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What happens if you don’t pay your taxes in Canada?

Posted on 27 March 2024

Written by Colin Boulton

Although nobody’s favourite topic, taxes are the lifeblood of any country’s economy, facilitating the functioning of essential services and infrastructure. While the vast majority of Canadians file their taxes on time, 1 in 10 Canadians do not file, meaning they are potentially missing out on the benefits of a tax return. It does also mean some Canadians are not paying their taxes, which can have serious repercussions, ranging from financial penalties to legal consequences. The Canada Revenue Agency (CRA) is vigilant in ensuring compliance with tax laws, and individuals or businesses who neglect their tax obligations may find themselves facing various consequences. On top of this, the CRA is unrivalled in the powers it can take as a creditor to reclaim the money it is owed. So, what happens if you don’t pay your taxes in Canada? In this article, we explore the different consequences, and most importantly, what to do if you are struggling with your tax debt.

What happens if I don’t file my taxes?

Let’s start with filing, the step required before you understand how much – if any – you may need to repay in tax. The CRA requires all Canadians that earn more than the basic personal income amount to file a tax return. If you fail to file your taxes in Canada, you could face a number of consequences from the CRA:

  • You may incur financial penalties, including late-filing penalties, which can accumulate over time
  • The CRA may charge interest on any outstanding balance owed, further increasing the amount you owe
  • If you are non-compliant, you could face legal action, including a wage garnishment, asset seizure, or a lien on your property
  • In extreme cases of deliberate tax evasion or fraud, you could face criminal charges, which can result in fines, imprisonment, or both
  • Failing to file taxes can also damage your reputation and credibility, affecting your financial standing and relationships with financial institutions and other influential partners

For these reasons, it is crucial to fulfil your tax obligations promptly – including filing your taxes – and seek help if you are struggling with filing your taxes, or are worried about the amount of tax debt you may owe.

What happens if you file your taxes late?

The deadline for filing taxes for the 2023 tax year is April 30, 2024. If you’re self-employed, you have a little longer with a deadline of June 14, 2024. If you file your taxes late, you are still able to file your return, but there are consequences for filing late:

  • You could miss out on an unclaimed tax refund
  • If you owe a balance to the CRA, you will be charged a late-filing penalty (5% of your owed balance for 2023, plus an additional 1% for each month you file after the due date, to a maximum of 12 months)
  • Any owed benefit payments will be delayed

What if you don’t file your taxes but don’t owe anything?

It is all well and good if you don’t expect to owe taxes as you don’t meet the income threshold. Although you won’t have to pay penalties, it is still important to file for the following reasons:

  • You could qualify for a refund
  • You could qualify for benefits and credits, like GST/HST credit, or Canada child benefit
  • When you file your taxes, you receive a Notice of Assessment from the CRA, which you may need if applying for a mortgage or a loan

What happens if you don’t pay your taxes in Canada?

If you have a balance owed to the CRA for the 2023 tax year, and you cannot pay it by the deadline, you will begin to be charged compound daily interest after the deadline on May 1, 2024 on anything you owe. If you agree to pay by instalments and do not make these payments, you will be charged instalment interest. Overall, here are the consequences of not paying your taxes in Canada:

Penalties

One of the immediate consequences of not paying tax in Canada is financial penalties. The CRA imposes interest charges on any outstanding balance owed, starting from the due date of the payment until the date the amount is paid in full. Additionally, late-filing penalties may apply if you fail to file your tax return by the deadline, even if you don’t owe any tax. These penalties can accumulate over time, significantly increasing the amount you owe.

Legal action

If you continue to fail to pay your taxes, it can lead to more severe consequences, including legal action by the CRA. If you ignore repeated notices and reminders from the CRA regarding your tax debt, they may resort to legal measures to recover the amount owed. This can include wage garnishments, seizing assets, or placing liens on your property. The CRA has extensive powers to enforce tax collection, and they may take legal action without prior warning if they deem it necessary.

Court proceedings

In extreme cases of non-compliance or tax evasion, you could face court proceedings initiated by the CRA. This can result in civil or criminal charges, depending on the severity of the offence. Civil charges may lead to court-ordered repayment of taxes owed, along with additional penalties and interest. On the other hand, criminal charges can result in fines, imprisonment, or both, particularly if the non-payment of taxes is deliberate and fraudulent.

Reputation damage

Beyond the immediate financial and legal consequences, failing to pay your taxes can also damage your reputation. Tax evasion or non-compliance can tarnish your personal or business reputation, affecting your credibility and trustworthiness in the eyes of financial institutions, other influential partners, and the general public. This can have long-lasting repercussions on your professional and social standing, making it difficult to rebuild trust in the future.

What if you can’t afford to pay your taxes?

