payments, schedule a series of payments, or contact the collections officer responsible for the account.

Availability depends on the taxpayer and type of debt, so the options shown in the taxpayer’s CRA account should be reviewed directly.

What Happens If You Miss a CRA Payment Arrangement?

If you fail to make payments required under an arrangement, the CRA may cancel or reconsider the arrangement and resume collection action.

If your financial circumstances change and you can no longer make the agreed payments, contact the CRA or obtain professional advice before simply stopping payments.

Option 2: Challenge the Assessment If the Tax Is Wrong

If you cannot pay because the CRA assessed an amount that you believe is legally or factually incorrect, the issue may not simply be a collection problem.

You may have objection or appeal rights.

A Notice of Objection can challenge issues such as:

Unreported income assessed by the CRA;
Denied expenses or deductions;
Gross-negligence penalties;
Real estate or business-income characterization;
Corporate tax adjustments; or
Other disputed assessments or reassessments.

If the objection succeeds, the assessment may be varied or vacated, which can reduce the amount owing.

See our Notice of Objection (T400A) guide for deadlines and filing requirements.

Does Filing a Notice of Objection Stop CRA Collections?

Sometimes, but not in every case.

Collection restrictions generally apply to many disputed income-tax assessments while objection and appeal rights are being exercised.

However, important exceptions can apply to:

GST/HST;
Payroll source deductions;
Deemed-trust amounts;
Certain large-corporation amounts;
Jeopardy situations; and
Other amounts excluded by legislation.

If collection action has already begun, see our guide to CRA wage garnishments, frozen bank accounts and tax liens.

Option 3: Request CRA Penalty and Interest Relief

If part of the balance consists of penalties or interest, taxpayer relief may be available in appropriate circumstances.

The CRA may consider relief where penalties or interest arose because of circumstances such as:

Serious illness or accident;
Natural or human-made disasters;
Death or serious personal circumstances;
Actions or delays by the CRA;
Financial hardship; or
Other qualifying circumstances.

Taxpayer relief generally does not cancel principal tax that was validly assessed.

For more information, see our CRA Form RC4288 taxpayer relief guide.

You can also review the CRA’s official penalty and interest relief guidance.

Does Financial Hardship Mean the CRA Will Forgive the Tax?

No.

Financial hardship may be relevant to taxpayer relief, payment arrangements, or other remedies, but it does not automatically allow the CRA to cancel validly assessed principal tax.

The appropriate solution depends on whether the problem is:

An incorrect assessment;
An inability to pay immediately;
Excessive penalties or interest;
Exceptional circumstances warranting remission; or
Insolvency.

Option 4: Consider CRA Remission in Exceptional Cases

Remission is an extraordinary remedy that can provide full or partial relief from federal tax, penalties, interest, or other amounts owing to the Crown.

Unlike ordinary taxpayer relief, remission can potentially apply to principal tax.

However, remission is generally considered a last-resort remedy and is available only in exceptional circumstances where other available remedies do not adequately address the situation.

Learn more about our CRA remission order services.

The CRA also provides an overview of available relief options in its debt relief guidance.

Option 5: Consider a Consumer Proposal

Where a taxpayer is insolvent and cannot realistically repay their total debts, a consumer proposal may be an option.

A consumer proposal is a formal process under the Bankruptcy and Insolvency Act and must be administered by a Licensed Insolvency Trustee.

Depending on the circumstances, a proposal may restructure or reduce unsecured debts, including tax debt that is legally provable in the insolvency proceeding.

Once a proposal is properly filed, statutory protections may restrict certain creditor collection activity while the proposal process is underway.

Eligibility and treatment of particular CRA claims depend on the taxpayer’s circumstances, the type of tax debt, secured claims, deemed trusts, and other insolvency rules.

A Licensed Insolvency Trustee should provide advice about whether a proposal is appropriate.

Option 6: Bankruptcy

Bankruptcy may be considered where a taxpayer is insolvent and other debt-resolution options are not workable.

Bankruptcy is governed by the Bankruptcy and Insolvency Act and must be administered by a Licensed Insolvency Trustee.

CRA tax debts may be treated as claims in a bankruptcy, but the result depends on the type of debt, timing, security interests, deemed-trust rules, prior assessments, and other statutory provisions.

