Dealing With Debts Owed To Canada Revenue Agency

Dealing With Debts Owed To Canada Revenue Agency

Navigating Debts Owed To Canada Revenue Agency

When financial troubles loom, the Canada Revenue Agency (CRA) may emerge as a significant creditor. In such scenarios, understanding your options and the best way to deal with debts owed to the Canada Revenue Agency can provide relief. This article delves into the types of debts you may owe to the CRA, how they can be included in bankruptcy or Consumer Proposals, and the nuances of dealing with these debts.

Types of Debts Owed to CRA

Debts owed to the CRA by individuals or corporations can vary. Here, we explore the most common types:

  1. Income Taxes: This is a tax levied on the income of individuals or entities. If you have unpaid income tax debts, CRA can take aggressive action to recover them.
  2. GST/HST Debts: If you are a business owner, you might find yourself owing Goods and Services Tax (GST) or Harmonized Sales Tax (HST) to the CRA.
  3. Source Deductions: These include amounts withheld from employee wages for income taxes, Canada Pension Plan (CPP) contributions, and Employment Insurance (EI) premiums, which have not been remitted to the CRA.
  4. Director’s Liability: As a director of a corporation, you could be held personally liable for the corporation’s unremitted source deductions or GST/HST.

It’s important to note that, generally, these debts can be included in either a bankruptcy or Consumer Proposal.

Bankruptcy and Consumer Proposal: A Fresh Start

Bankruptcy and Consumer Proposals are legal processes that provide relief to individuals struggling with debt. They allow you to settle your debts under the supervision of a Licensed Insolvency Trustee (LIT).

Bankruptcy vs Consumer Proposal

Choosing between a bankruptcy and a Consumer Proposal depends on your unique financial situation, including your income, assets, and the type and amount of debt you owe. While bankruptcy can eliminate most debts, a Consumer Proposal allows you to repay a portion of your debts over time.

Remember, debts to the CRA are typically treated the same as other unsecured debts like credit card debts in these processes. However, there are some nuances to keep in mind.

Nuances of Dealing with CRA Debts

While CRA debts can be included in bankruptcy or a Consumer Proposal, there are some specific considerations:

  • In a bankruptcy, if you owe more than $200,000 to the CRA for income taxes, you do not automatically receive a discharge from bankruptcy. A court hearing will decide if you need to make additional payments to obtain your discharge.
  • In a Consumer Proposal, the CRA typically does not approve a proposal unless the full amount of source deductions is paid within six months.

Dealing with CRA: Can You Negotiate?

Unfortunately, the CRA does not negotiate settlements on tax debts, unlike some private creditors. You cannot make direct “deals” with the CRA to settle your debts, nor can you negotiate the principal balance or any interest owing.

However, you might be able to reduce penalties in some situations. The silver lining is that the Consumer Proposal provisions of the Bankruptcy and Insolvency Act allow for a deal with the CRA, although what they will accept depends on your financial circumstances.

Steps to Financial Recovery

Once you decide to deal with your CRA debts through bankruptcy or a Consumer Proposal, the following steps can guide you towards a debt-free life:

  1. Be Prepared: Gather all financial information related to your debts, including those owed to the CRA.
  2. Consider Your Options: A Licensed Insolvency Trustee can help you understand your situation and the options available to you.
  3. Achieve a Debt-Free Life: Work with your LIT to fill out and file all necessary paperwork, and understand your obligations to rebuild a strong financial future.

Moving Forward: Life After Debt

Dealing with debts owed to the Canada Revenue Agency can be overwhelming, but remember that options for relief are available. Whether through a bankruptcy or a Consumer Proposal, you can navigate your financial difficulties and move towards a debt-free life.


Dealing with debts owed to the Canada Revenue Agency can be a complex and stressful process. However, by understanding the types of debts you owe and the options available to you, you can navigate your way to financial recovery. Remember, a Licensed Insolvency Trustee can provide valuable advice and assistance throughout this process, helping you to achieve a fresh financial start.

Find Your Personal Debt Relief Solution

Licensed Insolvency Trustees are here to help. Get a free assessment of your options.

Discuss options to get out of debt with a trained & licensed debt relief professional.