Overview

If you’re worried about your tax debt and looking for clear instructions on what to do when you owe unpaid taxes to the Canada Revenue Agency (CRA), Accountants-BC Ltd. has written this blog for you.

Below, we explain what back taxes are, how to determine when you have a balance owing, and which options are available to help you regain good standing with the CRA. We also explain the benefits of hiring a tax consultant who’ll show you what to do and help you access the most financial relief.

Highlights

Introduction

Are you at the point where you’ve stopped opening CRA mail, answering unknown numbers, or filing future tax returns? Owing back taxes can be stressful, but there are many options available that can help you navigate the process. Knowing there’s a plan to tackle your back taxes can take a massive weight off your shoulders and bring a real sense of relief.

Let the following guide empower you with the knowledge and options you need to feel confident in your ability to repay what you owe.

What Are Back Taxes?

Back taxes are income tax amounts that remain unpaid after the filing deadline. This can happen when you miss payments, forget to file returns, submit an incorrect file, or have an unexpected reassessment from the CRA. Whether it’s a small amount or a significant balance, the longer you let your taxes go without paying them, the more complicated and expensive the situation can become.

The good news is that it’s easy to avoid going further into the red. There are plenty of steps you can take to repay amounts owing when you understand what’s outstanding and what the CRA expects of you.

How Do You Find Out If You Owe Back Taxes on Past Returns?

If you’re unsure whether you owe back taxes, the best place to start is your CRA My Account portal. This secure online platform gives you access to account balances, Notices of Assessment, and outstanding returns or balances due.

If you haven’t filed in several years or have never registered for an online CRA account, you can call the CRA directly or work with a tax consultant who can access your file with your permission.

Common signs that indicate you may have a tax balance include:

  • You received a Notice of Assessment with a balance due.
  • The CRA sent a Requirement to Pay (RTP) letter to your employer or bank.
  • You’ve been audited or penalized for late or non-filing.

No matter how it happened, the sooner you respond, the easier it is to get back on track.

Does Back Tax Debt Incur Interest or Penalties?

Interest and penalties apply to back tax debt. However, it’s often easier to reverse balances owing than you might imagine.

Without a background in CRA tax policies, it’s easy to feel overwhelmed, but many taxpayers are surprised at how manageable the process becomes with the right support.

What Steps Can You Take To Lower Your CRA Tax Debt?

Lowering your tax debt with the CRA starts with having a clear picture of where you stand. First, you’ll need to find out exactly how much you owe and file any missing tax returns, even if you can’t pay the full amount right away.

Once you’re caught up on your filings, you can look into relief programs to see if you qualify for reduced penalties or more manageable payment options.

Here’s a breakdown of the steps:

  1. Find out how much back tax you owe and file missing returns.
  2. Explore relief programs.
  3. Negotiate with the CRA.
  4. Pay what you can.
  5. Hire a tax specialist.

If you’re struggling with a large balance, you may be able to negotiate a more flexible payment plan with the CRA based on your current financial situation. In the meantime, paying whatever you can shows good faith and can help reduce ongoing interest charges.

Are There Tax Debt Relief Options?

Many tax debt relief options are available to Canadian taxpayers, including CRA repayment arrangements, the Taxpayer Relief Program, and the Voluntary Disclosure Program.

Here’s how they work:

CRA Repayment Arrangements

When you can’t pay your back taxes in full, the Canada Revenue Agency offers repayment arrangements that allow you to pay off your debt over time.

These are customized monthly payment plans based on your income, expenses, and overall financial situation. The CRA will work with you to agree on a realistic schedule that won’t cause undue hardship as long as you demonstrate that you’re making a good-faith effort to resolve your debt.

What you need to know:

  • Accumulating interest on your unpaid tax balance is still possible, but entering a payment plan may halt more aggressive collection actions.
  • Providing financial disclosure, like pay stubs, bills, and bank statements, may be required by the CRA.
  • Staying current with future tax obligations is critical while on a payment plan.

