Amounts owing to the CRA for personal income tax and HST sometimes get pushed aside to concentrate on paying your everyday living expenses. The CRA does charge interest on the amount owed to them, but it is usually lower than the interest rate on credit cards and payday loans. Eventually, the CRA will send a collection notice to demand repayment.

Do not ignore the collection letter. The CRA has higher rights than most creditors and can garnish your wages, freeze your bank accounts and put a lien against your assets without serving you with a Statement of Claim. If you receive a collection letter, you should:

  • Communicate with the CRA so they know that you take this debt seriously. Call the CRA representative assigned to your account, who is referred to in your letter. If you are not able to pay the debt in full, ask them to allow you a couple of weeks to review your finances and come up with a payment plan.
  • Make a list of all income that you receive in a month and all of your living expenses. Analyze if you can cut back on any discretionary expenses (dining out, streaming services, entertainment) to increase the amount available to pay off your CRA debt. Divide your CRA debt by the amount that you can afford to pay every month to see how long it will take you to pay off the debt. Contact the CRA to see if they would agree to your monthly payment plan.  The CRA will likely be looking to have their debt paid in full in 12-18 months. 
  • The CRA may grant relief from penalty or interest if extraordinary circumstances or financial hardship prevent you from paying your taxes. More details are available at Taxpayer relief provisions—Canada.ca.
  • If the CRA does not agree to a payment plan, do you have any assets that you could liquidate to pay off the debt? Funds in a TFSA are likely earning less than the interest you are being charged by the CRA, so it may make sense to collapse it to pay the debt and then rebuild the TFSA later.

If the debt to the CRA is too overwhelming for you to negotiate a payment plan on your own, seek professional advice. Amounts owing for income tax and HST can be discharged in a bankruptcy or proposal. Contact Taylor Leibow Inc., Licensed Insolvency Trustees, to review your financial situation in detail and discuss solutions. 

Kathy LenartBy Kathy Lenart – Insolvency Partner, Licensed Insolvency Trustee
CPA, CA, CIRP
Canadian Association of Insolvency and Restructuring Professionals (CAIRP)