What Happens When You Owe Taxes in Canada

If you work in Canada, your personal income taxes must be filed by April 30th each year. Many employers withhold income taxes with each paycheck, but you are still responsible for filing taxes and paying any balance owed.

Individuals responsible for managing their own taxes will be required to pay the full amount of tax owed by the deadline. If you can’t pay your tax debt, you may incur filing penalties and be subject to legal action.


What Are the Consequences of Not Paying Your Taxes to the CRA?

The CRA will wait 90 days after sending out the Notice of Assessment or Reassessment before starting legal action. Before initiating legal action, they will also:

  • Make three attempts to contact you by phone
  • Send one written warning letter

These phone calls and letters serve as a legal warning that the CRA will take legal action against you if your debts are not paid. They are entitled to start legal action within 180 days of a written and verbal warning being given.

What Types of Legal Action May Be Taken Against You?

There are several methods that the CRA may use to recover a debt. These include the following:

Garnishing Wages

The CRA can contact your employer and ask for a portion of your wages to be paid directly to them until your debt is fully paid.

Seizing Assets

If you owe taxes, the CRA may get a “writ” or “memorial” to seize property you own, such as cars, boats, or investment property, and have it sold by a court enforcement officer to cover the debt.

Liens On Property

If you own a residence, the CRA may register a lien on the property, so when you sell your home, the proceeds will be used to pay your outstanding taxes.

How Can You Avoid Legal Action?

Contact the Canada Revenue Payments Department before the filing deadline if you cannot pay your income taxes on time. They will discuss a possible solution to help you repay your debt.

Set Up a Payment Arrangement

A payment arrangement is an agreement with the CRA to pay your back taxes by a specified date. If you can only pay a portion of your debt, the CRA will schedule a series of payments over time, making managing your debt easier. If you are unable to make even a partial payment, the CRA will set up a payment arrangement to pay back the full debt.

In both situations, you must calculate your monthly income and expenses to determine how much you can afford to pay to cover the debt.

How To Make Your Payments

When you are on a CRA payment plan, it is important that you make each payment in full and on time. You can pay your taxes in person or by mail or schedule your payments through your Canadian financial institution or credit union.

Consult a Bankruptcy Trustee for Advice

If you are struggling with paying your taxes, consult a licensed insolvency trustee to discuss several options to help you manage your debt.


Get a Debt Consolidation Loan

A debt consolidation loan is a great way to pay off your debt if you have multiple debts, including income tax, credit card debt, unpaid utility bills, or payday loans.

To qualify for a debt consolidation loan, you will need to:

  1. Have a good credit rating to qualify for the loan
  2. Own an asset that you can use as collateral against the loan
  3. Be in a good financial position to make the new monthly loan payment

If you have difficulty accessing a loan, you may want to consider a consumer proposal.


Make a Consumer Proposal

With a consumer proposal, a licensed insolvency trustee will negotiate on your behalf to reduce the amount of debt that you owe to your creditors. While it is not possible to negotiate to reduce your debt to the CRA, reducing the amount that you have to pay to your other creditors may make it easier to pay off your tax debt.

Clear Your Income Tax Debt in Edmonton

At Fox-Miles and Associates, we have extensive experience working with individuals to pay down their tax debt. If you would like more information about how we can help you,

Book your free consultation with a licensed insolvency trustee today.