--- title: Income tax debt relief date: 2018-06-22T15:14:13-04:00 canonical_url: "https://grantthorntonlimited.ca/en/debt-help-resources/articles/income-tax-debt-relief" section: Articles --- [ Back to the hub ](https://grantthorntonlimited.ca/en/debt-help-resources/articles) # Income tax debt relief ![Couple with tax debt looking at a letter from the CRA indicating their amount owing](https://pr-assets.grantthorntonlimited.ca/craftcmsimages/Article-imagery/Web-image-square/_articleHero/6540/Income-tax-debt-relief-in-Canada.webp) If you have outstanding income tax debt with the Canada Revenue Agency (CRA), you should deal with it sooner than later. Options are available to help you overcome income tax debt. ## What is income tax debt? Canadians must file provincial and federal income taxes to the CRA every year. Since your income can vary annually, the amount of taxes you pay can as well. After you file your taxes, you'll either get a refund from CRA, net out neutral, or owe them money. If you find yourself owing money, an unplanned tax bill can put a dent in your financial situation. If you can’t pay back what you owe to CRA within the deadline, your bill becomes income tax debt and could go to collections. ## Why do I owe CRA income tax debt? While everyone's situation is unique, but here are some common scenarios that may result in unexpected income tax debt: - You have multiple sources of income, which can place you in an inaccurate tax bracket. - You changed jobs halfway through the year, bumping you into a new tax bracket. - You received government benefits—like CERB—but they’re now asking you to pay it back. - You’re [self-employed and didn’t remit enough in taxes](https://grantthorntonlimited.ca/en/debt-help-resources/articles/how-to-avoid-tax-debt-as-a-member-of-canadas-growing-gig-economy). - You withdrew from your RRSP during that tax period. - You received a lump-sum payment or unexpected taxable windfall, like a pension pay out, and they did withhold taxes. - You receive pension income, and they didn't withdraw enough taxes from your payment amounts. - You didn't file your taxes in previous years. ## What happens if I can’t pay my income tax debt? The CRA has unique privileges when it comes to collecting debt. If you owe money to the CRA but don't make your payments, they have the power to obtain any funds owed to them through one or more of the following methods: - **Keeping your tax returns and GST/HST cheques**: The CRA can keep the money it owes you. However, the Government of Canada [has announced that the CRA will not withhold GST/HST credit cheques or the Child Tax Benefit](https://www.canada.ca/en/revenue-agency/news/2021/02/government-of-canada-announces-targeted-interest-relief-on-2020-income-tax-debt-for-low--and-middle-income-canadians.html) from anyone with income tax debt related to a pandemic relief benefit, such as the CERB. - **Garnishing your income**: The CRA can send notice to your employer (or anyone that pays you), requiring they send [a portion of your paycheque or money owed to them instead of you](https://grantthorntonlimited.ca/en/debt-help-resources/articles/wage-garnishment-how-it-works-and-what-you-can-do). - **Judgment against your home**: Like any other creditor, the CRA can obtain a court-appointed judgment on your assets, like your home, for the amount owed. If the CRA registered a judgment against your property, they could seize and sell your house (or other assets). Typically, once CRA receives a judgment, they‘ll let it sit and gain interest, making it very difficult for you to refinance or sell your house in the future. - **Make other people pay your tax debt**: The CRA may issue a “Notice of Assessment” [under section 160 of the Income Tax Act](https://laws-lois.justice.gc.ca/eng/acts/I-3.3/section-160.html). The notice allows the CRA to make other people liable for your tax debt if you transferred assets or made gifts to those people. Once CRA has issued a Notice of Assessment to someone under this section, it will then use all its collection powers against that person. ## How can I pay my income tax debt? If you owe money to the CRA but cannot pay your balance when it’s due, there are both informal and formal debt relief options you can consider. Before you consider any formal options, you should do the following: 1. **Get up to date on filing your income taxes.** The CRA is much easier to deal with if you are up to date on filing your tax returns—even if you have an outstanding balance. For the CRA to decide if and how they can best help your situation, they need to know how much you owe. If you're unsure if your taxes are current, hire a professional tax preparer to help you complete and file your tax returns date. 2. **Figure out if you can or can’t repay the debt in full.** Prepare a budget and decide how much you can pay upfront and monthly. Even if you can’t repay, arming yourself with the best information about your situation will help. 3. **Negotiate with the CRA.