Quick answer: File on time even if you cannot pay. Late-filing penalties are charged on top of interest and are entirely avoidable. Then arrange payment: CRA accepts payment arrangements (instalments over time) through My Business Account or its collections line. Interest still runs while you pay — at the prescribed rate plus 4%, compounded daily — but an active arrangement keeps collections from escalating. GST/HST and payroll amounts are different: they are trust funds, and directors can be personally liable for them.
Key takeaways
- Filing late because you can't pay is the most expensive mistake — the penalty is on the unpaid balance and stacks on interest.
- CRA will accept a realistic payment arrangement; it will not negotiate the tax itself down.
- Interest runs at the prescribed rate plus 4%, compounded daily, until the balance is cleared.
- GST/HST and payroll source deductions are trust amounts — directors can be personally assessed for them.
- Taxpayer relief can cancel penalties and interest in genuine hardship or circumstances beyond your control.
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.
We deal with CRA collections, arrange realistic payment schedules, and file relief requests where the facts support them — before liens and garnishees enter the picture.
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.
Founder of EverStone CPA, an Abbotsford CPA firm, and a member of the Chartered Professional Accountants of British Columbia (CPABC). Sunny works with incorporated contractors and small business owners across Canada on tax, bookkeeping and advisory. More about Sunny →
Frequently asked questions
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