Tax season is over and many do get excited when anticipating a big tax return. But if you owe money, on the other hand, you might feel a little defeated—or downright worried. But don’t fret, you have plenty of options, regardless of your unique financial situation.
What to do if you owe money on your taxes
Scenario 1: If you have money to pay your taxes on hand
If you owe money to the government and you have that amount already set aside, or an emergency fund you can dip into, you simply need to pay the amount and settle up. You’ll make your payment to the Canada Revenue Agency (CRA). These days, there are plenty of convenient payment options available to you—and old school ones, too. Here’s how to pay:
- MyCRA account: You can pay online with your MyCRA account. Just login and click on the Make Payment button.
- Online banking: You can pay online. Simply make the CRA a payee on your bills list with your financial institution of choice. Your Social Insurance Number (SIN) will be the account number with the CRA.
- In person: If you’re headed to the bank to pay, be sure to have your Notice of Assessment or SIN number on hand.
- By mail: If you want to pay by mail, you can do so once you receive your Notice of Assessment (NOA). You can make a payment to the CRA with a cheque from your Canadian bank account. Make the cheque payable to the Receiver General for Canada. Include your remittance voucher that comes with your NOA and mail it to the address on the back of your voucher.
Scenario 2: If you don’t have the money to pay your taxes in full
First things first: don’t panic. This situation is very common. If you can’t pay the full amount that you owe, the CRA can help you set up a payment arrangement.
Before you call the CRA to set this up, be sure to calculate your monthly income and expenses to determine what you can afford to pay the CRA each month. The CRA offers the Payment Arrangement Calculator. Once you know your numbers, call 1-866-256-1147 to get started. And if your financial circumstances happen to change over the course of your payment plan, you can call again to adjust the payment plan.
What not to do
Don’t avoid setting up a payment plan or adjusting the schedule if you can’t afford it right now. If you have a balance owing and are unable to pay it by the payment due date, the CRA will start charging you compound daily interest (based on the 2021 tax year, interest payments would start on May 1, 2022). The rate of interest the CRA will charge on current or previous balances can change every three months based on prescribed interest rates.
Watch for installments
An important point is that if you have net taxes owing of more than $3,000, or $1,800 for Quebec, you will likely be required to make income tax installments for the current year. It’s like prepaying your tax bill.
For example, if it’s the first time you owe tax in installments, you may be asked to prepay your taxes on Sept 15, 2022 and December 15, 2022. If you’ve already been asked to pay tax installments for previous years, you could be asked to prepay your taxes on March 15, June 15, Sept 15 and Dec 15 this year.