What to Do If You Can’t Pay Your Tax Bill: Payment Plans and Options

Introduction

Many Canadians file their taxes only to discover they owe far more than expected. Whether due to self-employment income, rental profits, crypto gains, RRSP withdrawal mistakes, CERB/CRB repayments, GST/HST balances, payroll deductions, or a CRA reassessment, owing money you can’t immediately pay is stressful. But not paying is the worst thing you can do — it triggers daily compounding interest, penalties, collections action, and aggressive CRA enforcement. The good news: Canada Revenue Agency offers structured payment plans, relief programs, and negotiation options that allow taxpayers to pay gradually without losing financial stability. This guide explains what to do if you can’t pay your tax bill and how to negotiate with CRA safely.

Why Taxpayers End Up Owing More Than Expected

unexpected increases in self-employment income
unplanned RRSP withdrawals
CERB/CRB repayments
capital gains on real estate or crypto
lack of instalment payments
GST/HST not remitted
incorrect payroll deductions
underpaid taxes due to multiple jobs
CRA reassessments or audits
Owing taxes is common — failing to act quickly is what creates serious consequences.

Consequences of Not Paying CRA on Time

1. Daily Compounding Interest

Interest begins the day after the due date and compounds daily. Even small balances grow rapidly.

2. Late-Payment Penalties

Penalties stack on top of interest for many debts, especially GST/HST and payroll.

3. CRA Collections Action

CRA can:
freeze your bank account
garnish your wages
seize GST/HST refunds
redirect payments from your clients
place liens on your property
Collections becomes more aggressive the longer you wait.

4. Damage to Cash Flow and Credit

While CRA does not report to credit bureaus, garnishments and freezes disrupt financial stability.

5. Loss of Government Benefits

CCB, GST credits, and refunds may be held back until the balance is paid.

Step-by-Step: What to Do If You Can’t Pay

Step 1: File Your Taxes Anyway

Never delay filing because you can’t pay. Filing late triggers:
late-filing penalties
interest on penalties
concerns of non-compliance
Even if you owe $20,000, filing on time is better than filing late.

Step 2: Determine the Exact Balance Owing

Confirm amounts for:
income tax
GST/HST
payroll source deductions
UHT (Underused Housing Tax)
corporate taxes
Interest is calculated differently for each.

Step 3: Contact CRA Before Collection Begins

If you delay, CRA sends your account to collections, escalating enforcement. You or your CPA must contact CRA early to negotiate payment options.

Step 4: Set Up a CRA Payment Arrangement

CRA allows structured monthly payments when the taxpayer:
cannot pay in full
provides a reasonable monthly amount
maintains future filing obligations
Payment plans may extend up to 24–36 months depending on the case.

Step 5: Provide CRA With a Financial Disclosure (if requested)

For larger debts, CRA may request:
income details
monthly expense summaries
bank statements
liability breakdown
Proof of hardship strengthens your negotiation position.

Step 6: Make a Good-Faith Initial Payment

Even a small payment shows cooperation and increases approval chances.

Step 7: Stay Fully Compliant

CRA cancels payment arrangements if:
a new balance is created
returns are filed late
GST/HST or payroll is missed again
Compliance is essential for maintaining arrangements.

Advanced Options to Reduce the Total Amount Owing

1. Taxpayer Relief (RC4288)

CRA may cancel interest and penalties if:
serious illness
mental health crisis
death in the family
financial hardship
CRA delays
natural disasters
Taxpayer Relief can reduce years of interest.

2. Voluntary Disclosures Program (VDP)

If the debt relates to unreported income and CRA has NOT contacted you, VDP may eliminate penalties entirely.

3. Reassessing the Original Tax Amount

If CRA’s reassessment is incorrect, file a Notice of Objection to reduce or remove the tax owing.

4. Payment Arrangements for Corporations

Corporations can negotiate payment schedules for:
corporate tax
GST/HST
payroll
directors may face liability if payroll is unpaid.

5. Financial Hardship Negotiation with CRA Collections

CRA may reduce monthly payment requirements when:
income is low
expenses are unavoidable
cash flow is tight
CRA cannot legally make taxpayers destitute — essential living needs must remain covered.

What Not to Do When You Can’t Pay

do NOT ignore CRA letters
do NOT wait for collections to call you
do NOT make promises you can’t keep
do NOT send partial documentation
do NOT negotiate alone if the debt is large
Most damage comes from delays — CRA assumes non-compliance.

Special Cases

Real Estate & Capital Gains

Taxes on property sales can be large and unexpected. Payment plans are possible, but documentation of the sale is required.

Crypto Traders

Big crypto gains often trigger large tax bills. CRA reviews ACB carefully — errors can be corrected to reduce balances.

Self-Employed

GST/HST must be remitted even if not collected properly — payment plans apply, but penalties accumulate quickly.

Newcomers

Unfamiliarity with the system is common; CRA accepts valid hardship explanations.

Mackisen Strategy

At Mackisen CPA Montreal, we negotiate payment plans with CRA, reduce penalties through Taxpayer Relief applications, correct reassessments through Notices of Objection, reconstruct crypto and business income, and prevent aggressive CRA collections. We ensure you pay only what you owe — no more — and maintain financial stability while resolving tax debt.

Real Client Experience

A Montreal contractor avoided wage garnishment after we secured a 24-month payment arrangement. A restaurant owner had interest cancelled due to illness through Taxpayer Relief. A crypto investor reduced a $42,000 bill after we recalculated ACB and filed an objection. A newcomer avoided bank freezes through proactive filing and negotiation.

Common Questions

Can CRA freeze my bank account? Yes — if you ignore the debt. Can CRA remove interest? Yes — through Taxpayer Relief. Can I negotiate myself? Possible, but risky for large debts. Will CRA accept small payments? Yes if justified. What if I owe GST/HST? Payment plans still apply.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps taxpayers negotiate manageable payment arrangements, reduce penalties and interest, avoid CRA collections, and regain financial control with strategic tax planning.