Question: I realize that if I earned the money then I have to pay the tax. But what if the amount owing includes large penalties and interest, can the penalties and interest be negotiated in lieu of paying the actual tax
Answer: Revenue Canada (CRA) will not negotiate on the principal amount of tax owing. It may be possible for them to reduce some of the penalties and interest owing if you can prove to them that it would be a hardship to pay them.
The only way CRA may agree to accept less than the full amount owing is if you file a consumer proposal, although it is becoming increasingly difficult to get CRA to agree to a proposal; in many cases it is easier for them if you file for personal bankruptcy.
More information can be found in our article about how to settle tax debts. As this is a complicated area, and CRA has different policies across Canada, we strongly recommend that you contact a bankruptcy trustee for more information.