Does Owing Taxes Affect Your Credit Score in Canada?

The Implications of Tax Debt on Your Credit Score in Canada

Tax debt is a significant issue in Canada, with a shocking estimated $50 billion going uncollected. If you’re among the Canadians who are unable to clear their tax obligations promptly, you might be wondering, does owing taxes affect your credit score in Canada? This article examines the effect of tax debt on credit scores and provides guidance on managing tax debt.

The Connection Between Taxes and Your Credit Score

Does owing taxes affect your credit score in Canada? The answer is nuanced and largely dependent on the measures taken by the Canada Revenue Agency (CRA) to recover the debt.

The CRA is generally discreet about your tax information and does not share your tax filing or private data with credit bureaus unless necessary. This means that a balance owing after filing your tax return will not automatically appear on your credit report or affect your credit score.

However, if a significant tax debt remains unpaid and the CRA is forced to engage their collections department, the situation changes. Debt collection is the process of pursuing payments for the debt owed. If the CRA has to resort to legal action, it can register your debt with the Federal Court or obtain a provincial court judgement to confirm the amount owed. This court judgement is public record and can appear on your credit report, affecting your credit score.

CRA Credit Report Example 1

A CRA judgement remains on your credit report for six to seven years from the date of filing, depending on the specific credit bureau and province. The CRA may seek this judgement before registering a lien and taking action to seize or sell your assets. Any tax lien against the property remains until the taxes are paid in full.

While your tax debt may not directly appear on your credit report, it can indirectly affect your financial activities. For instance, when applying for a mortgage or large loan, your lender may require proof that your taxes are current, especially if you’re self-employed or run a small business.

Other Factors Influencing Your Credit Score

Your credit score is a three-digit number that lenders use to assess your creditworthiness. It ranges from 300 to 900, with 900 being the best score and anything above 650 considered good credit. While a CRA judgement can affect your score, several other factors typically have a significant impact:

Payment History

Your payment history, including timely bill payments and how completely you clear your debts, is a key factor. Missed or late payments can negatively impact your score.

Credit Utilization

Credit utilization refers to the proportion of available credit you’re using. High utilization, such as maxing out your credit card, can lower your score.

Credit Duration

The length of your credit history, as reflected by the age of your oldest credit account, affects your score. A longer credit history generally improves your score, provided it’s associated with good payment behavior.

Types of Credit

Having a mix of different credit types—credit cards, car loans, mortgages—can positively impact your score if you manage them responsibly.

The Broader Impact of Tax Debt on Your Finances

Beyond the question of does owing taxes affect your credit score in Canada?, it’s essential to understand the broader impact of tax debt on your finances.

Failure to pay your taxes in full and on time can lead to interests and penalties. If the CRA takes action to collect the unpaid tax debt, they can garnish your wages, freeze your bank account, or sell your property. They can also offset any money owed to you by another government agency against your tax debt.

The key to preventing tax debt is effective financial management. Always be aware of your expected tax obligations and set aside funds to meet these. This is especially crucial if you’re self-employed or running a small business and don’t have taxes deducted at the source.

Managing Tax Debt

If you find yourself in tax debt, don’t panic. Begin by making a budget and assessing whether you can afford to repay the taxes. If you can’t, there are several options:

Payment Plan

You can arrange a payment plan with the CRA to pay back your tax bill in smaller installments over time, including interest.

Taxpayer Relief

In some cases, you may qualify for taxpayer relief from the CRA, which allows you to pay back your tax bill without incurring interest or penalties.

Voluntary Disclosure Program

If you have unfiled or incorrect tax returns resulting in tax debt, you could qualify for the CRA’s voluntary disclosure program. This allows you to file a corrected return and potentially avoid penalties and some interest.

Financing Options

Taking out a personal loan to pay taxes or exploring other financing options could be a last resort if you don’t qualify for taxpayer relief. However, these options often come with high-interest rates and short repayment periods.

Seeking Professional Help

If you’re struggling with tax debt, consulting a debt relief professional could be beneficial. They can guide you through various solutions, including:

Consumer Proposal

A consumer proposal is a legal debt settlement program where you agree to pay back a portion of your debts, including tax debt, over a period of five years.


Declaring bankruptcy can provide debt relief and may clear most tax debts, although it cannot remove a tax lien.

While both options can affect your credit report, they may be the best course of action if you’re unable to repay your tax or other debts.

If you’re dealing with tax debt, a tax lawyer can assist with tax code interpretation and negotiations for reducing interest and penalties. However, only a Licensed Insolvency Trustee can help you get relief from the original tax owing. If you’re in Ontario, consider reaching out to our Toronto or other Ontario offices for a free consultation.

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