Do You Owe Back Taxes? CRA Payment Arrangements & How the CRA’s Payment Plan Can Help

If you owe back taxes to the Canada Revenue Agency and you accept that the amount is correct, there are two common routes. You can set up a CRA payment arrangement and repay the full balance plus interest over time, or you can file a consumer proposal, which may reduce the total amount you repay and treat the CRA as one creditor alongside the others.

If you think the assessment itself is wrong, neither route is the right starting point. Filing an objection, requesting a reassessment or appealing is a separate process that deals with whether the debt is correct, and it should come first.

A payment arrangement tends to suit a balance you can genuinely clear in a reasonable period. A consumer proposal is worth comparing once the balance is large relative to your income, once interest is growing faster than you can pay it down, or once the tax debt is only one part of a bigger debt load. Which one is right depends on your full financial position, not on the tax balance alone.

This guide covers both, including how to estimate what a payment arrangement would actually cost you and what a proposal involves.

CRA Payment Arrangements: How They Work and How a Consumer Proposal Compares

What to do if you owe the CRA money

The CRA does not negotiate a discount on a valid tax debt. It will not reduce the amount owing because your finances are difficult. Where an assessment is final and you accept it, the formal insolvency routes are a consumer proposal, which can compromise the debt, and bankruptcy, which can release you from qualifying claims. Both require a Licensed Insolvency Trustee. Neither changes the assessment itself; they change what you are legally required to pay on it.

Separately, the CRA can cancel or waive interest and penalties in limited circumstances through its taxpayer relief provisions, which is covered further down. That relief does not touch the underlying tax. And if you dispute the assessment, the objection and appeal route is the one that can change the amount assessed.

Outside those routes, the expectation is that you pay the balance, either in full or through a payment arrangement.

If a balance goes unpaid and no arrangement is in place, the CRA has collection powers that go well beyond those of an ordinary creditor. It can:

• Garnish wages directly through your employer, without first obtaining a court judgment
• Redirect certain federal benefit and pension payments, including Employment Insurance, Canada Pension Plan and Old Age Security, subject to the rules governing each program
• Freeze bank accounts, and in more serious cases register a lien against property

These steps follow from a balance sitting unaddressed. The CRA will generally suspend further collection while an accepted arrangement is being honoured, subject to its terms and the CRA’s legal rights, and filing a consumer proposal creates a statutory stay that stops most unsecured collection. Neither makes enforcement impossible in every circumstance, but dealing with the balance early is what keeps those steps from being the next move.

What is a CRA payment arrangement?

A CRA payment arrangement, sometimes called a CRA payment plan or a Revenue Canada payment plan, is an agreement to pay a tax debt through regular installments instead of in one lump sum.

The important thing to understand is what it does not do. Interest continues to accrue on the outstanding balance, compounded daily, until the debt is paid in full. A payment arrangement spreads the debt out. It does not shrink it, and on a long arrangement the interest can add a substantial amount to what you ultimately pay.

How to set up a CRA payment plan

1. Contact the CRA before they contact you. Reaching out yourself puts an arrangement in place before the balance escalates through the collection process on its own. Depending on your situation and the size of the balance, an arrangement may be set up online through CRA My Account, through the automated TeleArrangement service, or by speaking with an agent on the CRA payment arrangement phone line. The number and hours are in step 4 below.

2. Work out what you can actually afford. The CRA publishes a personal income and expense worksheet for exactly this. Total your income from all sources, including salary, pension, Old Age Security, disability benefits and the Canada Child Benefit, then subtract your real monthly essentials: housing, utilities, insurance, groceries, transportation and childcare. What remains is roughly what you can commit without setting yourself up to default.Be realistic here rather than optimistic. An arrangement you cannot sustain tends to end in default, which terminates the arrangement and allows suspended collection activity to resume.

3. Estimate the payoff with the CRA payment arrangement calculator. The CRA provides a payment arrangement calculator inside CRA My Account that estimates your payoff date and the total interest you will pay. You give it the balance owing, your intended first payment date, how often you will pay, and either the payment amount or the number of payments you want.Two things worth knowing about the calculator. It sits behind My Account sign-in, so you will need your CRA credentials to reach it. And the interest it applies is the CRA’s prescribed rate for overdue taxes, which is reset every quarter, so an estimate you ran six months ago may no longer hold. Check the current prescribed rate before relying on any figure, and re-run the estimate if your arrangement is going to run for more than a year.If you want a side-by-side comparison, the CRA’s estimate is one half of it. The other half cannot be worked out from the tax balance alone: a proposal offer depends on your whole creditor list, your income, your assets and what creditors would receive in a bankruptcy, so a Licensed Insolvency Trustee has to look at the full position before putting a figure on it.