** The CRA will negotiate repayment plans with individuals who owe income tax debt. You may be able to reach an agreement to make monthly payments to the CRA until you pay your tax obligations in full. The CRA will only negotiate a plan that is 100% payment of the taxes owed, so be prepared to pay the total amount along with all interest and penalties accrued. 4. **Apply to the Fairness Provisions of the Income Tax Act**. Fairness Provisions under the Income Tax Act can help you get relief by canceling and waiving penalties and interest from the CRA. To qualify, you'll need to prove that you have extraordinary circumstances and great financial hardship and will still be required to pay the principal amount owing. 5. **Consider filing a consumer proposal or bankruptcy.** [Filing a consumer proposal](https://grantthorntonlimited.ca/en/consumer-proposal/what-is-a-consumer-proposal) with a Licensed Insolvency Trustee will stop collection activity, interest payments, and penalties. Normally, a proposal is for less than 100% of the debt you owe. However, CRA has specific criteria for proposals. Another possibility is [declaring personal bankruptcy](https://grantthorntonlimited.ca/en/bankruptcy/what-is-bankruptcy) as it includes personal income tax debt. ## How to avoid income tax debt in future To avoid any issues surrounding income tax debt, it’s best to: - **File your taxes on time.** While most returns are due at the end of April, self-employed persons have an extended deadline of June 15. - **File any returns for years that you’ve missed to** help you reduce further penalties and interest for those tax years. - **Seek help from a professional** if you aren’t comfortable preparing your taxes or overwhelmed at tax time. If you’re a small business owner or self-employed, consider [the help of a CPA](https://www.grantthornton.ca/) to keep you on track. - **Make your payments on time** **and in full** to avoid further penalties and interest from CRA. ## Self-employed income tax debt As a self-employed individual, it’s your responsibility to withhold your income taxes and keep track of employment-related expenses that are claimed when preparing your taxes. If you misjudge the amount of income tax to withhold for the year, you may owe at tax time. For more information, explore [this article on how to avoid income tax debt when you are self-employed.](https://grantthorntonlimited.ca/en/debt-help-resources/articles/how-to-avoid-tax-debt-as-a-member-of-canadas-growing-gig-economy) --- If you’re struggling with income tax debt and aren’t sure about the best way to proceed, [meet with a Doane Grant Thornton debt professional for a free, confidential consultation](https://grantthorntonlimited.ca/en/get-in-touch/contact-us) to learn more about your options. ## Latest articles [ ![](https://pr-assets.grantthorntonlimited.ca/craftcmsimages/Article-imagery/_articleThumbListSmall/67684/assets-CP-square.webp) ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-to-your-assets-in-a-consumer-proposal) [What happens to your assets in a consumer proposal? ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-to-your-assets-in-a-consumer-proposal) [ Read this article ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-to-your-assets-in-a-consumer-proposal) [ ![](https://pr-assets.grantthorntonlimited.ca/craftcmsimages/Article-imagery/_articleThumbListSmall/65155/recreational-vehicle-square.webp) ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-to-an-rv-boat-or-atv-loan-if-you-file-a-consumer-proposal-or-bankruptcy-in-canada) [### What happens to an RV, boat, or ATV loan if you file a consumer proposal or bankruptcy in Canada? ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-to-an-rv-boat-or-atv-loan-if-you-file-a-consumer-proposal-or-bankruptcy-in-canada) [ Read this article ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-to-an-rv-boat-or-atv-loan-if-you-file-a-consumer-proposal-or-bankruptcy-in-canada) [ ![](https://pr-assets.grantthorntonlimited.ca/craftcmsimages/Article-imagery/_articleThumbListSmall/63555/influencer-survey.webp) ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-influenced-into-debt-how-social-media-impacts-canadians-finances) [### Influenced into debt: How social media impacts Canadians' finances ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-influenced-into-debt-how-social-media-impacts-canadians-finances) [ Read this article ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-influenced-into-debt-how-social-media-impacts-canadians-finances) ## Subscribe to our newsletter Get tips and tools to help manage your finances and live debt free. \*I agree to receive communications from Doane Grant Thornton. I understand that I can unsubscribe at any time. ## **Take the first step** to debt freedom Speak to one of our debt solutions professionals during a free, no-obligation consultation. [ Book a free consultation ](https://grantthorntonlimited.ca/en/get-in-touch/contact-us) ## Related articles ![](https://pr-assets.grantthorntonlimited.ca/craftcmsimages/Article-imagery/_articleThumbMedium/67684/assets-CP-square.webp) ### [What happens to your assets in a consumer proposal? ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-to-your-assets-in-a-consumer-proposal) In most cases, a consumer proposal allows you to keep all of your assets while bankruptcy may require you to surrender certain non-exempt assets. [ Read this article ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-to-your-assets-in-a-consumer-proposal) ![Marina filled with sailboats and recreational boats along the Charlottetown waterfront on a sunny day.](https://pr-assets.grantthorntonlimited.ca/craftcmsimages/Article-imagery/_articleThumbMedium/65155/recreational-vehicle-square.webp) ### [ What happens to an RV, boat, or ATV loan if you file a consumer proposal or bankruptcy in Canada? ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-to-an-rv-boat-or-atv-loan-if-you-file-a-consumer-proposal-or-bankruptcy-in-canada) For many Canadians, recreational vehicles offer freedom, adventure, and unforgettable family memories. But if you’ve financed an RV, travel trailer, boat, ATV, snowmobile, or side-by-side, those monthly payments can become difficult to manage if life takes an unexpected turn. [ Read this article ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-to-an-rv-boat-or-atv-loan-if-you-file-a-consumer-proposal-or-bankruptcy-in-canada) ![A woman sitting with papers and a calculator in front of her](https://pr-assets.grantthorntonlimited.ca/craftcmsimages/Article-imagery/_articleThumbMedium/63201/cp-annulment-square.webp) ### [ What happens if you miss a consumer proposal payment? ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-if-you-miss-a-consumer-proposal-payment) Missing a payment during your consumer proposal can feel scary—but it’s not the end of the road. This article explains exactly what happens if you miss a consumer proposal payment, how to avoid annulment, and what to do if your consumer proposal is annulled. [ Read this article ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-if-you-miss-a-consumer-proposal-payment) ![A young woman sits with and supports an older woman holding a cane.](https://pr-assets.grantthorntonlimited.ca/craftcmsimages/Article-imagery/Web-image-square/_articleThumbMedium/58677/caregiver-article-square.webp) ### [ Tips to avoid debt as a family caregiver in Canada ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-tips-to-avoid-debt-as-a-family-caregiver-in-canada) With the rising cost of living and long waitlists for long-term care, more Canadians are becoming family caregivers, but it can come with an emotional and financial cost. [ Read this article ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-tips-to-avoid-debt-as-a-family-caregiver-in-canada) ![Person looking down at bills with head in hand, surrounded by paperwork and an open laptop.](https://pr-assets.grantthorntonlimited.ca/craftcmsimages/Article-imagery/_articleThumbMedium/56923/utilities-square.webp) ### [ What happens if you don’t pay your utility bills in Canada? ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-if-you-dont-pay-your-utility-bills-in-canada) If you’re worried about unpaid electricity, heating, or water bills, you’re not alone. But disconnection isn’t immediate, and you usually have options to protect your service while you get back on track. [ Read this article ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-happens-if-you-dont-pay-your-utility-bills-in-canada) ![A couple sits at a table reviewing bills and using a calculator, appearing stressed while looking over financial documents.](https://pr-assets.grantthorntonlimited.ca/craftcmsimages/Article-imagery/_articleThumbMedium/52267/instant-loans.webp) ### [ What are the risks of instant loans in Canada? ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-are-the-risks-of-instant-loans-in-canada) When an unexpected bill pops up or your bank balance hits an uncomfortable low, fast‑cash lenders can seem like a lifeline. Understanding how these quick loans work, and the risks hiding behind the “instant” label, can help you make choices that protect your financial health. [ Read this article ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-what-are-the-risks-of-instant-loans-in-canada) ![Photo of parents and adult daughter hugging and smiling.](https://pr-assets.grantthorntonlimited.ca/craftcmsimages/Article-imagery/_articleThumbMedium/53508/family-finance-1.webp) ### [ Family finance: The emotional cost of financially supporting family ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-family-finance-the-emotional-cost-of-financially-supporting-family) With rising costs, increased debt loads, and tighter budgets, many Canadians turn to family for support. But money can also strain relationships, create pressure, and sometimes lead to debt on both sides of the conversation. [ Read this article ](https://grantthorntonlimited.ca/en/debt-help-resources/articles/article-family-finance-the-emotional-cost-of-financially-supporting-family)