What to Do If Your Ontario Company Can’t Pay Its Business Taxes

A Practical Survival Guide for SMEs

Small business tax season can be stressful—especially when your business owes money to the CRA but doesn’t have the cash to pay. Whether it’s due to a slow season, unexpected expenses, or cash flow challenges, owing taxes you can’t immediately pay is a common issue for Ontario small businesses.

At KKCPA, as an Ontario-based accounting firm specializing in small business tax planning, we’ve helped countless clients navigate this exact situation. In this guide, we’ll walk you through your options, the potential consequences of unpaid taxes, and actionable strategies to manage your tax debt without crippling your business.

1. Don’t Ignore the Problem: Consequences of Unpaid Taxes

Yes, owing taxes you are not sure how you are going to pay is stressful, but burying your hands in the sand and trying to ignore the problem (at least for as ‘long as possible’) is NOT a good idea.

First, understand what happens if you don’t pay or file on time:

Immediate Penalties (They Add Up Fast!)

The CRA will not be slow in beginning to access penalties on unpaid taxes:

– Late-filing penalty:5% of your balance owed, plus 1% per month (up to 12 months).
– Late-payment penalty:5% of unpaid taxes, plus 1% interest per month.
– Compound interest:** The CRA charges daily interest (currently **10%** as of 2025) on unpaid amounts.

Long-Term Risks

– Collection actions:  The CRA can freeze bank accounts, garnish wages, or seize assets.
– Credit impact: Unresolved tax debt affects your business credit score.
– Personal liability: If you’re a sole proprietor or director, the CRA may pursue your personal assets.

Key Takeaway: Filing your return on time (even if you can’t pay) avoids the harshest penalties.

2. Your 5 Options When You Can’t Pay Your Business Taxes (Ranked by Risk Level)

Option 1: Pay in Installments (Best Choice)

– How it works: The CRA’s Payment Arrangement Program lets you pay overdue business taxes in monthly installments.
– Eligibility: You must owe $25,000 or less (for debts under 12 months old). Larger debts may still qualify, but require negotiation.
– How to apply: Call the CRA at 1-888-863-8657 or use the Online Payment Arrangement tool.

Tip: Offer a realistic payment plan (e.g., $1,000/month vs. $100/month) to increase approval odds.

Option 2: Delay Payment (Temporary Relief)

– How it works: Request a hold on collections if you’re facing extreme hardship (e.g., bankruptcy risk).
– Eligibility: You must prove inability to pay your business taxes (e.g., bank statements, profit/loss reports).
– How to apply: Submit a formal request to the CRA’s Collections Division.

Option 3: Use Financing (Caution Advised)

– Business line of credit (lower interest than CRA rates).
– Credit card (only if you can pay it off fast—CRA accepts credit card payments via third parties like Plastiq).

Risk: Avoid high-interest loans that could worsen cash flow.

Option 4: Prioritize Other Debts (Strategic Default)

– When to consider: If you have higher-interest debts (e.g., credit cards at 20% vs. CRA at 10%).
– Warning: The CRA has stronger collection powers than most creditors.

Option 5: Consumer Proposal or Bankruptcy (Last Resort)

– Consumer proposal: Settle tax debt for less than owed (requires a Licensed Insolvency Trustee).
– Bankruptcy: Eliminates tax debt, but has long-term credit/legal impacts.

3. Proactive Strategies to Reduce What You Owe in Business Taxes

Amend Prior Returns (If You Overpaid)

– Example: Missed expense deductions (e.g., home office, vehicle use).
– How to fix: File a T1-ADJ (for sole proprietors) or T2-Sch 8 (for corporations).

Use Tax Credits (Ontario-Specific)

– Digital Adoption Credit: 30% refundable credit for tech investments.
– Small Business Deduction: Lowers corporate tax rate on first $500K of income.

Offset Debt With Refunds

– Example: If you’re owed a GST/HST refund, the CRA may apply it to your tax debt.

How KKCPA Can Help

We work with Ontario small businesses to:
✔️ Negotiate payment plans with the CRA.
✔️ Identify overlooked deductions/credits to reduce what you owe.
✔️ Advise on debt prioritization to protect your cash flow.
✔️ Provide audit support if the CRA questions your filings.

Owing taxes doesn’t mean your business is failing—it’s a solvable problem. The key is to act fast, communicate with the CRA, and explore all options.

Need help? KKCPA’s experts are just a call away. Let’s get your business back on track. Call 855-667-1727 or contact us here