Does Not Paying Taxes Affect Your Credit Score?

When it comes to financial matters, there’s often a degree of confusion regarding the intricacies and implications of tax payments. One of the most common questions that individuals grapple with is: Does not paying taxes affect your credit score? This article will provide you with an in-depth analysis of this question and more, offering clear-cut answers and practical solutions.

The Relationship Between Tax Debt and Credit Score

Contrary to popular belief, tax debts don’t always show up on your credit report. The impact of any unpaid taxes on your credit score is largely dependent on the actions taken by the Canada Revenue Agency (CRA).

When Does Tax Debt Affect Your Credit Score?

Typically, the CRA respects your privacy and refrains from sharing your information with the leading credit bureaus—Equifax and TransUnion—unless they’re legally permitted to do so. This usually happens when the CRA takes legal action to collect your tax debt.

Legal Actions by the CRA

If you accumulate a substantial tax debt and fail to make repayments, the CRA will not hesitate to enforce stringent collection measures. This could involve collection calls, in-person visits, and letters. Unlike other creditors, the CRA has unparalleled authority to undertake aggressive actions such as wage garnishment and freezing bank accounts without prior notice.

Impact on Credit Report

When the CRA decides to take legal action against you, they’ll register your debt with the Federal Court or obtain a judgement to confirm your debt amount. This information then becomes public and appears on the legal section of your credit report. A CRA judgement can remain on your credit report for six to seven years from the date of filing, potentially hindering your ability to secure large loans or a mortgage.

Other Factors Influencing Your Credit Score

While CRA judgements can affect your credit score, there are several other factors that also play a significant role in determining your overall creditworthiness.

Credit History

Your credit history evaluates your reliability in paying your bills on time. Missed, partial, or late payments can negatively impact your credit report. Regular, full repayments of your credit card bills each month can contribute to a better credit score.

Credit Utilization

Credit utilization refers to the ratio of the total credit available to you versus the amount you’re actually using. Regularly maxing out your credit card can lower your credit score, while maintaining a low credit utilization can boost your score.

Credit Product Variety

Handling different types of credit responsibly and making timely payments can positively affect your credit score.

The Financial Implications of Tax Debt

Failing to pay your taxes in full when they are due can lead to accrued interest and penalties. The CRA, with its unparalleled powers compared to other creditors, can take drastic measures to reclaim the tax debt you owe.

CRA’s Collection Measures

The CRA can enforce wage garnishment, freeze your bank account, or seize your property to sell for funds towards your debt repayments. Any money you’re owed by another government agency may also be used to offset your tax debt.

Steps to Avoid Tax Debt

To avoid severe consequences on your finances, it’s crucial to stay on top of your tax payments. Here are a few steps you can take:


  • Understand your tax obligations, especially if you filed a tax return last year.
  • Set aside money from each paycheck to cover your tax payments.
  • If you’re self-employed or own a business, consider opening a separate bank account for tax funds and link it to the CRA’s website for easy payment.


What to Do If You Owe Tax Debt

Don’t panic if you find yourself in tax debt. There are several solutions available to help you regain control of your finances.

Request a Payment Arrangement

If you’re unable to pay your tax debt in full, you can request a payment arrangement with the CRA. Clearly communicate your financial situation with the CRA; they’re more likely to assist if they’re aware of your struggles in advance.

Apply for Taxpayer Relief

You may be eligible for taxpayer relief with the CRA, which can potentially clear any interest and penalties you’ve incurred. However, you will still need to repay your tax debt in full.

Voluntary Disclosure Program

If you owe tax because you didn’t file a previous tax return or filed an incorrect return, you may be eligible for a voluntary disclosure program. This gives you another chance to file a corrected tax return and can reduce the amount you owe in penalties and interest.

Consult a Licensed Insolvency Trustee

Licensed Insolvency Trustees are legally authorized to file all forms of debt relief in Canada. They can help you navigate your tax debt effectively and provide immediate protection from your creditors, including the CRA.

Filing a Consumer Proposal

A consumer proposal is a legal form of debt settlement that can reduce your debt by up to 80%. It’s an ideal solution for Canadians who want to reduce their debt while retaining their assets.

Filing Bankruptcy

Bankruptcy can clear most types of debt. It involves assigning any non-exempt assets you have to a Licensed Insolvency Trustee in exchange for the clearance of your debt. While bankruptcy can clear most tax debts, it cannot remove a tax lien.


To the question, “Does not paying taxes affect your credit score?”, the answer is yes—in some situations. However, with proper financial management and a clear understanding of your tax obligations, you can avoid tax debt and maintain a healthy credit score.

If you find yourself struggling with tax debt, remember that help is available. Reach out to a Licensed Insolvency Trustee or financial advisor today and start your journey towards financial freedom.

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