Negotiating a Payment Arrangement with the CRA: What You Need to Know

A payment arrangement is an informal agreement between you and the CRA(Canada Revenue Agency) to pay off your tax debt over time rather than forcing you to pay the full balance upfront. Typically this looks like monthly payments, giving you time to pay the debt and avoid CRA collection actions that would be detrimental to your business or ability to meet your ongoing expenses.

If you owe money to CRA and cannot pay in full, a payment arrangement is often the first step people consider. CRA will usually work with you to determine a payment amount and timeline based on your income and expenses but there are important things to understand before you call.

What CRA will ask for

Be prepared for CRA to ask for a full picture of your finances. They want to know you are paying as much as you reasonably can based on your actual budget. This typically means:

• A monthly income and expense breakdown
• Details about your assets and bank accounts
• Confirmation of what you owe. You may need to get outstanding tax filings up to date so the full extent of your tax debt is known.

What to know before you call

Before contacting CRA, take time to get organized:

• Know exactly what you owe. Access your CRA My Account online to review Notices of Assessment
• Have your SIN and recent tax documents ready to confirm your identity
• Know what monthly payment you can genuinely afford not what sounds good
• Be in a calm state of mind to conduct the conversation politely and clearly
• Be honest and forthright to build trust. CRA has access to significantly more financial information than most other creditors. If you're not comfortable with what sort of information you should disclose to them, consider consulting a lawyer before you reach out.

What CRA will and won't do

CRA's primary mandate is to close outstanding tax matters as quickly as possible. Based on our experience, this typically means:

• They generally prefer shorter repayment periods rather than long-term payment plans
• They will usually suspend collection actions while you are actively negotiating or in compliance with the arrangement, but there is no legal stay of proceedings unlike an insolvency filing. CRA retains the right to take collection action at any time
• They will NOT reduce the amount you owe in a direct negotiation. Also, interest and penalties continue to accrue
• They can still intercept government benefits and credits including GST credits, CCB, or tax refunds even while you are on a payment arrangement

Avoiding defaults - this is critical

Once you have agreed to make certain payments, it is essential that you follow through. If you miss payments or fail to respond to requests for information, CRA may take collection actions without necessarily giving you further notice.

If your situation changes due to a job loss, medical issue, or other change in income contact CRA immediately to discuss modifying the plan. Simply stopping payments without communicating first is not recommended.

Staying current on ongoing tax obligations

If your payment arrangement is accepted, CRA will typically expect that you stay current on all future tax obligations during the term of the arrangement. Falling behind on new tax obligations while on a payment plan for old debt is one of the most common ways arrangements collapse.

If you've already received a Notice of Collection from CRA, the situation is more urgent. Read: What to Do If You Receive a CRA Notice of Collection for a full breakdown of your options.

When a Payment Arrangement May Not Be the Right Answer

A payment arrangement with CRA is a reasonable starting point but it is not always the best long-term solution. There are situations where a formal insolvency filing may serve you better:

• The CRA debt is so large that a realistic payment plan would take many years and cost far more than the original debt due to ongoing interest
• You have other significant debts alongside your CRA debt, and managing them all separately is not sustainable
• CRA has already begun collection actions wage garnishment, account freezes, or writs against property
• Your income or financial situation makes it genuinely impossible to fund a payment plan CRA would accept

In these situations, a consumer proposal may be a powerful alternative. Unlike a direct negotiation with CRA, a consumer proposal filed through a Licensed Insolvency Trustee goes to a different CRA department that is authorized to accept a reduction of the amount owed in appropriate situations. Even if CRA rejected a settlement offer directly, they will often accept a consumer proposal because the alternative bankruptcy may result in CRA receiving even less.

If a consumer proposal is not viable, bankruptcy can discharge most tax debt entirely. A Licensed Insolvency Trustee can help you understand which path makes the most sense for your specific situation.

Charla Smith & Company is a Calgary-based Licensed Insolvency Trustee with extensive experience helping Albertans navigate CRA debt. We offer a free, no-obligation consultation to review your situation and give you a clear picture of all your options without pressure or judgement.