If your Ontario corporation owes arrears for corporate income tax or HST, you can negotiate a payment arrangement with the Canada Revenue Agency (CRA). You must proactively contact CRA Collections before they issue a Requirement to Pay, which can freeze your corporate bank accounts or intercept your receivables.
Understanding CRA Corporate Arrears in Ontario
Falling behind on corporate tax or Harmonized Sales Tax (HST) payments is a serious issue for any business. The Canada Revenue Agency (CRA) has sweeping powers that far exceed those of regular commercial creditors. ⚠ If ignored, the CRA can freeze your company’s operating accounts, seize funds without a court order, and hold directors personally liable for unpaid HST and payroll deductions.
However, the CRA is ultimately interested in compliance and collecting the tax owed, not necessarily bankrupting your business. Most businesses in Toronto, Hamilton, and across Ontario can successfully negotiate a payment arrangement if they take a proactive, transparent approach. Working with a skilled local tax lawyer from our directory can help you navigate this delicate negotiation and protect your business operations.
Step-by-Step Process to Negotiate with the CRA
Negotiating a payment plan for corporate arrears requires strict adherence to CRA policies. 📍 Whether you owe $20,000 CAD or $200,000 CAD, the fundamental steps remain similar across Canada.
Step 1: Ensure All Tax Returns are Filed
The CRA will flatly refuse to negotiate any payment arrangement if your corporation has outstanding tax returns. Before picking up the phone, you must file all overdue corporate income tax (T2) returns, HST returns, and payroll summaries. Even if you cannot pay the balance immediately, filing the returns demonstrates compliance and is a mandatory prerequisite for negotiations.
Step 2: Prepare Complete Financial Disclosure
When you ask for a payment arrangement, the CRA will want proof that you cannot pay the debt in full right now, but that your business generates enough cash flow to support monthly payments. You must prepare detailed financial statements, including recent bank statements, a list of corporate assets, accounts receivable, and a realistic cash flow projection. Transparency is key; hiding assets is an offence that can lead to severe penalties.
Step 3: Propose a Realistic Payment Plan
Contact the CRA Collections officer assigned to your file or call the general CRA business debt line. You or your tax lawyer will propose a monthly payment figure. 📝 The CRA generally expects the debt to be paid off as quickly as possible, often within 6 to 12 months, although longer terms can sometimes be negotiated for businesses facing severe hardship. Be prepared to explain exactly how your business will afford these payments.
Step 4: Setting Up Pre-Authorized Debit (PAD)
Once a verbal or written agreement is reached, the CRA will strongly encourage you to set up a Pre-Authorized Debit (PAD) agreement. This allows the CRA to automatically withdraw the agreed-upon amount from your corporate bank account each month. Ensure you never miss a payment, as defaulting on an arrangement can lead to immediate aggressive collection action.
How Much Does it Cost to Resolve CRA Arrears?
While the CRA does not charge an “application fee” to set up a payment arrangement, resolving corporate tax debts involves significant financial considerations. As of June 2026, you should prepare for the following:
| CRA Interest Charges | The CRA continues to charge compounding daily interest on unpaid corporate taxes and HST until the balance is zero. Current prescribed interest rates for overdue tax liabilities sit at 7% as of 2026. |
| Lawyer or Accountant Fees | Hiring a tax professional in Ontario to negotiate on your behalf typically costs between $1,500 CAD and $5,000 CAD, depending on the complexity of your corporate arrears. |
| Penalties | Late filing penalties (usually 5% of the unpaid tax plus 1% for each full month it is late) are added to the principal balance you must repay. |
How Long Does the Process Take?
The timeline for negotiating a payment arrangement can be quite rapid. 🕑 If your returns are fully up to date, a tax lawyer can often secure a standard payment arrangement within 1 to 3 weeks. However, if your business requires a complex, multi-year repayment plan, the CRA collections officer may need approval from a senior manager, which can extend the negotiation process to a month or more.
Frequently Asked Questions (FAQ)
Can the CRA forgive the principal amount owed?
No. Under Canadian law, the CRA does not have the authority to forgive the principal amount of tax owed. They can only negotiate how and when it is paid.
What is a Requirement to Pay (RTP)?
A Requirement to Pay is a legal notice sent by the CRA to third parties (like your bank or your clients) ordering them to send your money directly to the CRA instead of to you. Negotiating a payment plan prevents this.
Can directors be held personally liable?
Yes. Under the Excise Tax Act and Income Tax Act, corporate directors in Ontario can be held personally liable for unpaid HST and employee payroll source deductions. They are generally not personally liable for corporate income tax.
Will the CRA waive interest and penalties?
You may be entitled to relief under the Taxpayer Relief Provisions if your failure to pay was caused by extraordinary circumstances (like a natural disaster, serious illness, or CRA error). However, this is a separate application process.
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