Bankruptcy can also have significant consequences for assets, credit, income, tax refunds, and future financial affairs.

Anyone considering bankruptcy because of CRA debt should obtain advice from a Licensed Insolvency Trustee and, where appropriate, legal or tax advice about disputed assessments and tax consequences.

Does the CRA Offer Tax Debt Forgiveness?

There is no general CRA program that simply negotiates away validly assessed principal tax because a taxpayer cannot afford to pay it.

Different remedies deal with different problems:

Payment arrangement: spreads payment of an accepted debt over time;
Notice of Objection: challenges an assessment that may be incorrect;
Taxpayer relief: may cancel or waive eligible penalties and interest;
Remission: may provide extraordinary relief in exceptional cases; and
Insolvency proceedings: may restructure or otherwise affect eligible debts under federal insolvency law.

Can a Tax Lawyer Negotiate the Principal Tax With the CRA?

A tax lawyer generally cannot negotiate a valid tax assessment down simply because the taxpayer is unable to pay.

A lawyer may instead determine whether:

The assessment can be challenged;
Collection restrictions apply;
A payment arrangement is appropriate;
Penalties or interest may qualify for taxpayer relief;
Remission should be considered;
A collection action can be addressed through available legal mechanisms; or
Insolvency advice should be obtained from a Licensed Insolvency Trustee.

What If Your CRA Debt Came From an Audit?

If the tax debt resulted from a CRA audit or reassessment, review whether the underlying assessment is correct before treating the matter only as a payment problem.

If objection rights remain available, the assessment may still be challenged.

See our CRA Audit Letter: What to Do Next guide for more information about the audit process.

How Our Tax Lawyers Assist With CRA Tax Debt

Review the assessments and amounts owing;
Determine whether objection or appeal rights remain available;
Advise on collection restrictions;
Communicate with CRA Collections as an authorized representative;
Assist with payment arrangement discussions;
Prepare taxpayer relief requests for eligible penalties and interest;
Assess whether remission may be appropriate in exceptional circumstances;
Address garnishments, Requirements to Pay, liens, and related enforcement matters; and
Coordinate with Licensed Insolvency Trustees where insolvency options are being considered.

Frequently Asked Questions About CRA Tax Debt

Can I make monthly payments to the CRA?

Potentially. The CRA may agree to a payment arrangement based on your financial circumstances and ability to pay.

Will interest stop if I have a payment arrangement?

Generally, no. Interest normally continues to accrue on the unpaid balance until it is paid or relief is granted.

Can the CRA garnish my wages if I cannot pay?

The CRA has statutory powers that can allow it to issue a Requirement to Pay to an employer or other third party where the legal requirements for collection are satisfied.

Can the CRA freeze my bank account?

The CRA can issue a Requirement to Pay to a financial institution, which can result in funds being restricted and remitted toward the outstanding debt.

Can RC4288 eliminate my CRA tax debt?

RC4288 taxpayer relief generally applies to eligible penalties and interest, not principal tax that was validly assessed.

Can the CRA reduce principal tax because of hardship?

Not through the ordinary taxpayer relief process. Other remedies, such as remission or insolvency proceedings, may be relevant in exceptional circumstances.

Should I use a consumer proposal to deal with CRA debt?

That depends on your overall financial situation. Consumer proposals are insolvency proceedings administered by Licensed Insolvency Trustees, and the treatment of CRA debt depends on the circumstances. A trustee should assess whether a proposal is appropriate.

What happens if I ignore CRA tax debt?

Interest can continue to accrue and the CRA may eventually take collection action, including set-offs, Requirements to Pay, property registrations, or other legal enforcement measures.

Speak With a Tax Lawyer About CRA Tax Debt

If you owe the CRA money and cannot pay, the appropriate strategy depends on whether the assessment is correct, what type of debt is involved, whether collections have started, and what you can realistically afford.

KR Law Firm assists individuals and businesses with CRA tax debt, collection action, payment arrangements, disputed assessments, taxpayer relief, and related tax matters across Canada.

Book a Free Consultation with one of our tax lawyers to discuss your CRA tax debt.