Many Canadians will delay filing their returns or avoid paying their taxes simply because they are struggling to make payments and do not know what to do. If you find yourself unable to pay your taxes due to financial hardship or other reasons, it is essential to take proactive steps to address the situation. Burying your head in the sand will only make things worse. At Spergel, we believe that no matter how bad you might think your circumstances are, there is always a solution. As the ‘get rid of debt’ people, we are here to help you explore your options if you are facing tax debt, including instalment payment plans, debt relief solutions, and negotiated settlements. As a team of expert Licensed Insolvency Trustees, we are the only professionals in Canada legally able to file all forms of debt relief. We are here to help you navigate the process and find the best solution for your situation. The following options might be available:

  • Setting up a payment plan – agreeing on frequent pre-arranged payments over time to pay your balance to the CRA
  • Making a partial payment – paying what you can will reduce the amount of interest you need to pay on the rest of the debt you owe
  • Deferring your payment – the CRA may allow you to defer your repayment to a time when you are in a better financial situation
  • Request taxpayer relief – if you meet the eligibility criteria, you may be granted relief from penalties and interest which in turn reduces the amount you owe
  • Filing a consumer proposal – a consumer proposal is a legal form of debt settlement that can reduce your tax debt by up to 80% and put an immediate stop to your creditors contacting you – all while enabling you to keep your assets.
  • Filing bankruptcy – bankruptcy is often a last resort, but it can completely eliminate your tax debt and give you the opportunity to begin a fresh financial future.

If you fail to try and pay your taxes, the CRA will take legal action. Unlike other creditors, it does not need to warn you or seek court approval in order to take action. The CRA has 10 years to collect a tax debt, so it is within your interests to try and tackle the situation as soon as you can. After this time period, the CRA is not able to take any further action against you, but you will still owe the debt.

How long can you put off filing taxes?

If you haven’t submitted your tax return yet, it’s essential to do so promptly to reduce any potential repercussions. Tax evasion, which includes making false claims, not reporting income, or inflating expenses, is a serious offence. If convicted, you may be required to pay the full tax amount owed along with penalties and interest. Penalties can amount to up to 200% of the evaded taxes, and there’s even the possibility of facing a jail term of up to five years.

What happens if you don’t pay your taxes in Canada? FAQs

Here are some of the most commonly asked questions we receive about not paying taxes in Canada:

What happens if you stop paying taxes in Canada?

If you stop paying taxes in Canada, you will face serious consequences. The CRA has extensive powers to enforce tax laws, including garnishing wages, freezing bank accounts, seizing assets, and initiating legal action. Continued non-compliance can lead to fines, penalties, and even imprisonment in extreme cases. Additionally, accumulating tax debt can result in interest charges and further financial strain. Failing to meet tax obligations not only jeopardizes your financial stability but also risks legal repercussions and damage to your credit rating. It is crucial to address any tax issues promptly and seek assistance from tax professionals or the CRA if facing difficulties.

Is not paying taxes a crime in Canada?

Yes, not paying taxes in Canada is considered a crime. While there are various reasons why someone may struggle to pay taxes, deliberate evasion or consistently failing to fulfil tax obligations is viewed as illegal. The Canadian tax system relies on voluntary compliance, and individuals and businesses are expected to accurately report their income and pay the taxes owed. Intentionally avoiding or evading taxes through fraudulent means, such as hiding income or assets, can lead to criminal charges. The Canada Revenue Agency (CRA) has the authority to investigate suspected tax evasion and may impose severe penalties, including fines and imprisonment, for those found guilty. Therefore, it is essential to adhere to tax laws and fulfil your obligations to avoid legal consequences.

What happens if a person fails to pay their taxes in Canada?

If you fail to pay your taxes in Canada, you can face a range of consequences. Initially, the CRA will likely send reminders and notices urging payment. If the debt remains unpaid, the CRA can take more severe actions, such as garnishing wages, freezing bank accounts, and seizing assets to recover the owed taxes. Interest and penalties may also accrue on the unpaid amount, increasing the overall debt. Continued non-compliance can lead to legal action, including lawsuits and court judgments against the individual. In extreme cases of deliberate tax evasion or fraud, criminal charges may be pursued, potentially resulting in fines, imprisonment, or both. For this reason, you should address any tax issues as soon as you can and work with the CRA to find a resolution.

How many years can you go without filing taxes in Canada?

In Canada, there is no specific limit on how many years an individual can go without filing taxes before facing consequences. However, failing to file taxes for an extended period can result in accumulating tax debt, interest charges, penalties, and potential legal action by the CRA. The CRA encourages taxpayers to fulfil their obligations by filing returns on time, even if they cannot pay the full amount owed. Deliberately avoiding filing taxes can lead to suspicion of tax evasion, which carries severe penalties. Therefore, it is advisable to file taxes annually, even if you have no income or are unable to pay taxes owed, to avoid complications and potential consequences.

Failing to pay taxes in Canada is not a matter to be taken lightly. The consequences can range from financial penalties and legal action to damage to your reputation and livelihood. It is crucial to fulfil your tax obligations promptly and seek assistance if you encounter difficulties in meeting them. If you are struggling with your tax debt and unsure where to turn, book a free, no-obligation consultation with an expert Licensed Insolvency Trustee at Spergel. We have been helping Canadians to become debt free for over 34 years, and we are here to help you too.

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Colin Boulton

Colin Boulton is a Chartered Accountant and Insolvency and Restructuring Professional with over 20 years’ experience as an LIT (Licensed Insolvency Trustee). He is also our resident expert on unemployment and wage garnishments and manages Spergel's offices in Eastern Ontario (including Oshawa, Peterborough, Lindsay, Ajax and Scarborough). When not at the office helping clients cross their debt-free finish lines, Colin enjoys training for and participating in triathlons.

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