Introduction
A corporation that has filed its T2 and has a tax balance owing — but no cash to pay it — faces a specific progression of CRA collection actions that escalates if not addressed. Understanding what options exist, and in what order to pursue them, is the difference between a manageable payment arrangement and a garnishment of corporate bank accounts.
What the CRA Does When Tax Is Overdue
Day 1 after the payment due date: Interest begins accruing at the prescribed rate (currently 9% annually, compounded daily). This continues until the balance is paid in full.
30–60 days after filing: The CRA sends a first collection notice — a letter confirming the balance owing and requesting payment.
60–90 days: A second notice or telephone contact from a CRA collections officer. The officer's role is to confirm the corporation's ability to pay and establish a payment arrangement.
90+ days without response: The CRA may initiate collection actions without further notice, including:
Registering a lien against the corporation's assets (garnishment of receivables, bank account levies, registration against real property).
Requiring third parties who owe money to the corporation to remit those amounts to the CRA instead.
Seizing and selling corporate assets to satisfy the debt.
The Director Liability Dimension
As discussed in Article 5 of the original pack, directors of a corporation that fails to remit payroll source deductions face personal liability for those amounts. This is a deemed trust — the source deductions were collected from employees but not remitted to the CRA. Directors cannot be protected from this liability by corporate insolvency.
Corporate income tax debt, by contrast, does not automatically create director liability — the corporation owes it, and the CRA's recourse is to the corporation's assets. However, where the corporation transfers assets to related parties, pays excessive management fees, or otherwise depletes its assets while owing tax, the CRA may pursue the recipients of those transactions.
The Payment Arrangement
The most practical first step for a corporation that cannot pay its full tax balance is to contact the CRA — through the corporation's CPA — and request a payment arrangement. The CRA regularly grants payment arrangements for corporations that:
Are current on all filing obligations (returns are filed even if not paid).
Can demonstrate a genuine ability to pay over time.
Have a specific repayment plan (not an indefinite deferral request).
A six to twelve month instalment arrangement is a reasonable starting point. Interest continues to accrue during the arrangement. The CRA expects the arrangement to be honoured — a missed payment may result in the arrangement being cancelled and enforcement action resumed.
The Taxpayer Relief Option
In cases of genuine hardship — serious illness, natural disaster, or extraordinary financial circumstances — the taxpayer relief program can waive or reduce interest and penalties. This is not an option for routine inability to pay, but it is available in genuinely exceptional circumstances.
The Voluntary Insolvency Path
Where the corporation's debts exceed its assets and a payment arrangement is not viable, a formal insolvency process — under the Bankruptcy and Insolvency Act or Companies' Creditors Arrangement Act for larger corporations — provides an orderly resolution. CRA tax debts are provable claims in bankruptcy and are addressed through the insolvency process.
When to Speak With a CPA
As soon as the corporation identifies that it cannot meet its tax obligations — not after the CRA has initiated collection action. A CPA can negotiate payment arrangements, confirm director liability exposure, and identify any relief options available before the situation escalates.