Tax debt forgiveness in Canada

Posted on 20 April 2023

Written by Ashvin Sharma

Struggling with your taxes? Tax bill much higher than you anticipated? You are certainly not alone. At Spergel, our Licensed Insolvency Trustees are here to help you discover the best tax debt relief option for you and your situation. Unfortunately, in Canada it is all too easy to find yourself facing tax debt. This issue only looks to get worse with rapidly increasing interest rates and a rising cost of living over the past year or so. In fact, in 2021 the average government debt owed by the average Canadian is $57,500, with further debt interest charges ranging between $1,110 and $2,400 depending on your province of residence. For this reason, it is unsurprising that a growing number of Canadians find it difficult to repay their tax debts to the Canada Revenue Agency (CRA). Tax debt is also non-discriminatory – those who are self-employed often find themselves owing Harmonized Sales Tax (HST), and many seniors face tax debt due to insufficient pensions. In this article, we explore tax debt forgiveness and share how it is possible to gain a future free from tax debts.

What can the CRA do to reclaim tax money?

As the CRA is the authority on filing tax credits and social benefits, it is also responsible for collecting on any unpaid taxes and tax debts. Backed by the government to take care of Canada’s tax revenue and benefits, it is unrivalled in its collection powers. While other creditors may need to take you to court in order to pursue legal activity for outstanding repayments, the CRA can essentially skip this step and take action – often without warning. Typical action the CRA will take if it struggles to reclaim money includes the following:

For this reason, the CRA needs to be taken seriously and handled as quickly as possible. You may also require the support of a Licensed Insolvency Trustee. Next, we will discuss the best ways to gain tax debt forgiveness in Canada.

Tax debt forgiveness options

There are a variety of ways to gain CRA debt forgiveness, be it HST tax debt, back income tax debt, small business tax debt, or any other form of tax debt that you may have. Here are the key options in Canada for gaining tax debt forgiveness:

Paying your tax debt in full

Paying off your tax debt in one lump sum has a number of advantages. You can avoid incurring additional interest charges, and it will get the CRA off your back once and for all. This means you are safe from the threat of any legal or financial consequences associated with collections by the CRA.

Repayment plan

If it is proving difficult to make your tax debt repayment in full, the CRA may be open to organizing a repayment plan with you. This is a negotiated plan for you to repay your debt over an agreed period of time. The CRA will take a look into your financial situation, and potentially set up an arrangement whereby you can repay your debt in small amounts on a regular cadence. You must note that if you agree on a repayment plan, you will need to stick to it in order to avoid further consequences. This applies also to meeting your tax obligations and filing your tax returns on time. The CRA will always respond best to good communication and transparency on your financial situation. While a repayment plan with the CRA will not reduce your overall debt, it does have the advantage of making your debt more manageable by extending the period of time over which you make payments. You will need to pay any interest and penalties applicable to your debt also. Should your financial situation change at all – be it an increase or decrease in income – you should let the CRA know straight away. At Spergel, we would also advise you to be careful when negotiating a repayment plan with the CRA. They will only have their tax debt prioritized, and will not be bothered about any other debts you may have. You should therefore be very careful when it comes to committing to any arrangement, ensuring you can afford to stick to not only the plan, but also the repayment of your other debts.

Gain taxpayer relief

A key form of tax debt forgiveness, the CRA does offer some taxpayer relief measures. If you are in one of the following circumstances, you may be able to receive taxpayer relief from the interest or penalties applied to your tax debt:

  • You are facing financial hardship
  • Action taken by the CRA to collect has hindered your ability to make your tax debt repayments
  • Extenuating circumstances

Although taxpayer relief does not reduce the principal of your tax debt, it can reduce the overall interest and penalties that you owe. In order to be considered for taxpayer relief, you need to show evidence of your extenuating circumstances. You may also require a tax lawyer to help you to apply.

Taking out a debt consolidation loan

A debt consolidation loan is a new loan that is taken out to condense multiple other debts into one, including your tax debts. As well as having the advantage of simplifying your debts into one more manageable monthly payment, debt consolidation loans often reduce your overall interest rate. In some cases, they can even eliminate the interest you pay altogether. Debt consolidation loans often give you longer to repay your debts, making each monthly payment a little less and overall much more affordable.

Filing a consumer proposal

The #1 bankruptcy alternative in Canada, a consumer proposal is a great way to reduce your debts – including tax debt – by up to 80%. A consumer proposal is the process of putting forward an affordable monthly repayment figure on your debts to your creditors. With the support of a Licensed Insolvency Trustee who will negotiate with your creditors on your behalf, many Canadians who file consumer proposals can reduce their debts by up to 80%. Other advantages of filing a consumer proposal include gaining protection from your creditors, and any subsequent legal action including wage garnishments or bank account freezes. Consumer proposals also stop any penalties and interest charges, allowing your debts to be simplified into a single monthly payment. At Spergel, we receive a 99% acceptance rate on any consumer proposals we file. You can also include any other unsecured debts you may have, including credit card debt, car loan debt, and payday loan debts into your consumer proposal. Our Licensed Insolvency Trustees will support you to:

  • Clear penalties and interest
  • Reverse wage garnishments or bank account freezes
  • Pay only what you can afford
  • Protect your assets

Filing bankruptcy

If you are having more significant financial struggles, filing bankruptcy may be your best (and quickest) route to a fresh financial future. Bankruptcy is the legal process of assigning any non-exempt assets that you have over to a Licensed Insolvency Trustee. These are sold, with any proceeds going towards the repayment of your creditors. In exchange, you are cleared of your unsecured debts. While many Canadians believe that bankruptcy leaves you with nothing, this is simply not the case. Each province has its own list of exempt assets up to a certain value threshold, including a car. See Ontario bankruptcy exemptions, for instance. For those filing a first time bankruptcy, you can often be discharged from bankruptcy in as little as nine months. A reputable Licensed Insolvency Trustee will be able to review your financial circumstances and help you to decide if bankruptcy is the best form of debt relief for you. At Spergel, unlike other bankruptcy firms, you are assigned your very own Licensed Insolvency Trustee to walk you through the entire debt relief process, instead of being passed from person to person.

At Spergel, we can help you to gain tax debt forgiveness in Canada and begin a fresh financial future. We will support you to eliminate your tax debts and any other debts you may have too. Our team of experienced Licensed Insolvency Trustees has been handling the CRA for over thirty years, and is here to help you too. Book a free consultation with Spergel today – you owe it to yourself.


Ashvin Sharma

Ashvin Sharma is a Chartered Insolvency and Restructuring Professional and LIT (Licensed Insolvency Trustee) overseeing all of Spergel's offices in the Greater Vancouver Area and British Columbia. He is also our resident expert on homeownership debt and health debt. In his spare time, Ashvin loves to play sports, spend time with family and friends, and serves as a volunteer coordinator for "Free-Them", a Canadian organization committed to raising awareness about human trafficking.

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