Last updated: November 2026
If you’re considering a debt management plan, it’s natural to worry that fixing one money problem could create another at tax time. The good news: in Canada, a debt management plan (DMP) on personal debt does not create taxable income — and it doesn’t give you a deduction either. What it can affect is money you already owe the Canada Revenue Agency (CRA) and your refund.
Canadian Debt Relief is an independent Canadian guide to debt relief options — consumer proposals, debt management plans, debt consolidation and bankruptcy — for people who want to understand their choices before they talk to anyone.
How does a debt management plan work?
A debt management plan is a voluntary repayment plan, set up through a credit counselling agency, that rolls your unsecured debts into one monthly payment, usually over up to five years. You still repay 100% of the principal; what changes is that creditors may reduce or stop interest.
The Financial Consumer Agency of Canada’s guide to credit counsellors says the counsellor asks creditors to reduce or eliminate interest and fees, and that you’ll usually repay 100% of your debts. The Office of the Superintendent of Bankruptcy’s debt-solution comparison (2026) agrees: you pay back the entire debt, sometimes without interest.
For a fuller overview, see our debt management plan guide.
Is interest forgiven in a DMP taxable income in Canada?
No. When a creditor stops charging interest on your personal credit card or loan, you haven’t received income, so there’s nothing to report and no tax slip is issued.
Because a DMP repays your full principal, there is no “forgiven” balance either. The debt-forgiveness rules in the federal Income Tax Act apply to commercial debt obligations — debts where the interest was deductible, such as business or investment loans — not to everyday credit cards or personal loans. If any debt in your plan is a business loan, ask an accountant first.
The flip side is that DMP payments are not deductible. The CRA’s line 22100 guidance on carrying charges and interest allows interest only on money borrowed to earn investment income, so interest on personal debt can’t be claimed. We cover the same rule for loans in are debt consolidation loans tax deductible?
Can you put money you owe the CRA into a debt management plan?
Usually not. A DMP only includes creditors who agree to it, and income tax owing is normally handled directly with the CRA through a payment arrangement.
The CRA’s “Arrange to pay your debt over time” page lets you schedule pre-authorized debit payments in My Account or by phone, and its June 2026 tax tip notes that people with a personal tax debt of $1,000 or more may use the Manage balance service to set up payments online. Interest keeps running: the CRA’s prescribed rate for October 1 to December 31, 2026 on overdue taxes is 7%, compounded daily. A good counsellor will build your CRA payment into the same budget. See managing priority debts in a DMP.
What happens to your tax refund while you’re in a DMP?
You keep your refund in a DMP — unless you owe the CRA, in which case the CRA can apply the refund to that balance first. Your DMP creditors have no claim on it.
That’s a real difference from bankruptcy: the Office of the Superintendent of Bankruptcy’s 2023 notice confirms that refunds for the year of bankruptcy and earlier years are divided among creditors. In a DMP, a refund can shorten your plan, build an emergency fund, or pay down a CRA balance.
What are the tax advantages of a DMP?
Interest a creditor stops charging on personal debt isn’t income, so there’s nothing to report.
Unlike bankruptcy, refunds stay yours (after any CRA balance is cleared).
A lower combined monthly payment can make a CRA arrangement affordable.
What are the tax downsides of a DMP?
Tax owing usually needs its own arrangement, with interest at 7% (Q4 2026).
DMP payments, interest and counselling fees can’t be claimed.
A DMP doesn’t stop CRA collection actions.
Who is a DMP a good fit for at tax time?
A DMP suits people whose returns are filed and whose CRA balance is small enough to clear with a separate payment plan.
- Your debt is mostly credit cards and personal loans, not tax.
- All your returns are filed and you owe the CRA little or nothing.
- You can repay 100% of your unsecured debt over about five years if interest stops.
- You owe the CRA a large amount you can’t repay within a reasonable time.
- The CRA has started garnishing wages or freezing accounts.
- You have unfiled returns from several years.
What does a DMP plus a CRA balance cost each month?
On $25,000 of credit card debt and a $6,000 CRA balance, expect about $686 a month for two years, then $417 a month for three more.
Figures are estimates. Run your own numbers with our debt management plan calculator.
How do you handle taxes when starting a DMP?
File every outstanding return first, then set up the DMP and a CRA arrangement together so both payments fit your budget.
- File any missing tax returns.
- Check your CRA balance. Sign in to My Account to see what you owe, including interest.
- Meet a credit counsellor. Include your CRA balance in the budget review.
- Set up the CRA payment arrangement. Use Manage balance or call the CRA, choosing an amount you can sustain.
- Start the DMP. Your counsellor contacts creditors and sets your single monthly payment.
- Stay current every year. File on time so you don’t build a new tax balance.
Ready to see if you qualify?
Frequently asked questions
Do I have to report a debt management plan on my tax return?
No. A debt management plan on personal debt creates no income, no deduction and no tax slip, so there is nothing to report on your Canadian return.
Are credit counselling fees tax-deductible in Canada?
No. Fees paid to a credit counselling agency for a debt management plan are personal expenses, and the CRA allows interest and carrying-charge deductions only for money borrowed to earn investment income. See are debt management plans free?
Can the CRA take my refund while I’m in a DMP?
Yes, if you owe the CRA. The CRA can apply your refund to an income tax balance you owe; for example, a $1,200 refund against a $6,000 balance leaves $4,800 owing. Your DMP creditors cannot take your refund.
Will a DMP stop CRA interest and collections on tax I owe?
No. A DMP gives no legal protection, so CRA interest keeps running at the prescribed rate — 7% for October to December 2026 — until the balance is paid. Keeping a CRA payment arrangement current is what prevents further collection action.
Who can help if I owe the CRA more than I can repay?
If your tax debt is too large for a payment arrangement, a Licensed Insolvency Trustee is the only professional who can file a consumer proposal or bankruptcy, and both can include income tax owed to the CRA. For example, a consumer proposal might settle $20,000 owed to the CRA for roughly $6,000–$10,000, paid over up to 60 months at about $100–$170 a month, with a legal stay that stops CRA collection. Read consumer proposal vs debt management plan to compare.
After 20 years of structuring multi-million dollar corporate debt facilities and corporate turnarounds in investment banking, Marcus now leads Canadian Debt Relief to apply those exact same balance-sheet optimization frameworks to Canadian household debt.
