What to Do If You Can’t Pay Your Tax Bill: Payment Plans and Options – A Complete Guide by a Montreal CPA Firm Near You

Introduction

Many Canadians file their taxes only to discover they owe far more than expected. Whether due to self-employment income, RRSP over-contributions, real estate transactions, CERB/CRB repayments, payroll issues, or CRA reassessments, thousands of taxpayers find themselves unable to pay their tax bill in full. Ignoring the debt is the worst thing you can do—CRA interest compounds daily, penalties increase, and collection actions can escalate quickly. The good news: CRA offers structured solutions, and with the right strategy, you can resolve your tax balance without losing financial stability. This guide explains exactly what to do when you cannot pay your tax bill.

Legal and Regulatory Framework

CRA’s collection powers come from the Income Tax Act, the Excise Tax Act (GST/HST), and the Tax Administration Act (Quebec). CRA may charge late-payment interest, require immediate payment, negotiate payment arrangements, or pursue enforcement measures such as wage garnishment, bank account freezes, or liens on property. CRA is not required to consider your expenses when assessing your liability—but it must consider your financial situation when negotiating payment arrangements. Penalties may also apply for late filing or repeated non-compliance.

Key Court Decisions

In Telfer v. Canada, the court confirmed CRA’s strict authority to charge interest even when taxpayers struggle financially. In Rennie v. Canada, CRA was ordered to properly consider a taxpayer’s financial hardship when creating payment terms. In Bozzer v. Canada, the Court of Appeal reinforced CRA’s ability to waive interest through Taxpayer Relief when circumstances justify it. These cases demonstrate both CRA’s power and the taxpayer’s right to reasonable negotiation.

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

1. File Your Tax Return On Time

Even if you cannot pay, file on time to avoid late-filing penalties (5% + 1% per month).

2. Contact CRA Immediately

Delaying contact leads to stronger collection action. CRA is more flexible when you reach out early.

3. Request a Payment Arrangement

CRA will allow monthly payments when you can demonstrate you’re unable to pay in full. Payment plans must be: realistic, consistent, and supported by a monthly budget.

4. Reduce CRA Interest

Interest cannot be negotiated—but you can:

• Pay as much as possible immediately

• Use a line of credit (lower interest rate)

• Request Taxpayer Relief for interest cancellation (if eligible)

• Avoid further penalties by staying compliant

5. Provide CRA With a Budget

CRA will request your income, expenses, assets, and liabilities. They may require bank statements and proof of hardship. Being transparent increases approval likelihood.

6. Consider a Short-Term Bank Loan

Bank interest is usually lower than CRA’s daily compound interest. Many taxpayers eliminate CRA interest by paying the tax bill with a line of credit.

7. Apply for the Taxpayer Relief Program

If your inability to pay stems from illness, hardship, job loss, CRA delays, or extraordinary circumstances, CRA may waive interest and penalties.

8. Evaluate VDP (Voluntary Disclosures Program) If Returns Were Not Filed

If your tax bill is due to late or unfiled returns, the VDP may eliminate penalties and reduce interest.

9. Stay Up to Date With Current Taxes

CRA will not negotiate if you continue falling behind. You must stay compliant moving forward.

What Happens If You Ignore Your Tax Bill

Ignoring CRA leads to:

• Wage garnishment

• Frozen bank accounts

• Seizure of GST/HST credits and tax refunds

• Liens on property

• Seizure of accounts receivable (for businesses)

• Escalation to CRA Collections Enforcement
  CRA does not need a court order to take these steps.

How Payment Arrangements Work

CRA requires that:

• You pay the debt as quickly as reasonably possible

• You provide financial disclosure

• You stay compliant with future filings and payments

• You meet every payment deadline
  Failure to honor the arrangement results in cancellation and immediate enforcement.

Special Considerations for Self-Employed Individuals

Self-employed taxpayers must also stay current with GST/HST, installment payments, payroll obligations, and business licenses. CRA is stricter with payment arrangements when businesses continue to operate but fall behind repeatedly.

Business Payment Plans

Corporations may request payment arrangements but must provide: financial statements, cash-flow projections, A/R aging, payroll compliance, and GST/HST compliance history. Directors may still be personally liable for payroll/GST debts.

When Bankruptcy or Consumer Proposals Apply

In extreme cases, insolvency options may eliminate or reduce tax debt. This includes:

• Consumer proposals

• Bankruptcy
  These options should be used only after CPA analysis because of long-term credit impacts. Some tax debts survive bankruptcy (e.g., source deductions).

Mackisen Strategy

At Mackisen CPA Montreal, we help clients negotiate realistic CRA payment plans, prepare hardship budgets, structure tax installments, request Taxpayer Relief, use bank financing strategically, correct past filings, and protect against collection escalation. When needed, we coordinate with licensed insolvency professionals to evaluate restructuring options.

Real Client Experience

A Montreal taxpayer avoided wage garnishment after we negotiated a long-term payment plan. A contractor eliminated interest through Taxpayer Relief due to medical hardship. A business owner facing GST/HST debt avoided a bank freeze after we structured a compliance plan. A freelancer used low-interest financing to stop CRA interest and regain stability.

Common Questions

Will CRA forgive tax debt? Rarely—only interest or penalties may be waived. Can CRA take my bank money? Yes, if you ignore them. Will CRA accept small monthly payments? Yes—if justified with a budget. Does a payment plan stop interest? No, but it stops enforcement.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps taxpayers regain control when a tax bill becomes unmanageable. We negotiate with CRA, prevent collections, and create structured financial plans that protect your stability.