The most important thing to know if you can’t pay your taxes: file your return on time anyway. CRA charges a separate 5% late-filing penalty plus 1% per month on top of interest — so filing late when you owe money doubles the cost of your tax debt. Interest on unpaid taxes runs at roughly 10% per year, compounding daily, which means a $25,000 tax bill grows by $2,500 in just 12 months. CRA has payment plan options for most situations, and the Taxpayer Relief Program can waive penalties and interest in cases of genuine financial hardship.
What to Do If You Cannot Pay
Immediate Steps
Step
Action
1
File your return on time (avoid late filing penalty)
2
Pay whatever you can
3
Set up payment plan
4
Consider relief options
Why Filing Matters
If You…
Consequence
File on time, can’t pay
Interest only
File late, can’t pay
Interest + 5% penalty + 1%/month
Don’t file at all
All penalties + possible prosecution
CRA Interest and Penalties
Current Rates (2025-2026)
Charge
Rate
Interest
~10% annually (compounds daily)
Late filing penalty
5% + 1%/month (up to 12 months)
Repeated late filing
10% + 2%/month
Cost of Waiting
Amount Owed
6 Months Interest
1 Year Interest
$5,000
~$250
~$500
$10,000
~$500
~$1,000
$25,000
~$1,250
~$2,500
$50,000
~$2,500
~$5,000
Payment Plan Options
How to Set Up
Method
Process
My Account
Online, automatic approval for some
Phone
1-888-863-8657
In person
Tax services office
What CRA Considers
Factor
Impact
Amount owed
Determines plan length
Income
What you can afford
Payment history
Past compliance
Assets
Ability to pay
Typical Payment Terms
Amount
Typical Term
Under $10,000
6-12 months
$10,000-$25,000
12-24 months
Over $25,000
Negotiated, may be longer
What to Expect
Requirement
Details
Minimum payment
Usually required
Regular payments
Monthly, pre-authorized
Interest continues
On balance
File future returns
On time
Collection Actions
What CRA Can Do
Action
Timing
Letters/calls
First attempts
Garnishment (wages)
After notices
Bank account freeze
After notices
Property liens
For large debts
Asset seizure
Last resort
How to Avoid Collections
Strategy
How
Communicate
Respond to CRA
Payment plan
Show good faith
Pay something
Any amount helps
Keep filing
Don’t compound problems
Taxpayer Relief Program
What Can Be Relieved
Type
Possible Relief
Interest
✅ Yes, extraordinary circumstances
Penalties
✅ Yes, extraordinary circumstances
Tax owed
❌ No, almost never
Qualifying Circumstances
Situation
Example
Financial hardship
Job loss, illness
Extraordinary event
Disaster, family crisis
CRA error/delay
They caused problem
Circumstances beyond control
Documented hardship
How to Apply
Step
Action
1
Complete Form RC4288
2
Explain circumstances
3
Provide documentation
4
Submit to tax centre
5
Wait for decision (months)
What to Include
Document
Purpose
Written explanation
What happened
Medical records
If health-related
Employment records
If job-related
Financial statements
Show hardship
Timeline
When issues occurred
Bankruptcy and Taxes
When Tax Debt Can Be Discharged
Tax Debt Age
Dischargeable?
Under 3 years old
❌ No
Over 3 years old
✅ Yes
Fraud-related
❌ Never
Consumer Proposal
Feature
Details
What it is
Negotiate to pay portion
CRA must agree
Creditor vote
Stays collection
While proposal active
Credit impact
3 years after completion
Bankruptcy
Feature
Details
Discharge
Tax debt over 3 years old
Process
9-21+ months
Cost
Trustee fees
Impact
6-7 years on credit
Paying Your Tax Bill
Ways to Pay
Method
Notes
Online banking
From your bank
CRA My Account
Direct payment
Pre-authorized debit
Automatic payments
Mail cheque
Slow, keep proof
In person
At bank or post office
Credit card
Through third party (fees)
Prioritizing Debt
Debt Type
Priority
CRA tax debt
High (collection powers)
Secured debt
High (can lose asset)
Unsecured debt
Lower
Credit cards
Can negotiate
What NOT to Do
Mistake
Why It’s Bad
Ignore CRA letters
Escalates to collections
Not filing returns
Adds penalties
Hiding income
Fraud charges possible
Not communicating
Lose negotiation chance
Panic decisions
Scams target tax debtors
Getting Help
Free Resources
Resource
Service
CRA helpline
General questions
Community tax clinics
Low-income tax prep
Legal aid
Some tax issues
Paid Help
The Bottom Line
File on time, pay what you can, and call CRA at 1-888-863-8657 to set up a payment plan for the rest. CRA’s collection powers are among the strongest of any creditor in Canada — they can garnish wages, freeze bank accounts, and place liens on property without a court order. But they also prefer working with compliant taxpayers who communicate. A payment plan with daily interest is far better than ignoring the debt and triggering collections. If your situation is truly dire (job loss, medical emergency, disaster), apply for relief through Form RC4288 with full documentation. The worst possible response is silence.