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What Happens if You Owe CRA as a Small Business Owner
- Priya Gupta
- Jul 28
- 4 min read
Running a business in Canada can be fulfilling, but it also brings important obligations, particularly regarding taxes. If you’re a small business owner or sole proprietor and you’ve fallen behind on your tax obligations, you’re not alone. Many entrepreneurs find themselves owing the Canada Revenue Agency (CRA), and if left unaddressed, the consequences can be severe.
Understanding how CRA collections work, what your legal options are, and how to take proactive steps can protect your business and help you get back on solid financial ground.
Key Takeaways:
CRA can garnish income, freeze accounts, and seize assets if taxes go unpaid.
Payment plans, taxpayer relief, or a consumer proposal are available options.
A Licensed Insolvency Trustee can help reduce debt and stop CRA actions.
Early action = more options and less financial damage.
How Small Businesses Fall Behind on CRA Payments
CRA tax debt can accumulate for a variety of reasons. The most common culprits include:
Unpaid GST/HST remittances.
Missed payroll deductions.
Corporate or personal income tax balances.
Late filings resulting in penalties and interest.
Whether due to unexpected expenses, seasonal cash flow dips, or delayed client payments, even responsible business owners can find themselves in tax arrears. The key is to recognize the signs early and take action.
What Happens If You Owe the CRA?
If your account with the CRA becomes delinquent, the agency can move quickly, and with more authority than other creditors.
Step 1: Payment Reminders and Notices
CRA typically begins with written notices and payment demands. These serve as a warning and give you a brief window to respond or resolve the issue voluntarily.
Step 2: Legal Enforcement Actions
If no resolution is made, CRA can take powerful collection actions without needing a court order. These may include:
Garnishing your wages or business income.
Freezing your personal or business bank accounts.
Registering a lien on your home, vehicle, or commercial assets.
Because CRA doesn't need court approval, these actions can happen faster than most business owners anticipate.
Step 3: Penalties and Interest
CRA compounds interest daily and applies late filing and payment penalties aggressively. Even a modest tax balance can grow quickly into an unmanageable debt.
CRA Collections for Small Business Owners
Whether you're incorporated or self-employed, CRA collections follow similar patterns but may differ in scale and impact:
Requirements to Pay (RTP): These legally bind your bank or customers to redirect funds directly to CRA.
Asset Seizure: CRA may seize and sell property if taxes go unpaid.
Business Disruption: CRA can freeze your business accounts, potentially halting operations.
These actions can damage your credit, reduce trust with suppliers or customers, and seriously harm your operations.
What Are Your Options If You Can’t Pay CRA?
If you’re unable to pay the full amount immediately, there are legitimate solutions available:
1. CRA Payment Plan
You can negotiate a payment plan directly with CRA. However, interest continues to accumulate, and failure to meet agreed terms could trigger enforcement again.
2. Taxpayer Relief Program
Under specific circumstances, such as serious illness, natural disasters, or financial hardship, CRA may waive penalties and interest. This doesn’t erase the principal debt but can ease the financial strain.
3. Consumer Proposal
If you're a sole proprietor or owe CRA personally, a consumer proposal might be a better option. It allows you to negotiate a reduced payment with CRA (and other creditors) while freezing interest and stopping legal action. This process is legally binding and must be filed through a Licensed Insolvency Trustee.
4. Bankruptcy
Bankruptcy may discharge CRA debts, though not all are automatically eligible (e.g., recent or unfiled returns). Bankruptcy is a last resort, as it significantly affects credit and may involve asset loss.
Why You Shouldn’t Ignore CRA Debt
Ignoring your CRA debt doesn’t make it disappear. In fact, it limits your options. CRA’s powers to collect can escalate quickly, putting your income, assets, and business operations at risk.
Acting early means you may qualify for flexible arrangements, maintain better control over your finances, and even protect your business reputation.
When to Get Professional CRA Debt Help
Dealing with the CRA can be intimidating, especially when juggling business stress. A Licensed Insolvency Trustee can offer objective, regulated advice and advocate on your behalf.
Working with a professional helps you:
Understand your legal rights and obligations.
Choose the best strategy for your situation.
Stop CRA collections through formal proceedings.
Rebuild your financial health with a clear plan.
Regain Financial Confidence with SCB Debt Solutions
If you owe CRA as a small business owner, don’t panic, but don’t delay. CRA has powerful tools that can disrupt your business and personal life. Fortunately, there are tax relief options available, from structured payment plans to consumer proposals and beyond.
The earlier you address your CRA debt, the more options you’ll have to resolve it without compromising your livelihood. At SCB Debt Solutions, our Licensed Insolvency Trustees help entrepreneurs in Alberta navigate CRA collections, explore tailored tax debt solutions, and take control of their financial future. Connect with us to learn more today.
FAQs
Can CRA go after my personal assets for business tax debt?
Yes, if you’re a sole proprietor, you're personally responsible for business tax debt. Even if you’re incorporated, CRA can hold directors personally liable for unpaid payroll deductions or GST/HST. Legal action can extend to personal property.
How long does CRA Collections last?
CRA can pursue collections for up to 10 years from the date of assessment. However, the clock resets if you acknowledge the debt or make a partial payment. Ignoring it doesn’t make it disappear - it may trigger enforcement sooner.
Does a consumer proposal stop CRA collections immediately?
Yes. Filing a consumer proposal legally stops all collection actions by CRA, including wage garnishments and bank freezes. It also freezes interest and allows you to repay a portion of your debt over time through a trustee.
