What Happens if You Don't Pay Your Taxes in Canada?

Every year, the deadline to file your personal income tax is April 30. If you owe on your taxes, you have until April 30 to pay without incurring any penalties or interest. But what if you can’t pay? What options do you have? 

Is Not Paying Taxes a Crime in Canada?

Failing to pay your taxes due to purposely not reporting income or falsifying documents may be considered a form of tax evasion, which is a criminal offence. Penalties can include fines up to 200% of the taxes evaded (on top of the taxes owing) and up to five years in prison. 

While making an innocent mistake like a late payment isn’t labelled as tax evasion, it may still bring on late fees and other penalties.

As Yannick Lemay, Learning Program Lead & Tax Specialist at H&R Block noted on the Moolala: Money Made Simple podcast, 

“The fact is, there are tremendous, very serious consequences for not reporting your income, that could cause, of course, penalties, interest on the amount that you owe…it can even go up to criminal charges.”

How to Avoid Common Tax-Filing Mistakes

To avoid common tax filing mistakes, make sure you do the following:

• Give yourself enough time to complete your tax return by the deadline
• Keep track of your income and expenses throughout the year to simplify tax prep
• Use tax software or a tax expert/accountant to assist your tax prep and calculations

When facing major tax challenges, seek help early on to ensure smooth filing.

Owing Money to the CRA

If you owe taxes to the CRA and don’t pay, they are likely to arrange for part of your paycheque to go straight to the government; this is known as wage garnishment. They can even seize and sell your assets. 

What to Do if You Can’t Pay Your Taxes

“In this world, nothing can be said to be certain, except death and taxes.”

Benjamin Franklin wrote this back in 1789. Over 230 years later, his musings still ring true, even for us Canadians. While some of us might be getting refunds this tax season or just breaking even, there are many of us who will end up owing the CRA. So, if you owe the CRA money and aren’t able to pay them, what should you do?

1. Object to the Taxes You Owe

If you disagree with your tax assessment and the amount you owe, you can object to it. You can file an objection by doing any of the following:

• Register online through My Account, a secure portal that lets you view your personal income tax and benefit information and manage your tax affairs online. Then use the “Register my formal dispute” option in your online CRA My Account.
• Sending a signed letter to your local CRA appeals centre.
• Completing and filing a Form T400A, Objection – Income Tax Act.

If you owe taxes and are unsure why, or don’t agree with the amount owed, consider contacting a tax professional to review your finances.

2. Seek Taxpayer Relief Provisions

Canadians struggling financially may be eligible for Taxpayer Relief Provisions. Provisions include cancelling or waiving interest or penalties.

The CRA provides options for Canadians who are in an emergency situation, such as a job loss or other circumstance beyond your control. These could include a pandemic like COVID-19, a natural disaster, an illness, a death in the family, or serious emotional or mental stress.

You’ll need to prove financial hardship in addition to these circumstances and that paying the CRA would make it difficult for you to afford the basic necessities of life. Plus, it’s important to understand that even if you do qualify for Taxpayer Relief Provisions, you’ll still owe your tax debt; the CRA will just waive or cancel interest and penalties.

If you cannot file your tax return by April 30 and/or make tax payments by April 30, you can request the CRA to cancel any penalties or interest by submitting a request online. 

To request taxpayer relief, such as cancelling or waiving interest or penalties, you’ll need to fill out Form RC 4288 and provide all the facts and documentation supporting why you feel charges should be cancelled or waived.

3. Enroll in a CRA Tax Payment Arrangement Plan

If you can prove to the CRA that financial hardships have set you back, but that you will eventually be able to pay, you may want to try a CRA tax payment arrangement, where you make smaller payments to the CRA until you pay off all of your tax debt, plus applicable interest. 

To qualify for a CRA payment arrangement, you’ll need to prove your current inability to pay. So, be prepared to share details regarding your income, expenses, assets, and liabilities. (If you need help putting a budget together, you can download our free Budget Planner.)

You typically need to have filed your tax return before you can set up a CRA payment arrangement, so it’s important to be sure to complete all forms before applying; this will also help to spare you from additional interest charges. 

There are three ways to set up a payment arrangement plan with the CRA:

Online

If you’re able to make some payments toward the amount you owe, you can authorize the CRA to withdraw a specific amount directly from your bank account. To do this, you must sign up through your CRA account and set up a pre-authorized debit. 

CRA’s Automated Phone Service

You can also make payment arrangements through the CRA’s automated TeleArrangement service by calling 1(866)256-1147 between 7:00 a.m. - 10:00 p.m. ET. Before you call, be sure to have your last assessed tax return in hand; you’ll need to provide the automated service with the amount entered on line 15000 during the call, along with your social insurance number and date of birth.

Speak with a CRA Agent

You can also set up a payment arrangement over the phone with a CRA agent, such as a collections officer, by calling 1(888)863-8657 between 7:00 a.m. - 8:00 p.m. EST. 

How Long Will the CRA Give You to Pay?

You must pay your taxes by the deadline to avoid penalties, but you have options if you can’t pay your taxes on time. You could also contact the CRA to request that they waive certain fees. You may be successful if you plead your case, but only under special circumstances, such as proven financial hardship, extraordinary circumstances, or serious illness.

Tax Relief with Credit Canada

Owing money to the CRA is no fun, and while Credit Canada can’t clear your tax debts, we do offer financial assistance that can improve your ability to pay. 

By entering a Debt Consolidation Program, you can free up cash to settle any taxes you owe. Plus, if you owe taxes and you sign up for a Debt Consolidation Program, it may work to your advantage if you’re trying to get on a CRA tax payment arrangement plan; it shows that you’re experiencing financial hardship, but you’re doing what you can to repay what you owe.

Through our debt consolidation programs, we can negotiate with your creditors, reduce or stop the interest on your unsecured debt (e.g., credit cards, payday loans, utility bills, etc.), and lower your monthly payments. 

To learn more about your debt consolidation options or for free and confidential financial advice, give us a call at 1(800) 267-2272 or contact us online.