Getting a tax bill can be stressful, especially if you are new to Canada and unfamiliar with the system. The good news is that the CRA has clear processes for managing what you owe — and the worst thing you can do is ignore it.
You may owe taxes if your employer did not withhold enough throughout the year, if you have multiple income sources, if you earned self-employment or freelance income, or if you received investment income. Even newcomers with only employment income sometimes owe a small balance due to the timing of their arrival in Canada.
If you owe taxes and do not pay by April 30, the CRA charges daily compound interest from May 1 onward. The interest rate changes quarterly and is typically between 8 and 10 percent annually. If you also filed your return late, there is an additional late-filing penalty of 5 percent of the balance owing plus 1 percent for each full month late, up to 12 months.
Always file your return on time even if you cannot pay. Filing late adds a penalty on top of what you already owe. Once you have filed, contact the CRA at 1-888-863-8657 to arrange a payment plan. The CRA works with taxpayers who reach out proactively. They can set up pre-authorized monthly payments from your bank account and will often reduce or waive interest if you demonstrate financial hardship.
You can pay the CRA through online banking by adding Canada Revenue Agency as a payee and using your Social Insurance Number as the account number. You can also pay in person at any bank branch, by mail with a cheque, or through My Account at canada.ca. When paying online, allow 3 to 5 business days for the payment to be processed before the deadline.
If you have not filed returns from previous years or did not report income, the Voluntary Disclosures Program allows you to come forward and correct your tax affairs before the CRA contacts you. If you qualify, the CRA may waive penalties and reduce interest. This program is especially relevant for newcomers who did not know they were required to file in their first years in Canada. You must apply before the CRA starts an audit or collection action against you.
Unpaid taxes generally do not directly affect your immigration status, but they can affect your ability to receive certain benefits and government services. The CRA can also take collection actions including garnishing wages or bank accounts if a debt remains unpaid for an extended period. It is always better to communicate with the CRA and arrange payment rather than ignore the situation.
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