How can you deal with debts owed to Canada Revenue Agency?
If you owe Canada Revenue Agency (CRA) tax debt, then you could very well be in a worrisome situation. This is because you can’t escape taxes and CRA can impose some heavy penalties on you.
There are 4 types of debts you can owe CRA.
– Income Tax
– Source deduction (any amount withheld by the employer)
– Liabilities you owe as a director of a corporation
What can the CRA do if you don’t pay taxes?
– They charge penalties and interest on overdue tax.
– CRA can withhold child tax and GST credits until your debt is paid.
– They can dip their hand in your bank account and forcefully take the money.
– They can take the debt owed from your salary payment through a garnishee
-They can register a lien on your house and it might even survive bankruptcy
Unlike credit agencies, CRA won’t take anything less than what they are owed.
Verify What you Owe
One of the first things that you should do when you realize that you owe CRA tax debt is to find out how much. Go through your tax returns and verify what you have paid.
If you were not able to pay it due to genuine reasons beyond your control (like natural disasters, serious illness or loss of employment), you have the option for applying at Fair Practices Commission of CRA to have your penalties and interest cancelled.
You have three solutions when dealing with CRA.
– Negotiating Payment Terms
Negotiating with CRA is important if you want to put a stop to any of their plans to impose interest and penalties. CRA is not cold-hearted. Get in touch with the CRA office, explain your circumstances and offer a payment schedule.
If you present your case well, CRA will allow you to pay over time and not impose any more penalties.
However, you have to pay the full amount to CRA. Any penalties and interest imposed won’t be removed and you still have to pay them. A payment schedule over a year is unacceptable.
If they do not accept your offer, then CRA will take further action against you. The next thing to do is move on to another solution.
– Get a Loan to Pay them
This is not the best of options, but when your tax debt is growing, it can lead to dangerous action from CRA. Depending on how bad your financial situation is, you may or may not get a loan. Additionally, keep in mind that you are descending into a debt sinkhole.
– File For Bankruptcy or Proposal
Many assume that tax debt does not come under bankruptcy or a consumer proposal. However, it does. There are two catches to this solution.
If you owe more than $200,000 to CRA for income tax, you won’t be discharged easily. You will have to attend a hearing where the court will decide, depending on your circumstances, whether you will be required to pay any additional amount into the bankruptcy to get discharged.
To get CRA on board you have to prove that the problems are of the past and they will not be repeated.
Based on your situation there could be certain other issues which would require consideration to bring CRA on board.
These are tricky situation and you will need a good financial advisor on hand. At 4 Pillars consulting, we have experienced debt professionals who can help you make the right choice.