Your Path to Debt Freedom
Tax debt is easy to create, it doesn’t take much to result in a balance owing. For example, you may have worked an extra job or cashed out RRSP funds early for a personal emergency. A small business owner may lose track of business receipts or HST input tax credits. Regardless of the reason you owe the government money, we can help you find your best CRA debt solution.
Whether you are self-employed or working for someone else, it is never a good idea to ignore tax debt. You will need a good plan to clear up your debt and avoid a CRA wage garnishment. Here are six steps we recommend you take to deal with your tax debt:
1. Review Your Books Again
Accuracy is key when dealing with taxes. Before accepting an assessment from Canada Revenue Agency, double check everything. Go through your books, records and business receipts and compare your numbers with the numbers CRA has listed on your assessment notice. If you find an error, contact the Canada Revenue Agency right away.
2. Ask An Accountant To Review Your Tax Return
Even if you have been over your books and records with a fine tooth comb and can’t see any mistakes, it is never a bad idea to get a second opinion. A paid professional tax specialist may have new ideas to help you resubmit your return and reduce what you owe. Engaging the services of an accounting professional is a highly recommended business practice.
3. Talk to Canada Revenue Agency
If you can’t pay in full it is important to communicate with Canada Revenue Agency and let them know what course of action you are taking. If you are planning to resubmit returns due to errors made during your initial filing, make sure the government knows. For extra time to figure out what to do, you may want to discuss a payment plan with CRA. Remember, the government charges daily interest on their debt(s).
4. Make sure All Prior Tax Years are filed
Once you have corrected any discrepancies in filings and ensured that you have filed all of your tax returns up to date, you are ready to explore your options. Before making a decision about filing bankruptcy, it is important to know how much you owe to Canada Revenue Agency. In part, a Consumer Proposal is determined by how much debt you owe. Regardless of which solution you choose, it is helpful to know your total debt owed to CRA. Up to date filings also help CRA decide how to respond to your Licensed Insolvency Trustee.
5. Review Bankruptcy As An Option
Bankruptcy will stop the Canada Revenue Agency from taking money off of your pay cheque. However, bankruptcy is not always an easy road for people with a lot of tax debt. If you owe a lot of money to CRA this may impact what you do next. You will want to review your situation with a Licensed Insolvency Trustee before deciding how to proceed. Some bankruptcies end in bankruptcy court. We can help you understand the process if you will fall under this category.
6. Review Consumer Proposal As An Option
Once your Licensed Insolvency Trustee has reviewed bankruptcy as an option, he/she can advise you regarding the Consumer Proposal option. An alternative to bankruptcy, a Consumer Proposal is a deal that you make with your creditor(s). Contrary to popular belief, it is possible to make a deal with Canada Revenue Agency.
In addition to tax debt Canada Revenue Agency is also responsible for the collection of debts for overpaid benefits and defaulted student loans. Overpaid Canada Child Tax Benefit or HST may be offset by your income tax refunds. CTB and HST belong to a specific group of government debt(s) that cannot be wiped away by a bankruptcy. Our experts can review your overall debt load and give you advice regarding any debts that a bankruptcy cannot get rid of.
Searching for a CRA debt solution or have questions about tax debt? Please call us to discuss, 310-4321. Let us help you develop a plan to become tax debt free.