What Powers the CRA has to Collect Tax Debt

If you owe money to the CRA, and you do not pay it or come to a payment arrangement, the agency can garnish your wages, freeze your bank account, seize and sell your assets, and more. These are obviously serious situations that no one wants to put themselves in.

Unfortunately, once the CRA decides to proceed with collection action, the agency almost always keeps these actions in place until the tax debt is paid in full.

How to Deal with Tax Debt

It can be very stressful when you owe tax debt to the Canada Revenue Agency. The CRA can be very tough to communicate and negotiate with, especially when you owe money. In addition to the complexity of Canadian tax law and CRA processes, the agency also has incredibly strong collection powers. It uses these powers not only to collect on debts, but also to influence negotiations. Basically, since the agency knows that it can take very strong legal action to collect debts, it uses this threat to encourage people to accept whatever terms the CRA sets.

Negotiating Tax Debt with the CRA

Many people who owe tax debt wonder if they can negotiate with the CRA and pay less than the full amount they owe. Unfortunately, this is not possible. While the CRA is occasionally willing to accept a payment arrangement (where a taxpayer makes payments monthly rather than paying in a single lump sum), it will never accept an arrangement with a taxpayer that will see it receive less than is owed to it.

The fact that the agency has such strong powers is a big reason why it is unwilling to negotiate and reduce the amount of tax debt someone owes. The CRA knows that it can take significant action to collect on debts. Since the agency can take legal action to collect the full debt, it has no incentive to accept an arrangement that will see it take less than is owed to it.

Reducing Interest or CRA Penalties

If you owe a tax debt, the CRA immediately starts charging compound daily interest as soon as the debt is due. This can add up very quickly and that can make it tough to pay the amount you owe. The CRA is also able to charge penalties for failing to file on time, failure to accurately disclose income, and in other instances as well. These additional costs can complicate the process of paying down tax debt.

However, in some situations, the agency may be willing to reduce or even potentially eliminate interest and penalty charges. This only occurs in certain specific situations though. The CRA may grant relief from interest and penalties when certain situations prevent taxpayers from meeting their tax obligations, such as:

• When actions of the CRA prevented a taxpayer from filing or paying on time
  • This includes situations where there are errors in CRA material, processing delays, or other such situations
• When extraordinary circumstances prevent taxpayers from meeting their obligations
  • This includes personal issues (a death in the family, a serious illness, etc.) as well as natural or human-made disasters (fire, flood, civil disruption, etc.)
• When paying the penalties and interest would cause significant financial hardship
  • For instance, a situation where paying penalties and interest would result in a taxpayer being unable to afford the basic necessities could result in penalties and interest being waived or eliminated

Situations other than the ones listed here may also warrant relief. To receive relief, a taxpayer needs to apply and provide proof of their situation.