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Ask the Expert: Unexpectedly have to pay taxes?

Written by
Written by
Chartered Professional Accountant (CPA) and business finance expert

Adeola is a Chartered Professional Accountant (CPA) and business finance expert. She is very passionate about financial literacy and education. When she’s not crunching numbers, she loves spending time with her family.

Adeola Ojierenem

Caught off guard by having to pay taxes? So was our reader Frank. CPA, Adeola, explains how to navigate staying on good terms with the Canada Revenue Agency while making sure your wallet can still cope.

The question

Just got word I owe $4000 in taxes. I don’t have $4000. Not even close. Was not expecting this at all, so I didn’t prepare. What do I do?

Frank K.

The answer

Every year the deadline for Canadians to pay taxes is April 30. The exception is if it falls on a weekend or a public holiday. When that happens the Canada Revenue Agency (CRA) recognizes the next business day as the deadline. 

Self-employed individuals must file their taxes by June 15. It’s important to know that while the filing deadline is in June, if you owe tax payments, you must make payments by April 30. 

Filing your taxes when due

It is recommended that you file your taxes early. This will ensure you have timely information on any tax refunds or tax payments owed. After submitting your taxes, the CRA will send you a notice of assessment. The assessment shows how much refund you will receive or how much tax payment to make. 

Pay any taxes owed to the CRA by the deadline to avoid being charged interest. Additionally, there is a penalty for filing your income tax and benefit return late when you have a balance due.

How to pay your taxes

The CRA provides various ways for Canadians to pay their federal income tax and provincial tax. You can make your tax payments through the following ways:

  • Make direct electronic payments through your Canadian bank account. You can add the CRA as a payee through your financial institutions and make direct tax payments. 
  • Use a debit card (Interac® Debit, Visa Debit, or Debit Mastercard). Use your debit card to make tax payments using CRA’s My Payment service. You can also use your debit card to pay at Canada Post with a customized QR code.
  • You can also pay your income taxes using a credit card with a third-party service provider, a cheque, wire transfer, cash, or a money transfer platform such as PayPal or Interac transfer.

Use the payment method that works best for you to settle your tax bill. However, you should note that starting on January 1, 2024, if you owe over $10,000, you should make your tax payments to the Receiver General of Canada by electronic payment. Failure to do so may attract penalties except in cases where you reasonably cannot make the payment electronically.

What happens if you cannot make your tax payments 

Not everyone receives a tax refund when they file their tax return. Some Canadians may have to pay taxes to the Government of Canada. Generally, you pay your income tax on your taxable income at your marginal tax rate, which depends on your income tax bracket. Most often, a tax debt occurs when you have not made enough tax remittances on your net income throughout the year. 

If you do not have enough funds to pay your taxes by the deadline, you can contact the CRA to decide on the next steps. You may be able to delay your personal income tax payment to a future date or schedule a payment arrangement. A tax payment arrangement may mean setting up a series of payments in your online CRA account using a pre-authorized debit (PAD) agreement. You can also set up pre-authorized tax payments with an automated phone service.

Tax payment arrangement

If you cannot pay your taxes in full, you can arrange to make a series of payments. You can opt for a payment plan using the payment arrangement calculator through the My Account or My Business Account secure portals. After logging into your account, select “proceed to pay” and the option to schedule a series of payments to calculate and set up a pre-authorized debit agreement for your tax debt. If you cannot schedule a payment plan through the online portal, you can call the CRA.

What qualifies you to receive tax payment relief

Sometimes, you can reduce any interest or penalties for late filing or taxes owed. The CRA understands that some individuals and businesses face challenges. They will work with you to determine the possible ways to reduce your taxes or resolve your tax debt. For example, they may offset your tax debt with any tax benefits, tax credits, or tax refunds.

You may qualify for tax debt relief if you have extraordinary circumstances, are experiencing financial hardship, or have a debt arising due to the CRA’s actions.

Extraordinary circumstances

If you are experiencing or have experienced situations outside of your control, such as an accident, illness, loss of a family member, a fire incident, flood, or other disasters and civil disturbances, you may qualify for relief from late tax payment interests and penalties. 

Financial hardship

If you cannot pay your taxes, any applicable interests, or penalties due to financial difficulties and inability to afford basic daily needs, the Canadian government may provide options for tax debt relief. A tax debt relief may result in a waiver or cancellation of your debt interest or penalty. For business owners with tax debt detrimental to business survival and employee wages, the CRA may also provide options for tax debt relief.

CRA actions and other circumstances

Sometimes the CRA faces processing delays, errors, or incorrect assessments. If that’s the case for you you may qualify to have your tax debt interests or penalties waived or cancelled. If you have other justifiable reasons, you can request that your tax debt interest or penalties be cancelled or waived.

To request that the CRA cancel or waive your tax interest or penalty, you can fill out and submit Form RC4288, Request for Taxpayer Relief—Cancel or Waive Penalties and Interest, or call the CRA by phone. If a collections officer contacts you regarding your tax debt, contact them via the number they have provided. 

Key takeaways

The Canada Revenue Agency recognizes that some Canadians face financial difficulties and cannot pay their taxes for the applicable tax year when due. As such, different payment options exist to schedule tax payments and request relief on interest and tax penalties. Contact the CRA to select the best payment option.

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