Negotiating a Payment Plan with CRA to Avoid Legal Action – A Complete Guide by a Montreal CPA Firm Near You

Introduction

If you owe money to the Canada Revenue Agency (CRA) and cannot pay the full balance immediately, the worst thing you can do is ignore the debt. CRA collections can escalate quickly—from phone calls to wage garnishment, frozen bank accounts, property liens, and seizures. The safest way to prevent aggressive enforcement is to negotiate a CRA payment plan. With the right approach and documentation, CRA often allows structured monthly payments. This guide explains how CRA payment plans work, what CRA requires, and how to negotiate a plan that protects your financial stability.

Legal and Regulatory Framework

CRA’s authority to collect outstanding tax comes from the Income Tax Act, Excise Tax Act (GST/HST), and Tax Administration Act (Quebec). CRA must consider a taxpayer’s ability to pay when negotiating payment arrangements. CRA Collections agents follow strict internal guidelines requiring them to verify income, expenses, assets, liabilities, and financial hardship before approving a plan. Penalties and interest continue to apply during a payment plan unless separately waived under the Taxpayer Relief Program.

Key Court Decisions

In Rennie v. Canada, the Federal Court ruled that CRA must reasonably consider a taxpayer’s financial circumstances when setting payment terms. In Telfer v. Canada, CRA’s authority to charge interest on overdue taxes was upheld, even during payment arrangements. In Bozzer v. Canada, the Federal Court of Appeal confirmed that CRA may waive interest under taxpayer relief if justified. These cases outline both CRA’s collection power and the taxpayer’s right to fair consideration.

When You Should Request a Payment Plan

Request a payment plan when: you cannot pay your tax balance in full, CRA has issued repeated collection letters, you face cash-flow problems, you’re recovering from illness or hardship, your business is seasonal, you have debt owed for GST/HST or payroll, you have multiple unfiled years recently corrected, or CRA has escalated collection actions (bank freeze, wage garnishment). A payment plan prevents further enforcement.

How CRA Payment Plans Work

CRA requires:

• All required tax returns to be filed

• Full financial disclosure

• A realistic monthly payment amount based on cash flow

• Immediate payment of what you can afford upfront (recommended)

• Automatic withdrawals or scheduled payments
  CRA may request proof of income, bank statements, expense details, loan statements, and household budgets.

What CRA Considers When Approving a Payment Plan

CRA evaluates:

• Net income and expenses

• Ability to reduce discretionary spending

• Number of dependents

• Business cash-flow stability

• Availability of credit or financing

• Value of assets (property, vehicles, investments)

• Past compliance history
  A stronger financial package means a faster and more favorable approval.

Steps to Negotiate a Successful Payment Arrangement

1. File All Outstanding Returns

CRA will not negotiate until all filings are current.

2. Gather Financial Information

Prepare a complete budget with income, necessary living expenses, business costs, and dependents.

3. Determine What You Can Realistically Pay

Lowballing leads to rejection; overcommitting leads to default. Choose a sustainable amount.

4. Make a Good-Faith Upfront Payment

Even a small lump sum shows cooperation and increases approval odds.

5. Provide Proof of Hardship (if applicable)

Medical conditions, job loss, or financial crises can justify more lenient terms.

6. Propose a Structured Monthly Payment

Show how you calculated the amount.

7. Have a CPA Negotiate for You

CRA responds more favorably to structured, professional submissions.

Common Mistakes to Avoid

Do not ignore CRA letters.
Do not call CRA Collections unprepared.
Do not provide unrealistic payment proposals.
Do not fail to disclose full financial information.
Do not miss payments once the arrangement is in place.
Do not continue accumulating new tax debts.
Do not negotiate alone if CRA has already escalated enforcement.

If CRA Rejects Your Payment Plan

Possible reasons include: insufficient financial disclosure, high spending on non-essential expenses, incomplete filings, or prior defaults. In these cases, provide supplementary documents, adjust your budget, or escalate through a supervisor. If the underlying assessment is incorrect, file a Notice of Objection to pause income-tax collections.

How to Stop Garnishment or a Bank Freeze

Negotiating a payment plan is often the fastest way to lift:

• Wage garnishments

• Bank freezes

• Client RTPs
  Once the plan is approved, CRA usually removes or reduces enforcement actions.

How to Reduce Interest and Penalties

While CRA will not reduce interest during a payment plan, you may apply for Taxpayer Relief to cancel interest and penalties if justified by illness, hardship, CRA delays, or extraordinary circumstances. This application can be made after your plan is established.

Special Considerations for Businesses

Businesses must remain up to date on GST/HST and payroll. Directors may face personal liability if corporate remittances fall behind. A CPA should review corporate compliance before negotiating.

Mackisen Strategy

At Mackisen CPA Montreal, we negotiate payment plans that protect your cash flow while satisfying CRA requirements. We prepare financial disclosure packages, create realistic budgets, correct outstanding filings, communicate with Collections, lift garnishments and freezes, and file Taxpayer Relief applications when appropriate. We also manage objections to dispute incorrect assessments.

Real Client Experience

A Montreal contractor with a wage garnishment had it lifted after we secured a payment plan. A business owner avoided bankruptcy by negotiating reduced monthly payments. A self-employed professional prevented a bank freeze by demonstrating financial hardship. A corporation facing GST arrears avoided director’s liability after we corrected remittances and set up structured payments.

Common Questions

Does a payment plan stop interest? No. Does it stop collections? Yes—if approved. Can CRA reject my proposal? Yes. Can CRA force me to sell assets? In extreme cases. How long can a plan last? Typically 6–24 months.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal negotiates fair CRA payment plans that prevent legal action, stabilize your finances, and protect your rights.

