What happens if I owe the CRA a lot of money?

2022-11-01   minute read

John Athanasiou

Owing the government money can be very intimidating as it's assumed the government has a limitless ability to collect the debt through any means necessary. Owing debt to Canada Revenue Agency (CRA) can create fear and uncertainty as they are in control of issuing income tax credits and other government-issued income sources. People worry this debt will result in loss of income and an inability to meet daily household expenses if the government cuts off their income or benefits.

Headline "Tax Issues" with three bullet points underneath that say "not keeping accurate records, not knowing how much you owe or how to pay, and not making a payment plan." Cartoon person in background holding a piece of paper and an arrow pointing up behind them.

What can they do to me?

The CRA does have the ability to take collection measures without having to go through the court system. The government can:

  • Garnishee your wages;
  • Put a freeze on your bank account and seize the funds on deposit;
  • Withhold certain tax credits such as GST refund cheques or the Trillium benefit to pay down the debt owing;
  • Arbitrarily assess any income tax returns not yet filed and apply penalties and interest to the debt owing, and
  • File a lien on your property that would ensure the debt is paid if the property is sold.

How can I avoid these actions?

The CRA usually takes these measures when they are unable to come to an agreement with an individual tax filer or the tax filer disregards their statutory obligations under the Income Tax Act. This may mean failure to file income tax returns or other tax documents such as GST / HST returns.

The first thing you want to do is file any outstanding tax documents and continue to file your income tax returns on time each year. This will show CRA that you are trying to improve your situation by complying with the tax laws. It also helps you determine the amount of debt owing in total.  

This knowledge is important for two reasons. First, you can't plan how to get out of debt if you don't know how much you owe in total. Second, you need to figure out how much you should be setting aside each month for next year's income tax debt so you don’t continue to have debt owing year after year. Setting aside the money for future income tax debt will help stop the cycle of debt.

After your returns have been filed, be proactive and contact CRA to make payment arrangements. The CRA may ask you to provide various documents to help them determine a suitable monthly payment. This may include an income and expense statement that outlines your other financial obligations.

Cooperation with this process will usually result in a reasonable arrangement. Expect to sacrifice the extra things in life, such as recreation or vacations, to get this debt under control. 

And finally, make sure you stick to the payment plan that was agreed upon. If you can't make a payment make sure you contact CRA to discuss the missed payment and any changes to your circumstances. The CRA wants to see a concentrated effort and compliance with the income tax obligations.

They want more than I can pay

Sometimes your best efforts are not enough when you owe a lot of money to CRA. It may be the amount of the debt is just too high or perhaps the budget does not allow for a monthly payment.  If that is the case, it’s recommended you speak to a Licensed Insolvency Trustee to discuss your options. 

A Licensed Insolvency Trustee can help you determine if a bankruptcy or consumer proposal are the best choice to allow you to get a fresh start. In most cases, debt owing to CRA can be included in a bankruptcy and consumer proposal. With a few exceptions, CRA is treated like any other creditor in bankruptcy and will stop their collection activity once a bankruptcy is filed.

A Licensed Insolvency Trustee can also provide continued support to make sure that you are not at risk for incurring future income tax debt. Even if bankruptcy is not the right choice for you, they can provide you with a financial assessment and the expert advice you need to deal with CRA debt. Contact a Licensed Insolvency Trustee with MNP Ltd for a free consultation. We will be able to advise you on what solutions are available to help you address the problem.

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