Perhaps you have filed your tax returns (or maybe you have not) – and it may be that you owe back taxes to the Canada Revenue Agency (CRA). What if you cannot pay them? What happens next? And what are your options if you owe taxes from the past in Canada? Filing taxes and feeling worried you cannot pay your tax bills can really take its toll on your mental health. No matter how bad you may feel your financial situation is, there is always a solution. At Spergel, our experienced Licensed Insolvency Trustees are here to help, and have been supporting Canadians on their journey to debt relief for over thirty years. In this article, we share how to pay taxes in Canada, and what to do if you are struggling to pay yours.
How to find out if you owe the CRA
In order to understand what – if anything – you may owe the CRA, you first need to file your tax return. If you file your tax debt late, it can often only make things more complicated, and increase the overall amount you owe. Burying your head in the sand is not the solution. The sooner you face the problem, the sooner you can find a solution and gain peace of mind. At Spergel, we are here to help you do just that. In Canada, the deadline for filing personal income tax returns is April 30. If you are self-employed, you have a little longer – until June 15 – to file your taxes. Should you file late, there is a penalty of 5% of the balance owed that you will need to pay in addition. This continues at an additional 1% penalty for each month your return is late, up to a maximum of 12 months. Check out our guide to CRA penalties. We often see many individuals afraid of filing their income tax returns because they are nervous about having a large tax liability. It is not possible, however, to resolve the problem until you know how much tax you owe the CRA. It is also not possible to avoid filing your taxes altogether either – you will not be able to get support from the CRA if you have outstanding tax returns that need to be filed. We understand how nerve racking it can be to file taxes you are unsure of how to pay, but to reassure you, no matter how much tax debt you may owe, there is always a solution to gain debt relief. When you have filed your tax return for the year, the CRA will issue a Notice of Assessment to confirm your tax, including any penalties and interest. If you owe tax, it will ask you to contact the CRA or to arrange payment of your taxes. When it comes to how to find out if you owe the CRA, you can always log into your CRA MyAccount to see your account balance and statement.
See if you can afford tax payments in instalments
Once you have established that you owe tax debt to the CRA, your next step is to see if you can afford to make your payments on your own. Perhaps you have the funds to pay it off. Or maybe you have some money set aside, but not enough to cover your full tax debt. In this scenario, you may want to arrange a tax repayment plan with the CRA. The CRA will support you with a repayment plan provided you can repay your taxes within a year. Communication is key when it comes to the CRA, and they will be willing to help in a reasonable way so that they can receive the money they are owed. One thing to note is that the CRA will only have the tax debt they are owed as a priority – they will not be concerned about any other debts you may owe. You should be careful not to agree to an arrangement that is unmanageable for you. Once you have an agreement in place, you can make your payments online but you should be sure to make your payments in full and on time. If you owe a lot in the way of penalties and interest but can pay the tax debt, you may wish to work with a tax debt lawyer to have your interest and penalties reduced. The CRA will only negotiate if the principal of the tax debt will be paid.
Options when you are struggling to pay your tax debt
If you do not communicate with the CRA or make reasonable attempts to pay your tax debt, you could find yourself in a more challenging situation. Unlike other creditors, the CRA has unrivalled powers when it comes to collection. While other creditors would need to get an order from court first, the CRA can pursue legal action like freezing your bank account, a wage garnishment, or placing a lien on your home with little to no notice. You should not ignore collection calls from the CRA for this reason. Owing tax debt can also have negative effects on your credit score, although at Spergel we can help you to rebuild this. No matter how much tax debt you owe, you should act as soon as possible. At Spergel, our team of highly experienced Licensed Insolvency Trustees have helped over 100,000 Canadians in a similar situation. Licensed Insolvency Trustees are the only professionals in Canada legally able to file all forms of debt relief. There are two primary forms of tax debt forgiveness in Canada:
A consumer proposal is Canada’s only legal debt settlement program, and it is able to reduce your unsecured debts by up to 80%. This includes tax debt, and other debts you may have including credit card debt. It is the process of working with a Licensed Insolvency Trustee to put forward a manageable monthly repayment figure to your creditors. Your Licensed Insolvency Trustee will work to negotiate with your creditors on your behalf. As well as being a popular bankruptcy alternative, consumer proposals have a number of advantages. They generate a stay of proceedings which immediately offers protection from your creditors and stops any collection calls or legal action. With a consumer proposal, you are also permitted to keep your assets, including your home and any vehicles. At Spergel, we have a 99% acceptance rate on any consumer proposals we file. Unlike other debt relief firms, we also assign all our clients their very own Licensed Insolvency Trustee to walk them through the entire consumer proposal process, instead of passing you from person to person.
Just like other debts, tax debts can be eliminated through filing bankruptcy in Canada. Bankruptcy is the process of beginning a fresh financial future. You assign any non-exempt assets you may have over to your Licensed Insolvency Trustee. These will be sold, with the proceeds going towards repaying your creditors. In exchange, you are cleared of your unsecured debts. Bankruptcy also offers full protection from your creditors. While many Canadians believe bankruptcy leaves you with nothing, you are still able to keep some essential assets, including your home and vehicle up to a certain value threshold. See, for example, Ontario bankruptcy exemptions. At Spergel, our experienced Licensed Insolvency Trustees handle bankruptcy with compassion and empathy, and have been helping Canadians gain debt relief for over thirty years. Although filing bankruptcy can seem like an intimidating process, we will review your financial circumstances and explore the best options for you.
Once you file either a consumer proposal or bankruptcy, legal action like wage garnishments and bank account freezes will stop, and the CRA can no longer place a lien on your property. If you already have a lien on your home, it will not be removable via a consumer proposal, which is another reason why you should act as soon as possible when you realize you cannot pay your tax debt.
If you have further questions on how to pay taxes in Canada if you are struggling with debt, book a free consultation with Spergel. Our expert Licensed Insolvency Trustees will review your unique financial circumstances and can assess whether a consumer proposal or bankruptcy may help you to reduce or clear your tax debts. Reach out today so that we can help you get your taxes back on track – you owe it to yourself.