CRA Payment Plans: What to Do If You Can't Pay
How to set up a CRA payment arrangement — taxpayer relief, installment plans, and avoiding penalties and interest.
If you cannot pay your full tax bill on time, the Canada Revenue Agency offers payment arrangements that can help you avoid the most serious collection actions. Understanding how to request a plan, what terms to expect, and how to reduce penalties makes a stressful situation manageable.
Formal vs. Informal Payment Arrangements
An informal payment arrangement is simply a conversation with CRA where you agree to a payment schedule. These are typically available for balances under $10,000 and are handled over the phone. No paperwork is required, but CRA may still charge late-filing penalties and interest.
A formal arrangement is a written agreement for larger balances. CRA will ask for a detailed financial statement (Form RC376 — Taxpayer Relief Request) and proof of income, assets, and expenses. Formal arrangements often require a down payment of 20–30% upfront.
Taxpayer Relief Provisions (Penalty and Interest Relief)
- CRA can waive or cancel penalties and interest if circumstances beyond your control caused the late payment — illness, emotional distress, natural disasters, or CRA errors.
- Requests must be in writing (Form RC4288, Request for Taxpayer Relief). CRA's policy is to consider requests only for amounts relating to a tax year ending within the last 10 years.
- Interest relief is rarely granted on arrears interest — but late-filing penalties (5% of the balance, plus 1% per month for up to 12 months) are more commonly reduced.
Even if you cannot pay, file your return on time. The late-filing penalty is 5% of the balance owing plus 1% per month — but if you file on time and just pay late, only the 1% per month penalty applies (maximum 12 months).
How to Request a Payment Plan
Start by calling CRA's Individual Tax Enquiries line (1-800-959-8281) or Business Enquiries line (1-800-959-5525). Have your social insurance number or business number and your notice of assessment ready. Tell the agent you cannot pay the full amount and would like to arrange a payment plan.
For balances over $10,000 or complex situations, you will need to submit a formal proposal with your RC376 form. CRA typically responds within 4–6 weeks. Once approved, you must stick to the agreed-upon schedule — missed payments can trigger immediate collection action.
What to Expect: Garnishment and Collection Prevention
- Once a payment plan is in place and you are making payments on time, CRA will generally suspend collection actions including wage garnishment, bank account freezes, and asset seizures.
- If you do not arrange a plan, CRA can garnish wages without a court order — they simply send a Requirement to Pay to your employer. Up to 50% of your net pay can be directed to CRA.
- CRA also has the power to freeze bank accounts and place a lien on your property. Beginning a payment arrangement before these steps is always better.
Provincial Considerations for BC
BC does not have a separate collection process for provincial tax debts — CRA collects on behalf of both the federal and BC governments. However, BC's Family Maintenance Agency can garnish wages for child support independently, and CRA may prioritize those garnishments.
If you own a BC-based business, CRA can issue a Requirement to Pay to your customers, redirecting payments they owe you directly to the tax debt. This is called a 'third-party demand' and is more common for GST/PST debts than income tax debts.
Key Takeaways
- 1Informal payment plans are possible for balances under $10,000 — call CRA directly.
- 2Taxpayer relief (penalty and interest cancellation) requires Form RC4288 and documentation.
- 3Always file on time even if you cannot pay to reduce penalties from 5% to 1% per month.
- 4A payment plan stops collection actions — garnishment, bank freezes, and liens.
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