4. Put the arrangement in place. Complete the arrangement through the route that applies to you. Online, you can schedule a series of pre-authorized debit payments in CRA My Account. By phone, you can use the automated TeleArrangement service or speak to an agent. For personal income tax debt the CRA’s number is 1-888-863-8657 within Canada and the United States, or 1-613-221-3002 from outside, open Monday to Friday 8 am to 8 pm Eastern and closed weekends and public holidays. A teletypewriter (TTY) line is available at 1-800-665-0354.

5. Make the first payment on time. Paying on schedule from the outset is what keeps the arrangement in good standing. You can pay online, in person at a financial institution, or by mail. If you are going to miss a payment, contact the CRA before the due date rather than after. Missing one without warning can end the arrangement and allow suspended collection activity, including garnishment, to resume.Partial payments reduce the balance that interest is charged on, even without a formal arrangement in place. That said, do not commit money you need for essentials or for secured obligations such as rent, a mortgage or a car loan without looking at your whole position first.

Taxpayer relief provisions

In limited situations the CRA will cancel or waive interest and penalties, though never the underlying tax debt, through its taxpayer relief provisions. The recognised grounds are:

• Extraordinary circumstances, such as a natural disaster, serious illness or a death in the family
• Actions of the CRA itself, including processing errors and unreasonable delays
• Inability to pay or financial hardship
• Other circumstances the CRA considers relevant

You apply using Form RC4288, Request for Taxpayer Relief. Relief is discretionary and decided case by case, and there is a limit on how far back a request can reach, so it is worth applying promptly if you have genuine grounds. It is a route worth trying where the facts support it, but it is neither guaranteed nor a fast exit from tax debt, and it does not reduce the tax you owe.

CRA payment arrangement compared with a consumer proposal

A payment arrangement tends to suit a balance you can realistically clear, interest included, over a period you can sustain. It becomes the wrong tool once interest is outpacing your payments, or once the tax debt is one item on a longer list.

When a consumer proposal is worth comparing

In a consumer proposal the CRA is generally treated as an unsecured creditor, ranking alongside credit card issuers and lines of credit. That means tax debt can usually be included and reduced with the rest.

There are real limits to that, and they matter:

• Amounts the CRA holds in trust are treated differently. Source deductions withheld from employees’ pay, and comparable trust amounts, do not sit in the same position as ordinary unsecured debt.
• A personal director assessment needs its own analysis. If you have been assessed personally as a director of a corporation for the corporation’s unremitted amounts, how that is treated depends on the nature and status of the assessment, including whether the Crown holds a secured or deemed-trust claim. Do not assume either way.
• Secured debt is unaffected. A proposal does not stop a secured creditor from enforcing its security.

If your tax debt arises from a business rather than from personal income tax, get advice on your specific assessment before assuming it can simply be included. 

A consumer proposal is worth putting side by side with a payment arrangement when:

• The balance is large relative to your income and full repayment is not realistic
• You are also carrying credit card, line of credit or other unsecured debt
• Interest is growing faster than you can pay the balance down
• You want one predictable monthly payment instead of separate arrangements with different creditors
• You have already fallen behind on a CRA payment arrangement and are facing enforcement

How a proposal works: You and your Licensed Insolvency Trustee put an offer to your creditors: repayment of some or all of what you owe, or changed payment terms, over a fixed term of no more than five years. Creditors vote by dollar value, and the proposal is accepted if a majority of the dollars actually voted are in favour. Creditors holding at least 25 percent in value of proven claims can require a meeting to be held, and there are other statutory routes by which one can be called; if no meeting is required within the statutory period, the proposal is deemed accepted. Acceptance is followed by court approval, which may also be deemed. From filing, a stay of proceedings begins and interest generally stops on the unsecured debts included in the proposal.

Eligibility: A consumer proposal is available to an insolvent person who meets the statutory definition of a consumer debtor under section 66.11 of the Bankruptcy and Insolvency Act, and whose aggregate debts, excluding debts secured by their principal residence, are not more than $250,000. Both conditions matter: being under the ceiling does not by itself make you eligible. Note also that the exclusion is for debt secured by your principal residence, which can include a home-equity line of credit as well as a mortgage. Other secured debt, such as a financed vehicle, counts toward the limit.

What happens to your assets? A consumer proposal does not require you to surrender your assets, which is its main practical difference from bankruptcy for people with equity or a paid-off vehicle. Two qualifications matter. Secured creditors keep their rights, so a financed car or a mortgaged home can still be repossessed or foreclosed if those payments stop, and secured payments generally need to stay current if you intend to keep the asset. And bankruptcy is not the total loss it is often assumed to be. Ontario’s Execution Act and O. Reg. 657/05 exempt certain property from seizure, including a motor vehicle up to $8,578 and equity in a principal residence up to $12,997, along with household furnishings up to $17,091 and tools of the trade up to $17,362. Those amounts were last set by O. Reg. 393/25 and are periodically re-indexed, so check the current figures before relying on them. Separately, the Bankruptcy and Insolvency Act exempts most registered retirement savings at the federal level, subject to a clawback of contributions made in the twelve months before filing. The right comparison is between two sets of consequences, not between keeping everything and losing everything.

