Tax Debt Relief in Canada

What is tax debt?

Tax debt includes the following:

• Any debt owed to the Canada Revenue Agency (CRA)
• Harmonized Sales Tax (HST) owed by self-employed professionals
• Source deductions
• Personal income tax debt
• Cashed out RRSPs
• Individuals with multiple jobs without sufficient withholdings
• Taxes owed by pensioners due to pensions not having sufficient tax taken, leading to overwhelming tax debts that cannot be paid on a fixed income

What can the Canada Revenue Agency do about tax debt?

Tax debt is something to be taken seriously, as the Canada Revenue Agency has serious powers to make collection calls and seize the money they are owed. The CRA’s powers to regain tax debt include the following measures that force collections:

• Wage garnishment
• Bank account freezes
• Seizure of investments
• Placing liens on homes

When seeking tax debt relief, it is important to consider each of the CRA’s methods of seizing collections and the impact they could potentially have on your life. Because of the CRA’s collection powers, it is a good idea to try and gain tax debt relief as soon as you can, before they are able to take action against you. At Spergel, we have been helping Canadians gain tax debt relief for over thirty years. Book a free consultation to discuss your tax debt relief options with one of our experienced Licensed Insolvency Trustees.

How to gain tax debt relief

There are a number of ways in which you can gain tax debt relief if you are unable to pay your taxes on time. It is important to note, however, that only legal methods of tax debt relief including filing a consumer proposal or a bankruptcy can prevent the Canada Revenue Agency from exercising their collection powers or indeed clear your tax debts. Here are the primary methods of gaining tax debt relief:

Organize a voluntary repayment plan with the CRA

If you think you can pay back your tax debt but require an extension in time, it is possible to contact the Canada Revenue Agency to organize a repayment plan. Provided you can pay back all of the tax debt you owe, you can work with the CRA to agree to make monthly payments until your tax debt is repaid in full. It is important to note, however, that in addition you will need to pay any penalties and interest associated with your tax debt. The CRA may give you up to a year to make your repayments.

Get a debt consolidation loan to repay your tax debt

Another option for gaining tax debt relief is taking out a debt consolidation loan. A debt consolidation loan is a new loan that is taken out in order to consolidate separate debts. It often provides a lower interest rate and affordable monthly payments to make it easier for you to deal with your tax debt repayments. Taking out a new debt consolidation loan does come with its own associated risks, however. You may not be able to secure favourable interest rates, which in turn could mean trading in your original tax debt for another kind of debt. Another form of tax debt relief may be more appropriate for tackling the tax debt head on.

Make a fairness application to the CRA

A fairness application to the CRA is a government led program that may allow you to reduce or eliminate the interest and penalties associated with your tax debt. In order to have a fairness application granted, you may need to hire a tax lawyer to assist. You will need to demonstrate that you have extraordinary circumstances, and that you are suffering financial hardship. It is not an easy pathway to tax debt relief, and it is important to note that if granted, it would not affect the overall total of your tax debt

File a consumer proposal to gain tax debt relief

If you are unable to pay your tax debt back in full, it may be a more appropriate option for you to gain tax debt relief by filing a consumer proposal. A consumer proposal is a legal form of debt settlement that falls under the Bankruptcy and Insolvency Act. A Licensed Insolvency Trustee is required in order to administer a consumer proposal, and it is one of two methods of reducing or clearing tax debts. It is a formal negotiation carried out by a trustee with your creditors to reduce your tax debts by up to 80%, and it can include other debts you may have including credit card debt. The other advantage of a consumer proposal is that you are able to keep your assets.

File bankruptcy to gain tax debt relief

The only other form of legal tax debt relief is filing bankruptcy. If you are unable to afford a consumer proposal, bankruptcy enables you to eliminate all forms of tax debt, including income tax and source deductions. Bankruptcy also covers other unsecured debts, in the scenario where various debts have become overwhelming. As a legal process, a Licensed Insolvency Trustee is required to file bankruptcy for you. It works by assigning your non-exempt assets over to a trustee to go towards debt repayment in exchange for clearance of your remaining debt.

How do I stop the CRA contacting me?

Part of the stress of having tax debts is the pressure of the collection powers of the Canada Revenue Agency. Given that the CRA is a legal institute, they can dodge court orders required by other creditors to pursue action against you. This can include collection calls, wage garnishments,  registering property liens, and lawsuits. Filing a consumer proposal or bankruptcy are the only two legal methods of debt relief. Each of them automatically generates a ‘stay of proceedings’, which offers you automatic protection from creditors.