When the Canada Revenue Agency (“CRA”) issues a tax assessment, it cannot immediately garnish wages, seize assets, or sue for payment. First comes a legally protected “grace period.” The date on which that protection ends – and the CRA gains the right to enforce the debt – is called the Collection Commencement Day. Knowing how this date is calculated, and what happens afterward, is essential for any taxpayer facing a balance owing.

Importantly, the Collection Commencement Day does not apply to source deduction debt or GST/HST debt. For these types of tax debts, the CRA can commence collection action immediately after a tax assessment is issued and a Notice of Objection does not stop the CRA’s ability to take collection action.

What Is the Collection Commencement Day?

Under section 225.1 of the Income Tax Act (Canada) (“ITA”), the CRA must wait 90 days after mailing a Notice of Assessment (or reassessment) before it can take collection action. The first day after that 90‑day window is the Collection Commencement Day. Until that day arrives, the CRA cannot legally:

• Garnish wages or bank accounts
• Register liens
• Seize or sell assets
• File a lawsuit to recover the debt
  

The CRA may, however, contact the taxpayer with reminder letters or phone calls and issue “legal warnings.”

Further, the CRA still retains the ability to apply any refunds of tax or tax credits it owes to the taxpayer to any tax arrears owed by the taxpayer. This is also true even if the taxpayer filed a Notice of Objection. However, the taxpayer has the ability to request a refund of tax paid that is under appeal under subsection 164(1.1) of the ITA.

CRA Collection Timeline: From Assessment to Enforcement

Timeline step	Typical duration	Key facts
Notice of Assessment issued	Day 0	Sets out the amount the CRA believes the taxpayer owes.
Grace period	Days 1 – 90	The taxpayer may pay the balance or file a Notice of Objection. The CRA cannot begin legal collection during this timeframe.
Collection Commencement Day	Day 91	CRA’s legal right to enforce the debt begins.
Post‑commencement enforcement	Day 91 onward	CRA may garnish, lien, or seize assets. Speed and severity typically depend on the taxpayer’s risk profile.

Exception: If you file a timely Notice of Objection, the CRA cannot collect the disputed amount until the objection (and any subsequent appeal) is resolved. .

CRA Powers After Collection Commencement Day

Once the grace period ends, the CRA can escalate its efforts. Typical enforcement actions include:

1. Final demand letters and phone calls
   
2. Garnishment orders on wages, contractor payments, or bank accounts
   
3. Liens (certificates) registered against real property or other assets
   
4. Seizure and sale of assets such as vehicles or real estate
   
5. Offsets – applying GST/HST or income‑tax refunds against the debt

The CRA uses a risk‑based approach: larger balances, repeat non‑compliance, or signs of imminent dissipation of assets can trigger faster, more aggressive action.

Taxpayer Obligations: Interest and Payment

• Interest: Unpaid balances accrue compound daily interest starting the day after the original payment‑due date – not the Collection Commencement Day. Interest continues to run even while an objection is in progress.
  
• Payment or arrangement: On Collection Commencement Day, the entire balance becomes immediately collectible. The taxpayer must either pay in full or negotiate a payment arrangement to avoid enforcement.

Strategies to Manage or Resolve CRA Collections

• Communicate and Arrange Payment: Maintain open dialogue with the CRA and propose a realistic payment plan before enforcement begins.
  
• File an Objection or Appeal: If the taxpayer believes the assessment is incorrect, the taxpayer can submit a Notice of Objection within 90 days to suspend collection on the disputed amount. The taxpayer has 1 year after the expiration of 90 days to file an Application for an Extension of Time to file a Notice of Objection.
  
• Request Taxpayer Relief: The taxpayer can apply for cancellation or waiver of interest and penalties if extraordinary circumstances (e.g., serious illness, natural disaster, CRA delay) prevented timely compliance.
  
• Consult a Tax Professional: Engage a tax lawyer to negotiate with the CRA, structure payment terms, or represent you in a dispute.

Act Early and Seek Professional Help

Collection Commencement Day is the line between administrative notices and legally enforceable action. Waiting until garnishments or liens begin makes resolution harder and costlier. By acting within the 90‑day grace period – whether by paying, disputing, or arranging terms – you can mitigate aggressive CRA measures and potentially minimize mounting interest and penalties. When in doubt, consult a qualified tax professional to protect your finances and peace of mind. Our Toronto and Ottawa tax lawyers are always available to help.

We appreciate the contribution of Sreyoshi Monoj in the development of this article.

