CRA is charging 7% interest daily on your tax debt — here's how to stop the bleeding before it ruins your finances

The bottom line: financial pressure on Canadians hasn't let up.

The good news is that the CRA has several tools to help if part of your debt is owed to unpaid taxes. Here are five strategies, plus a few practical tips to free up cash.

1. Prioritize and pay it off ASAP

You don't need to wipe the slate clean all at once, but paying off as much as you can, as fast as you can, is the single most important move you can make. At 7% compounded daily, every week of delay is expensive.

If full payment isn't possible, the CRA will consider a payment arrangement — monthly contributions toward your balance over a set period, but this option is typically only available if you can prove you've already tried to pay in full by cutting expenses or borrowing funds. The CRA's income and expense worksheet can help you build a realistic proposal (4).

One important detail: the CRA applies your payments to your oldest tax debt first unless you specifically request otherwise. This matters if you have debt from multiple years — contact the CRA to discuss how your payments are applied (5).

When a personal loan can help

A personal loan at a lower interest rate can be more manageable than a CRA payment arrangement, since even a moderate personal loan rate will likely beat 7% compounded daily.

Even a 0% balance-transfer credit card is a good short-term option if you can commit to paying the balance before the promotional period ends.

2. Make your minimum payments

A payment arrangement only protects you if you stick to it. Miss a payment and the CRA can take legal action — including garnishing your wages or seizing and selling assets like your home or car.

If you're paying by installments, the CRA will send reminders with suggested amounts in advance. Miss or underpay, and you'll be charged interest on the shortfall.

Plus, you’ll need to understand the CRA’s penalty threshold: According to the CRA's installment interest and penalty rules, a penalty applies only when your installment interest charges exceed $1,000 in a year (6).

There's an upside to overpaying

If you pay more than required or pay early, you can earn installment credit interest, which can be used to offset any interest charges on late payments in the same tax year.

3. Request penalty and interest relief

Another option is to request penalty and interest relief. While not everyone qualifies, it's worth exploring.

Through the CRA's Taxpayer Relief Program, you can apply using Form RC4288 to have penalties and interest cancelled or waived (7).

The CRA may approve your request in three scenarios:

1. Extraordinary circumstances (natural disaster, serious illness or a death in the family)
2. Errors or delays caused by the CRA
3. Genuine financial hardship that leaves you unable to pay

Keep in mind, the CRA can only grant relief for the 10 calendar years before the year you make your request. For example, a request filed in 2026, can only cover tax years back to 2016. Once that window passes, no relief is possible (8).

4. File a consumer proposal

A consumer proposal is a formal, legally binding agreement — negotiated with your creditors, including the CRA — that lets you settle debt for less than you owe or extend the repayment timeline. A consumer proposal must be overseen by a Licensed Insolvency Trustee (LIT), the only federally regulated professional authorized to administer insolvency proceedings in Canada (9).

In recent years, consumer proposals have become far more common. In 2024, consumer proposals made up nearly 79% of all consumer insolvency filings nationally, according to the OSB. Consumer insolvencies hit a 15-year high in 2024, with the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) noting the surge "highlights the severity of the financial pressures many Canadians are experiencing (10).”

The maximum repayment term is five years, and all payments flow through your LIT once the proposal is accepted.