Does Tax Debt Owed to the CRA Ever Go Away?

Can You Avoid Paying Tax Debt?

Tax debt owed to the Canada Revenue Agency (CRA) can be very difficult to pay down. A big reason why is that the CRA charges compound daily interest on any outstanding tax debt. This means the longer you take to pay your debt, the more you’ll owe. For those people who owe a lot of taxes, this can be very expensive.

The result is that many people find themselves asking if CRA tax debt will ever go away.

There is a myth that exists regarding the CRA collections limitation period. Some people believe that if you avoid paying a tax debt for more than 10 years, the CRA is no longer able to collect. This is not true.

There is a limitation period in place, but this period is extended or restarted whenever certain events occur.

For instance, if you file a Notice of Objection with the CRA or file an appeal with the Tax Court of Canada, the limitation period is restarted. It can also be restarted by CRA actions, such as issuing a garnishment to collect an outstanding tax debt. In general, if the CRA takes collection action to collect a tax debt, the time limit restarts.

This means the agency often has much longer than 10 years to collect a debt, which makes attempting to avoid the CRA a strategy that rarely works.

Ignoring a tax debt does not make it go away. The CRA will not forget about you. The agency has very strong collection powers and, if you do not cooperate, it can take several serious steps to get the tax debt that is owe, including garnishing your wages, seizing and selling your assets, freezing your bank account, and much more. Therefore, it is much better to work out a plan to resolve your tax debt issues rather than hoping the CRA forgets about you.

What to do if you Can’t Pay Your Tax Debt

If you owe taxes and are not able to pay, there are several options.

• Make a payment arrangement with the CRA
  • The CRA will never accept less than is owed to it. However, you may be able to negotiate a payment arrangement that will see you make smaller payments over time until you have paid all the tax debt you owe.
  • In most cases, even if you have a payment arrangement in place, interest will continue to accumulate on the unpaid portion until the debt is paid in full.
  • The CRA may require significant financial disclosure from the taxpayer before agreeing to a payment arrangement. You may have to prove that you have tried to pay your tax debt in full by reducing your expenses and/or borrowing money. The agency may also ask for details on your income, expenses, assets, and liabilities.
  • Working with a professional is strongly advised if you are planning on negotiating with the CRA.
• Request taxpayer relief
  • In certain circumstances, the CRA may be willing to reduce or eliminate interest charges or penalties. To qualify, a taxpayer must be able to prove that circumstances beyond their control prevented them from meeting their tax obligations. Situations that may warrant relief include:
    • Natural or human-made disasters (such as flood, fire, or civil disruption)
    • Service disruptions or interruptions (such as a postal strike)
    • Serious illness or accident
    • Significant emotional or mental distress (such as the death of a close family member)
    • Processing errors or delays in CRA processes
    • Errors in CRA material
    • Incorrect information provided by the CRA
    • Severe financial hardship (such as loss of employment)
    • Situations where interest and penalties on a tax debt make up a significant portion of the payments
    • Instances where paying interest and penalties on outstanding tax debt would result in a prolonged inability to afford life’s necessities (food, shelter, medical costs, etc.)
    • Other situations may be accepted
  • To receive relief, a taxpayer must file a request for relief and provide proof to back up their claims. Working with an experienced professional can greatly increase the chances of a request being accepted.