Receiving a tax bill you can’t afford to pay right away can be stressful. Many individuals and business owners worry about what will happen next.
The good news is that if you owe money to the Canada Revenue Agency, you may be able to set up a CRA payment plan that allows you to pay your balance over time instead of all at once.
Understanding your CRA payment options and how a CRA payment arrangement works can help you take control of the situation and avoid more serious consequences.
Let’s walk through what happens when you can’t pay your tax bill and what steps you can take.
At Swain CPA we can’t set up a payment plan for you… but we can help you reduce your tax bill ahead of time. Read Small Business Tax Deductions in Canada to find out how.
What Is a CRA Payment Plan?
A CRA payment plan is an agreement between you and the Canada Revenue Agency that allows you to pay your tax debt in installments.
Instead of paying the entire amount immediately, you make regular payments over time until the balance is fully paid.
This type of arrangement is often referred to as a:
- CRA payment arrangement
- CRA tax payment plan
- payment arrangement with CRA
While the terminology varies, the idea is the same: the CRA allows you to repay your tax debt gradually rather than all at once.
When You Might Need a CRA Payment Arrangement
There are many situations where someone may need a CRA payment arrangement.
For example:
- Your tax bill is larger than expected
- Cash flow is tight in your business
- You had a drop in income during the year
- You owe taxes after selling assets or investments
In these cases, paying the full balance immediately may not be realistic.
Rather than ignoring the bill, it’s usually better to explore your CRA payment options early.
The CRA is often more flexible when taxpayers take the initiative and communicate before the situation escalates.
This concept applies in most cases, including when you make honest mistakes on your taxes. Read What Triggers a CRA Audit: 5 Ways You Can Avoid the Snowball Effect Before It Starts to learn more.
How a CRA Tax Payment Plan Works
If you can’t pay your taxes right away, you may be able to arrange a CRA tax payment plan.
Typically, the process works like this:
- You review the amount you owe.
- You determine what monthly payment you can reasonably afford.
- You contact the CRA to request a payment arrangement.
- You make regular payments until the balance is paid in full.
Even with a CRA payment arrangement, interest will usually continue to accrue on the outstanding balance until it is fully paid.
However, a structured plan can help prevent the issue from becoming more serious.
What Happens If You Ignore Your Tax Debt?
Ignoring a tax bill can make the situation worse.
If a balance remains unpaid, the CRA may eventually begin collections activity. This could include:
- Phone calls or collection notices
- Garnishment of wages or bank accounts
- Liens against property in some cases
Setting up a payment arrangement with CRA early can often prevent these types of actions.
The key is addressing the issue before it escalates.
Ignoring a CRA audit is another mistake you don’t want to make… but there are steps you can take before it happens. Read Could You Keep a Straight Face to a CRA Auditor? for more information.
Choosing the Right CRA Payment Options
When exploring CRA payment options, it’s important to be realistic about what you can afford.
A payment arrangement should allow you to:
- Stay current with ongoing taxes
- Cover your normal living or business expenses
- Consistently make the agreed payments
Setting payments too high can cause the plan to fail, which may create additional complications.
A well-structured CRA tax payment plan should balance your financial reality with the goal of paying down the debt over time.
Tips for Managing a CRA Payment Arrangement
If you enter into a payment arrangement with CRA, a few practical steps can help you stay on track.
1. Stay current with future taxes
Your payment plan only covers the existing balance. New tax obligations must still be paid on time.
2. Budget for your payments
Treat your tax payments like any other essential expense.
3. Keep communication open
If your financial situation changes, it may be possible to adjust your CRA payment arrangement.
Don’t Wait Until the Situation Gets Worse
At Swain CPA, we know that tax debt can feel overwhelming, but the worst thing you can do is ignore it.
The CRA offers several payment options, and many taxpayers are able to resolve their balances through a structured CRA payment plan.
Taking action early often leads to better outcomes and fewer complications.
If you’re unsure how to approach a CRA tax payment plan, or if you’re not sure how much you need to set aside for taxes, have a chat with us! We can help you run the numbers, or help you get in touch with the people who can help.