48. Director’s Penalties for Unremitted Taxes (GST/HST & Payroll): Understanding Your Risks – A Complete Guide by a Montreal CPA Firm Near You

Introduction

Many corporate directors mistakenly believe incorporation protects them from all personal liability. It does not. When it comes to unremitted GST/HST, payroll deductions, and source deductions, the Canada Revenue Agency (CRA) can—and frequently does—hold corporate directors personally responsible. Directors can be forced to pay the corporation’s tax debts from their own bank accounts, wages, or assets. This guide explains exactly how director’s penalties work, what taxes create personal liability, how CRA enforces these debts, and how directors can defend themselves or avoid liability altogether.

Legal and Regulatory Framework

Director liability arises under:

• Income Tax Act, Section 227.1 – source deductions

• Excise Tax Act, Section 323 – GST/HST

• Tax Administration Act (Quebec) – QST, CNESST, QPIP
  These laws allow CRA to assess any current or former director of a corporation personally for unpaid:

• GST/HST collected from customers

• Income tax withholdings on employee wages

• CPP/QPP and EI/QPIP deductions

• Related penalties and interest
  Directors can be assessed up to two years after resigning, and CRA must first attempt collection from the corporation before pursuing directors.

Key Court Decisions

In Buckingham v. Canada, the Federal Court confirmed that directors must exercise reasonable care, diligence, and skill—“just being a director” is not enough. In Worrell v. Canada, directors were held personally liable because they did not adequately supervise remittances. In Barrett v. Canada, CRA failed because it could not prove proper collection attempts from the corporation first—showing directors have rights. In Balthazard v. Canada, directors won their case because they demonstrated due diligence. These cases highlight the importance of documentation and oversight.

What Taxes Directors Are Personally Liable For

1. Payroll Source Deductions

Directors are personally liable for:

• Income tax withholdings

• CPP/QPP

• EI/QPIP

• Related penalties and interest
  Missing a single remittance—even by a few days—triggers steep penalties.

2. GST/HST & QST

If the corporation collected GST/HST or QST from customers but did not remit it, directors become personally responsible for the full amount.

3. Penalties & Interest

Late-filing penalties, failure-to-remit penalties, and interest accumulate daily and can also be assessed personally.

4. Director’s Liability After Bankruptcy

If the corporation becomes insolvent or bankrupt, CRA immediately shifts focus to directors.

How CRA Enforces Director Liability

CRA’s process typically involves:

1. Attempting collection from the corporation

2. Determining that the corporation is uncollectible

3. Issuing a Director’s Liability Assessment (DLA)

4. Serving directors personally

5. Beginning enforcement actions—bank freezes, wage garnishment, liens on property, seizure of tax refunds
   Once a DLA is issued, the burden shifts to the director to prove due diligence.

The Due Diligence Defense

To avoid liability, directors must prove they exercised due diligence by:

• Ensuring timely remittances

• Reviewing monthly payroll and GST reports

• Hiring qualified accountants

• Responding to CRA notices immediately

• Ensuring books and records were maintained properly

• Taking corrective action at the first sign of non-compliance
  Courts reject the defence of ignorance—saying “I didn’t know” offers no protection.

Special Risks for Small Businesses

Small business directors face higher risk because they often: mix personal and business accounts, treat GST/HST as working capital, delegate payroll without oversight, face cash-flow problems, or rely on inexperienced bookkeepers. CRA views these directors as having full responsibility for remittances.

If You Receive a Director’s Liability Assessment

1. Act Immediately—You Have 90 Days

You must file a Notice of Objection to dispute the assessment.

2. Challenge CRA’s Collection Attempts

CRA must prove they tried to collect from the corporation.

3. Prove Due Diligence

Provide evidence of oversight, communication, and corrective effort.

4. Correct Corporate Filings

Fix any outstanding GST/HST or payroll remittances.

5. Negotiate Payment Arrangements

If liability is valid, negotiate structured payments to avoid garnishment.

6. Apply for Taxpayer Relief (if penalties/interest apply)

In exceptional circumstances—illness, disaster, CRA error—relief may be available.

Can Former Directors Be Assessed?

Yes—CRA can assess former directors for debts that arose while they were in office, for up to two years after resignation. Proper resignation procedures must be followed; failure to file resignation with corporate registries may extend liability.

Can Shadow Directors Be Assessed?

Yes. Individuals who act like directors—signing authority, decision-making, financial control—can be considered “de facto” directors and held personally liable even if not legally appointed.

Mackisen Strategy

At Mackisen CPA Montreal, we defend directors facing personal liability by reviewing CRA’s steps, challenging incorrect DLAs, proving due diligence, correcting corporate oversights, reducing penalties, and negotiating payment plans. We prepare strong legal submissions and file Notices of Objection to protect directors’ personal assets and rights.

Real Client Experience

A Montreal director defeated a six-figure payroll liability after we proved CRA failed to attempt collection from the corporation. A business owner avoided GST liability by demonstrating proper oversight and accountant involvement. A dissolved corporation’s director reduced liability dramatically after evidence showed he acted responsibly during financial hardship.

Common Questions

Can CRA take my house or wages? Yes—if a DLA stands. Can I defend myself by saying I didn’t know? No—ignorance is not a defence. Can I resign to avoid liability? Only for future periods—past debts remain. Can multiple directors be assessed? Yes—CRA can pursue all of them.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal protects directors from personal liability through strong strategy, legal defenses, and meticulous evidence preparation. We help directors fight unfair assessments and regain financial security.