If a consumer proposal is not realistic, bankruptcy is the other formal option. Many ordinary income-tax debts are provable claims in a bankruptcy, subject to statutory exceptions and to special rules that can apply where personal income-tax debt is large relative to total unsecured debt.

What a consumer proposal costs and what it affects

A proposal is a formal insolvency filing, not a private arrangement, and it carries consequences a payment plan does not. Before comparing the two on monthly cost alone, weigh these:

• Fees come out of the fund. The administrator is paid under a government tariff set by regulation, drawn from the money you pay into the proposal rather than billed separately. Your Licensed Insolvency Trustee will show you the figures before you file.
• Two counselling sessions are mandatory. They are a statutory requirement of the process, not an optional extra.
• It is a public record. Consumer proposals are recorded in the public insolvency register maintained by the Office of the Superintendent of Bankruptcy.
• It affects your credit report. A consumer proposal is reported to the credit bureaus and stays on file for a period set by each bureau’s own rules, generally running from either completion or filing. Ask your Licensed Insolvency Trustee what applies in your case.
• Creditors can vote it down. Acceptance is not automatic. If creditors holding a majority of the dollars voted reject the offer, the proposal fails and you are back to the other options.
• You have to keep up the payments. Where payments are monthly, a proposal is deemed annulled once the equivalent of three payments is in default. That happens automatically, it removes the proposal’s protection, and the original debts revive.

A CRA payment arrangement carries none of those consequences. It is informal, private, and leaves no insolvency record. What it does not do is reduce the debt or stop the interest. That is the real trade-off, and which side of it suits you depends on numbers a Licensed Insolvency Trustee needs to see in full before advising.

Frequently asked questions

Can the CRA reduce how much tax debt I owe?
Not the tax itself. The CRA does not negotiate down the principal. Where the assessment is final, a consumer proposal can compromise the debt and bankruptcy can release you from qualifying claims. Both require a Licensed Insolvency Trustee, and neither changes the assessment itself. The CRA can separately cancel interest and penalties through taxpayer relief, which does not reduce the underlying tax.

Will the CRA garnish my wages or benefits if I do not pay?
It can. Where a balance is unpaid and no arrangement is in place, the CRA can garnish wages directly through your employer and can redirect federal benefits including Employment Insurance, Canada Pension Plan and Old Age Security.

Does a CRA payment arrangement stop interest?
No. Interest continues to accrue on the outstanding balance, compounded daily, for the whole life of the arrangement. A consumer proposal, by contrast, generally stops interest on the unsecured debts included in it, from the date it is filed.

How long can a CRA payment arrangement run?
There is no fixed statutory maximum. The CRA assesses what you can afford from your income and expenses and expects the balance cleared as quickly as you reasonably can. Longer arrangements attract more interest.

Can CRA debt be included in a consumer proposal?
In most cases yes. The CRA is generally an unsecured creditor in a consumer proposal. Amounts held in trust such as employee source deductions are treated differently, and a personal director assessment needs its own analysis. A Licensed Insolvency Trustee can confirm how your specific assessment would be handled.

What is the CRA payment arrangement phone number?
For personal income tax debt, call 1-888-863-8657 from within Canada or the United States, or 1-613-221-3002 from outside. The line is open Monday to Friday, 8 am to 8 pm Eastern, and closed on weekends and public holidays. A TTY line is available at 1-800-665-0354. You can also set up a series of pre-authorized debit payments online in CRA My Account without calling.

What happens if I miss a payment on my CRA payment arrangement?
Contact the CRA before the payment is due rather than after. Defaulting without warning can end the arrangement and restart collection action, including garnishment.

Is a consumer proposal binding as soon as it is filed? No. Filing triggers the stay of proceedings, which stops most unsecured collection and generally stops interest on the unsecured debts included in the proposal. The proposal becomes binding on the debtor and affected creditors once it is accepted by the required majority of dollars voted and then approved, or deemed approved, by the court. Secured creditors’ rights may be unaffected.

Talk to John Adamson

If you have already set up a CRA payment arrangement and it is not sustainable, or you can see from the outset that a payment plan will not cover what you owe, it is worth understanding what each route would actually involve before committing to years of payments.

John Adamson is a Licensed Insolvency Trustee with 30+ years of experience helping people across Southwestern Ontario, with offices in London, Windsor, Chatham, Kitchener, Waterloo and St. Thomas. He will go through the options that apply to your circumstances, including the case for staying with a payment arrangement, and set out the consequences of each.

The consultation is free, confidential and carries no obligation. We are open evenings for people who cannot get away during the working day. Call 519-310-JOHN (5646) or contact us online.