Can’t Pay Your Tax Bill? What CRA Will (and Won’t) Do

First rule: file anyway

When cash is tight, owners often hold off filing the T2 or GST return “until we can pay.” That instinct is backwards. The late-filing penalty is calculated on the unpaid balance and is charged in addition to interest — filing on time and paying late costs strictly less than filing late and paying late. File, then deal with payment.

How CRA interest works

Arrears interest accrues at CRA’s prescribed rate plus 4 percentage points, compounded daily, from the balance-due date until paid. The prescribed rate resets quarterly, so the exact figure moves — but the structure doesn’t: it is meaningfully more expensive than most commercial credit. If the corporation has access to a line of credit at a lower effective rate, paying CRA with borrowed money is often the cheaper path.

Payment arrangements

Where you genuinely cannot pay in full, CRA accepts payment arrangements — a schedule of pre-authorized instalments until the debt clears. Practical points:

• You can set one up through My Business Account (pre-authorized debit) or by calling CRA collections.
• Be realistic: an arrangement you can actually keep beats an ambitious one you break — broken arrangements bring collections back faster.
• Interest keeps running during the arrangement; the arrangement buys time and holds off enforcement (garnishees, liens), not the meter.
• CRA may ask for financial disclosure — income, expenses, assets — to test what you can afford.
• Stay current on new obligations while paying old ones; re-defaulting on current filings is what collapses arrangements.

The trust-amount warning: GST/HST and payroll

Not all CRA debt is equal. GST/HST you collected and payroll source deductions you withheld are not the corporation’s money — they are deemed held in trust for the Crown. Two consequences:

• CRA pursues trust amounts harder and faster than ordinary corporate income tax.
• Directors can be personally assessed for unremitted source deductions and GST/HST (with limited due-diligence defences). Corporate income tax, by contrast, generally stays with the corporation.

If you must triage which bill to pay first, trust amounts come first — every time. Our guides on payroll remittances and GST/HST instalments cover staying current.

Taxpayer relief: when penalties and interest can be cancelled

CRA has discretion to cancel or waive penalties and interest — not the underlying tax — where circumstances beyond your control caused the non-compliance: serious illness, disaster, CRA delay or error, or demonstrated financial hardship. Requests go in with form RC4288 and supporting evidence, and can reach back up to ten years. Relief is discretionary, not automatic — the file you submit matters. If the original returns were also wrong or missing, the Voluntary Disclosures Program may be the better door.

What not to do

• Ignore the letters. Silence is what triggers garnishees on your receivables and bank account.
• Strip the corporation. Moving assets or cash to yourself while tax is owing can make you personally liable for the transfer.
• Stop filing. Every unfiled return adds penalties and blocks any arrangement or relief conversation.
• Treat trust money as working capital. It is the one CRA debt that follows directors home.

This article is general information for Canadian business owners and is current as of July 2026. It is not tax, legal or accounting advice, and it does not create a client relationship. Tax rules change and your situation is unique — please speak with a CPA before acting on anything here.

Interest runs from the balance-due date, which is earlier than the filing date — see how the two dates differ.

It helps to know what an arrangement is preventing. The escalation path, from the first legal warning through garnishment and liens, is set out in what happens next in CRA collections. If part of the balance comes from a year you never filed, see undoing an arbitrary assessment first — filing the real return often shrinks the debt you are arranging to pay.