The Canada Revenue Agency (“CRA”) offers a relief program for taxpayers facing interest and penalties. Individuals and businesses that have personal income tax, corporate income tax, GST/HST, or other federal tax obligations may qualify.

Situations That May Qualify for Relief

The following are the general categories of circumstances that may qualify for relief:

• Financial Hardship: Tax relief could be available for taxpayers experiencing severe financial difficulty who are unable to make reasonable payments or afford basic necessities. Businesses may qualify if interest charges threaten operations, jobs, or community welfare.
• Extraordinary Circumstances: Situations that may qualify for relief include natural disasters, serious illnesses/accidents, severe emotional/mental distress (e.g., death of an immediate family member), civil disturbances, or service disruptions (e.g., postal strikes). Sometimes, the CRA will issue news releases for widespread adverse events, but taxpayers must still request formal relief.
• CRA Errors or Delays: The CRA may waive penalties and interest if they result from CRA actions, including errors in published material or information, processing mistakes, or delays in processing returns, providing information, or resolving disputes
• Other Circumstances: The CRA may consider circumstances that do not fall into the three categories above. For example, exceptional situations may apply where an error was made by a third party (e.g., a representative or tax preparer).

It is important to note that meeting the criteria does not guarantee relief. Moreover, as per the Taxpayer Relief Provisions, a taxpayer has only 10 years from the end of each calendar year or fiscal period in which the interest and/or penalties accrued to request relief. 

Applying for Relief

Taxpayers must submit a formal application outlining their situation when requesting a waiver of penalties and/or interest:

1. Complete the Appropriate Form(s): Form RC4288 is generally the default form for requesting relief from penalties and interest. Selected listed financial institutions (“SLFIs”) must instead file Form RC7288 to request cancellation or waiver of GST/HST and/or QST penalties and interest. Both forms require taxpayers to provide personal/business details, list relevant tax years, provide a reason for the requested relief, and specify whether the taxpayer is applying for penalty, interest, or both types of relief. For requests made based on financial hardship, individual taxpayers should attach Form RC376 or a written statement of their financial situation.
2. Gather Supporting Documents: Taxpayers must submit all relevant information, including basic account information (e.g., SIN, BN) and supporting documentation. Requests based on financial hardship should include income and expense statements or business records. Requests based on medical claims should include hospital records and/or doctors’ notes. Requests based on disaster claims should include insurance documents and/or news reports.
3. Submit the Request: Individual taxpayers can submit their request online via CRA My Account and businesses can submit theirs through My Business Account. Alternatively, the form(s) may be mailed or faxed to the designated office indicated on the last page of the form for the taxpayer’s province or territory of residence.

Processing typically takes several months. Interest continues to accrue until the CRA reaches a decision, so taxpayers should consider making minimum payments or arranging a payment plan. Whether a taxpayer took reasonable care in managing tax affairs and acted quickly to correct any delay or omission can influence the CRA’s decision to grant relief.

Get Help Navigating the CRA Taxpayer Relief Process

Applying for a waiver of interest and/or penalties requires carefully crafted submissions. Taxpayer Law can assist with preparing the necessary submission. Contact Taxpayer Law today for a consultation.

We appreciate the contribution of Simran Mann in the development of this article.

Filing income tax returns late may result in penalties and interest from the Canada Revenue Agency (CRA). This guide covers CRA late-filing penalties, including the penalty and interest rate, consequences for late tax filers, repeat offences, and penalty relief. 

Deadline for Filing Tax Returns and Extension

Most individuals are required to file their tax returns by April 30. Self-employed taxpayers have until June 15 to file their returns, but any balance owing is still due by April 30. If a tax deadline falls on a weekend or holiday, a return will be considered on time as long as the CRA receives it or it is postmarked by the next business day.

CRA Late-Filing Penalty and Interest Rates

The CRA may charge taxpayers a late-filing penalty if:

• the taxpayer files their return past the deadline and has taxes owing.
• the taxpayer fails to report an amount on their tax return.
• the taxpayer makes a false statement or omission on their return, either knowingly or as a result of gross negligence.

The penalty is 5% of the unpaid taxes for that year, plus an additional 1% for each full month the return is filed after the due date, up to a maximum of 12 months. Additionally, the CRA charges compound daily interest starting from the day after the payment due date. The interest rate is subject to change every three months, based on the prescribed rates set by the CRA.

Impact of Late-Filings on Tax Refunds

Filing late can delay a taxpayer’s refund and benefit payments (such as the Canada Child Benefit and GST/HST credits), as the CRA may withhold these payments until all overdue returns are filed. 