Taxpayer Relief Program

If your tax debt has accumulated because of circumstances beyond your control, you may qualify for the Taxpayer Relief Program. It allows you to request a cancellation or waiver of penalties and interest.

You may qualify for this program if you’ve experienced:

  • Severe financial hardship
  • Serious medical issues
  • Job loss or unemployment
  • Natural or human-made disasters (e.g., fire, flood)

Approval isn’t guaranteed and requires supporting documentation. When you work with a tax advisor, they’ll prepare a strong application on your behalf.

Voluntary Disclosures Program (VDP)

If you haven’t filed in several years, VDP lets you come forward with past-due returns without facing full penalties or legal action, provided you act before the CRA contacts you. This program is ideal when you want to correct your tax affairs proactively.

Can You Negotiate Your Tax Debt With the CRA?

Yes, but with limitations. While the CRA typically doesn’t forgive or reduce the base amount of tax you owe (the principal), they may be open to negotiating aspects of your debt resolution under specific conditions.

Here’s how you can engage with the CRA to ease your repayment burden:

  • Request interest or penalty relief through the Taxpayer Relief Program, especially if your tax debt arose from circumstances beyond your control.
  • Propose a long-term payment arrangement that allows you to pay off your debt over time based on your ability to pay.
  • Request a temporary pause on collection efforts while you gather documentation or await a financial review.

If you’re feeling overwhelmed by tax debt, the best thing you can do is start taking steps toward resolution. Don’t wait for the CRA to escalate things. Reaching out before they do shows you’re actively working toward a good CRA standing and can lead to more flexible solutions.

When you do connect with them, be open and prepared. Having a clear picture of your income, expenses, and any paperwork that explains your situation goes a long way.

What Documents Should You Gather Before Speaking With the CRA?

Being prepared can make all the difference in how your conversation with the CRA goes.

Whether you’re planning to call them directly or work with a tax consultant, you’ll want to gather:

  • Your most recent Notice(s) of Assessment
  • An income summary (pay stubs, freelance invoices, etc.)
  • A list of current expenses and debts
  • Proof of medical or financial hardship (if applying for relief)
  • Any prior correspondence from the CRA

Organizing this information beforehand helps build trust and may help you access more favorable options, like extended payment terms or partial relief on penalties.

Remember that you don’t have to take these steps on your own. A licensed tax consultant has experience interacting with the CRA and has helped countless other Canadians access tax relief solutions that suit their unique situations. They can help you, too.

Should You Hire a Tax Consultant To Help Handle Tax Arrears?

Hiring a tax consultant gives you a distinct advantage when you’re working on reporting your income accurately and paying off any outstanding income tax.

Your tax specialist will

  • Analyze your tax file and clarify what you owe
  • File your returns quickly and correctly
  • Negotiate your repayment options
  • Apply for relief programs on your behalf
  • Represent you with the CRA to reduce stress and risk

Having a professional in your corner means you’ll have someone with experience liaising with the CRA, so you’ll always know what to expect and what’s expected of you every step of the way.

How To Steer Clear of Tax Trouble Going Forward

Once you’ve dealt with your current tax debt, you’ll want to stay in good standing with the CRA to avoid falling behind again.

Simple but effective strategies include:

  • Filing your taxes on time every year, even if you can’t pay in full
  • Setting up calendar reminders for important tax deadlines
  • Making quarterly installment payments if you’re self-employed
  • Working with an accountant or tax advisor to avoid future misfilings
  • Creating a personal tax savings account so you’re prepared when new tax payments are due

Staying organized and on top of your tax filings and payments helps reduce stress and protects your future credit.

Start Creating Your Tax Debt Repayment Strategy Today

Owing back taxes in Canada can be stressful, but with the right plan, it’s a manageable situation. The CRA offers several programs to help you resolve tax debt. With the right strategy and support, you can stop collection calls, reduce stress, and start fresh.

Need help creating a plan that works for your financial reality? Call Accountants-BC Ltd. at (604) 683-2341 to book your consultation. We’re here to help you stop the stress and start fresh.