Income Tax Debt Solutions

When you are sure just how much you really owe to Canada Revenue Agency (CRA), consider your possible income tax debt solutions, starting with the simplest.


Solution 1: Negotiate payment terms with CRA

If you can’t pay all you owe immediately, you may be able to negotiate a payment schedule. Contact your nearest CRA office, explain your circumstances, and offer a schedule that you can manage.

For example, if you owe $1,000, you may offer to pay $100 per month for the next ten months.

CRA will probably agree to let you pay over time, but:

  • They will insist on getting the full amount owed.
  • They will continue to charge interest and penalties until your debt is paid off.
  • They will probably not accept a repayment period greater than one year.

If CRA does not accept your offer, they are likely to take further action against you to collect the taxes you owe. Because of this, you must be ready to try another solution.


Solution 2: Get a loan to finance tax payments

You can probably get a loan to finance the tax payment over a period greater than one year, if:

  • Your income and expenses permit you to repay your full tax debt within a reasonable time
  • You can provide security for the loan, such as a second mortgage on your house.

Canadian banks no longer generally make unsecured loans for payment of tax debt, but will look favourably on any loan that they consider low risk.


Solution 3: File a Consumer Proposal

If you simply can’t pay the full amount of your back taxes, consider a consumer proposal. For a consumer proposal, a Licensed Insolvency Trustee works with you to determine how much you can afford to pay each month, and then negotiates with your creditors to have the proposal accepted. A proposal becomes possible when:

  • Your total debt to all creditors is less than $250,000.
  • Creditors representing more than half of the dollar value of your debts agree to the deal.

When this happens, all creditors will be legally bound by the proposal.

If CRA has the controlling vote, it will probably be necessary for you and your trustee to meet with CRA to work out the terms of your proposal. CRA will require that:

  • All outstanding tax returns be filed with CRA before they will accept the proposal.
  • You have sufficient income to meet the payments in the proposal.
  • You make installments on your current year taxes, so that you don’t fall behind on next year’s taxes.

A consumer proposal is definitely not a “do it yourself” project – you would require the assistance of an experienced Licensed Insolvency Trustee.

In all but the simplest solutions, you will benefit from professional advice.

Contact a Licensed Insolvency Trustee near you for a free consultation – there is no risk in seeing a Trustee, and you will find out what options you have available and which one is best for you.