Penalties for Repeat Late Tax Filers

The CRA’s approach to habitual non-compliance is strict. If a taxpayer was already charged a late-filing penalty in any of the three previous tax years and then files late again after the CRA issues a formal demand to file, they will face a repeat late-filing penalty. In such cases, the penalty increases to 10% of the balance owing, plus an additional 2% for each full month the return remains outstanding, up to a maximum of 20 months.

The CRA closely monitors each taxpayer’s filing compliance history. If a taxpayer continuously fails to file despite the CRA’s efforts, it can lead to prosecution and other legal action.

It is essential to keep track of tax filing deadlines, since filing a return on time helps a taxpayer to avoid late-filing penalties.The CRA will charge interest on any unpaid amount, but it will not apply a late-filing penalty as long as the return is filed on time, even if payment is delayed.

Below are some strategies to help taxpayers file their tax return on time:

• Mark key tax deadlines on the calendar.
• Gather necessary documents early.
• File the tax return on time even if the full balance cannot be paid by the deadline.
• Seek professional advice for complicated tax situations.

Penalty Relief for Late and Repeat Filings

The CRA may cancel or waive penalties and interest if a taxpayer was unable to meet their tax obligations due to circumstances beyond their control (for example, a natural disaster or severe financial hardship). Relief is not guaranteed. The CRA will consider several factors, including the taxpayer’s past compliance history, whether the taxpayer knowingly allowed a tax balance to accumulate, whether reasonable care was taken to meet obligations, and how promptly the issue was addressed once it came to light. Any request for relief must be made within 10 years from the end of the relevant tax year. Taxpayers are generally responsible for the actions of their representatives, though in some cases the CRA may grant relief for certain third-party errors or delays.

Other ways to reduce penalties include filing a formal objection, making a voluntary disclosure, amending a return, or submitting a late or revised election.

Large penalties can be overwhelming for taxpayers. Contact Taxpayer Law for expert legal guidance on how to navigate late-filing penalty issues.

We appreciate the contribution of Sreyoshi Monoj in the development of this article.

If a taxpayer accidentally over-contributed to an RRSP or TFSA, the taxpayer may face a significant penalty tax from the Canada Revenue Agency (“CRA”). Fortunately, there is a process to request a waiver of over-contribution tax. 

Understanding RRSP and TFSA Over-Contribution Penalties

Over-contribution tax applies when a taxpayer contributes more than their available contribution room. The CRA imposes a 1% tax on the highest excess amount for each month. For RRSPs, this penalty is imposed on unused contributions that exceed the taxpayer’s RRSP deduction limit by more than the lifetime $2,000 grace amount. For TFSAs, the 1% monthly tax applies to the entire over-contributed amount from the moment the taxpayer goes over their limit. Even if the excess exists for only a few days in a month, the 1% tax still applies for the whole month.

Example: Suppose a taxpayer over-contributed $5,000 to a TFSA. That taxpayer would incur a $50 penalty tax for each month that $5,000 remains in excess ($5,000 x 1% = $50). For an RRSP, contributing $5,000 would trigger a tax on the $3,000 exceeding the $2,000 grace amount ($3,000 x 1% = $30). In all cases, removing the excess as soon as possible stops further penalty tax.

Requesting a Waiver for Over-Contribution Tax

Applying for a waiver of over-contribution tax involves making a formal request to the CRA. The over-contribution must have arisen from reasonable error; simply ignoring the taxpayer’s limits is not enough. The waiver process typically works as follows:

1. Remove the Excess Contribution: For RRSPs, if the taxpayer has not already withdrawn the contributions, the taxpayer can complete Form T3012A to withdraw the excess contribution. For TFSAs, simply remove the excess. Maintaining documentation of the funds removed is important, as this demonstrates to the CRA that the taxpayer took prompt corrective action.
2. Gather Documentation: To establish an accurate timeline, the taxpayer may include account statements showing contributions and withdrawals, copies of the taxpayer’s RRSP or TFSA contribution room statements from CRA, and any correspondence from the CRA about the over-contribution. 
3. Complete the Appropriate Form or Letter: To waive RRSP over-contribution tax, the taxpayer will need to fill out Form RC2503. The taxpayer’s form should explain: 1) why the taxpayer made excess contributions and why this is a reasonable error; and 2) what steps the taxpayer is taking, or has taken, to eliminate the excess contributions. To waive TFSA over-contribution tax, the taxpayer will need to write a letter to the TFSA Processing Unit explaining why the tax arose and why it should be waived (there is no prescribed CRA form for TFSA waivers).
4. Submit the Application to the CRA: For a waiver of RRSP over-contribution tax, the taxpayer can send the request to the tax centre as shown on the taxpayer’s Notice of Assessment or Reassessment. For a waiver of TFSA over-contribution tax, the taxpayer can send the request to the Sudbury Tax Centre (P.O. Box 20000) or the Winnipeg Tax Centre (P.O. Box 14000). You may also use the ‘Submit Documents’ service in CRA My Account instead of mailing.
5. Await the Decision: Processing times can be several months due to high volumes. The CRA may contact the taxpayer if they need more information. If the taxpayer’s request is approved, the CRA will waive the over-contribution tax, or cancel it and refund any amount the taxpayer has already paid. 
6. If Denied, Consider an Appeal: If a request for a waiver is denied, the taxpayer can request a second review of the decision (a second administrative review within the CRA). If the taxpayer still disagrees with their decision after a second review, the taxpayer can apply to the Federal Court for judicial review.

