What Happens if You Don’t Pay Your Taxes in Canada?

Penalties and Interest Charges

One of the immediate consequences of not paying your taxes is the accumulation of penalties and interest charges. The CRA imposes a late-filing penalty if you file your tax return after the due date with an outstanding balance. For 2024, the penalty starts at 5% of the balance owing, plus an additional 1% for each full month that the return is late, up to 12 months.

If you have been penalized for late filing in previous years, the penalties for subsequent years may increase. For instance, if you missed filing deadlines in 2021 or 2022, your 2024 penalty could rise to 10% of the amount owing, plus an additional 2% for each full month.

Additionally, the CRA charges compound daily interest on any unpaid taxes starting the day after the balance is due. This interest rate can change every three months, which means your debt can grow unpredictably.

Enforcement Actions: Wage Garnishment and Asset Seizure

If you fail to pay your taxes, the CRA can take enforcement actions to recover the owed amount. One of the most severe measures is wage garnishment, where part of your salary is taken directly by the CRA and sent to cover your tax debt. This means that a portion of your earnings will automatically be deducted before you receive your pay.

Moreover, the CRA has the power to seize and sell your assets to recover unpaid taxes. They can freeze your bank accounts and demand payments directly from your financial institution. These drastic measures can have a severe impact on both your personal and business finances.

Loss of Benefits and Credit Payments

Failure to pay taxes can also result in the suspension of government benefits. For example, if you owe taxes and are not in compliance, the CRA can suspend payments for programs like the Canada Child Benefit (CCB), GST/HST credits, and Old Age Security (OAS) supplements. These benefits may be crucial for your household budget, and having them suspended can cause significant financial strain.

It’s important to note that while the CRA does not report unpaid taxes to credit bureaus, a court case related to unpaid taxes can indirectly affect your credit score, especially if legal proceedings or garnishments occur.

Potential for Legal Action and Criminal Charges

If you purposefully evade taxes by falsifying documents or hiding income, this can lead to criminal charges. Tax evasion is a criminal offense, and the penalties can be severe, including fines of up to 200% of the taxes owed, along with a possible prison sentence of up to five years.

However, simply failing to pay your taxes due to financial hardship or an innocent mistake is not considered criminal, although it still results in penalties, interest, and enforcement actions.

What to Do if You Can’t Pay Your Taxes

If you find yourself unable to pay your taxes, there are several options available to help you avoid further complications:

Contact the CRA: The CRA is willing to work with taxpayers who are facing financial hardship. If you're unable to pay in full, it’s essential to reach out to them and explain your situation. In some cases, they may allow you to make payment arrangements, where you can pay off your debt in installments.

Request Taxpayer Relief: If you're facing exceptional circumstances, such as illness or a significant financial setback, you may be eligible for Taxpayer Relief Provisions. This can include cancelling or waiving penalties and interest charges, although you will still need to pay the principal tax debt.

Voluntary Disclosure Program: If you’ve made a mistake on your tax return, you can apply to the Voluntary Disclosures Program (VDP). This program allows taxpayers to correct their filings before the CRA becomes aware of the errors, offering relief from penalties and, in some cases, interest.

Consult with a Business Tax Consultant in Milton

For business owners in Milton or anyone with complex tax situations, consulting with a business tax consultant can help you navigate the process of paying taxes and avoiding costly mistakes. A professional can provide tailored advice, help you understand your obligations, and guide you through the best course of action if you find yourself behind on taxes.

Final Words

Failing to pay your taxes in Canada can lead to severe penalties, interest charges, and enforcement actions by the CRA. However, it’s important to know that there are options available if you can’t pay your taxes on time. From payment plans to taxpayer relief provisions, the CRA offers solutions for those facing financial difficulties.

By consulting with a business tax consultant in Milton or a tax professional, you can ensure that you’re meeting your obligations while minimizing the impact on your finances. Don’t ignore your tax responsibilities — addressing the issue early can help you avoid further complications down the road.