Relief is discretionary. Meeting the above criteria makes the taxpayer eligible for consideration, but approval is not guaranteed. 

Get Professional Help with Taxpayer Relief for Over-Contributions

Navigating the over-contribution tax waiver process can be complex. Taxpayer Law is here to help. We have extensive experience assisting clients with CRA over-contribution tax relief applications, including cases involving RRSPs and TFSA contributions. Contact Taxpayer Law today for a consultation.

We appreciate the contribution of Simran Mann in the development of this article.

Over-contributing to a Tax-Free Savings Account (“TFSA”) can trigger unexpected taxes and penalties from the Canada Revenue Agency (“CRA”). This article explains what a TFSA over-contribution is, outlines its limits, and offers strategies for avoiding one.

What Is a TFSA Over-Contribution?

A TFSA over-contribution occurs when a taxpayer contributes more to a TFSA than their contribution room allows. Every Canadian aged 18 and over accumulates TFSA contribution room each year, and if a taxpayer deposits an amount beyond that limit (including carry-forward room from prior years), the surplus is considered an “excess TFSA amount” by the CRA and is subject to a special tax.

CRA TFSA Contribution Limits

A taxpayer should understand CRA TFSA contribution limits to avoid an over-contribution. TFSA contribution room consists of three components:

1. Annual limit set by the federal government ($7,000 for 2025)
   
2. Unused room carried forward from prior years
   
3. Amounts withdrawn in previous years – for instance, if a taxpayer withdrew $5,000 in 2024, they gain an extra $5,000 of room on 1 January 2025 (note: the extra room does not appear in 2024).

TFSA Over-Contribution Penalties and Tax Implications

TFSA over-contributions are subject to a 1% monthly tax on the highest excess amount until corrected. There is no buffer amount: even a $1 over-contribution triggers this tax. The CRA may notify the taxpayer of an over-contribution via a Notice of Assessment or an Excess TFSA Amount letter, but these typically arrive long after the excess tax first starts accruing. As a result, it is prudent for a taxpayer to act quickly if there is an over-contribution.

Correcting TFSA Over-Contributions (Using Form RC243)

If a taxpayer has an over-contribution, it is prudent to:

• Withdraw the excess funds immediately to stop additional tax from accruing.
  
• File Form RC243 (TFSA Return), due by 30 June of the year following the over-contribution; this form calculates the tax payable.
  
• Pay the tax promptly, even if the taxpayer intends to request relief.
  
• Consider using new contribution room next year. The taxpayer’s 1 January limit increase can absorb the over-contribution, but the 1% monthly tax applies until then.

TFSA Over-Contribution Relief

The taxpayer may request a refund of the 1% tax. This requires a detailed written explanation sent to the CRA’s TFSA Processing Unit. We regularly assist taxpayers with this submission.

Tax Planning and Strategies to Avoid TFSA Over-Contributions

• Track TFSA room carefully using both CRA tools and personal records.
  
• Have a withdrawal strategy for over-contributions. A common mistake is withdrawing funds and then re-contributing in the same year – this causes an over-contribution if no room remains. Wait until the next calendar year to re-contribute.
  
• Limit automatic contributions.
  
• Seek professional advice when transferring TFSAs or handling complex situations (e.g., non-residency).

Need Help?

TFSA mistakes are stressful, but you don’t have to navigate them alone. If you face CRA penalties, contact Taxpayer Law. Our seasoned team can assist with correcting TFSA over-contributions, filing Form RC243, and pursuing relief under the CRA’s discretionary powers.

We appreciate the contribution of Momina Malik in the development of this article.