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Income tax deadline – what to do if you will owe tax debt

Posted on 9 December 2021

Written by Chris Galea

This year’s income tax deadline is April 30, and it is already looming for Canadians to file their taxes to the Canada Revenue Agency. Before filing, you may already know that you owe tax debt, and you may be worried about how to pay it. What if you cannot afford it? And what is the best course of action to take? There may be a number of actions to take that you might not have considered. For instance, you could be eligible for claims. Perhaps you have not filed your taxes in previous years and may be eligible for claims in those years too. There is some admin work to be done before you can conclude you cannot afford your tax debt, and at Spergel, we are here to help you. In this article, we explore the best preparation you can do for the income tax deadline and repaying tax debt.

Confirm the amount of tax debt you owe

First of all, let us get back to basics. There is some simple administrative work to do before understanding the amount of tax debt you likely owe. Ask yourself the following questions:

  • Have you claimed for all areas of eligibility?
  • Are you up to date on all previous years’ tax returns?
  • Did you exhaust all eligible claims on previous years’ filings?

Asking these questions will help you gain clarity over any areas you may be able to claim against tax. It will then help you to know your options regarding tax debt. The next step is filing your taxes each year on time. Once this is done, the CRA will share a Notice of Assessment to confirm your taxes for the years filed. If you file late, they will add on penalties and interest. If you owe a tax debt, they will ask you to make a payment or to contact them. You can find out how much tax debt you owe by registering for an online CRA account. Within your CRA MyAccount, you can explore your Accounts and Payments to learn your account balance and statement of account. This will then let you know your total account balance.

File your taxes on time

When you are confident you will owe a tax debt, it is all too easy to ignore the debt and hope it will go away. You may even debate not filing your taxes at all, particularly if you feel you cannot afford to pay it. In reality, this is the worst thing you could do. Ignoring potential tax debt could lead to further consequences from the Canada Revenue Agency (CRA), including late filing fees, tax debt penalties, and even wage garnishment in some scenarios. When tax debt is concerned, you need to act pretty quickly because of the powers of the CRA. This year’s income tax deadline in Canada is April 30, or June 15 if you are self-employed. If multiple income tax deadlines are missed, you could accrue higher late fees and penalties again in the future. The penalty for filing a late tax return is 5% of the owed balance, and an additional 1% for each month your tax return is late, up to 12 months. Fees and penalties can soon add up where the CRA is concerned. If you have a tendency to file your taxes late, they could monitor you and report you to Canada’s primary credit bureaus, TransUnion and Equifax. This could make borrowing more difficult for you. In other scenarios, the CRA could even send collection agencies after you in order to obtain their tax debt repayments. Many Canadians are afraid to file their taxes because they are nervous about receiving a large tax liability. The first step to tax debt relief, however, is understanding what you owe.

Figure out if you can pay your tax debt

By now, you likely know if you owe any tax debt, and if so, how much specifically you owe. The next step is understanding if you can actually afford your tax debt payments. Perhaps you can do this on your own, in which case you can simply organize a tax repayment plan to the CRA. The CRA will arrange to take payments for you to repay your taxes within a year. They may even ask for a faster payment. If so, you may consider taking out a loan to pay back the CRA, but you need to be very careful not to spiral into debt. This has the potential to affect your credit score too. If this seems difficult for you, you may want to speak to someone from the CRA to propose a tax repayment plan that is fair and manageable for both parties. If you have missed the income tax deadline before, or have not yet paid previous tax debt, you should speak to a financial professional whose duty it is to help with tax and debt issues, handle the CRA, and provide advice on what you should do. The best placed professional for this is a Licensed Insolvency Trustee. They are here to help if you owe unmanageable tax penalties and interest too. If you are able to make a deal with the CRA, you can simply make your payments online. You must, however, be sure to make any agreed payments in full and on time.

Speak to a Licensed Insolvency Trustee

If you will owe substantial tax debt, you should speak to a reputable Licensed Insolvency Trustee before you approach the CRA. In Canada, Licensed Insolvency Trustees are experienced in handling tax debt, and are also the only professionals legally able to file all forms of debt relief. They will be able to explain your rights regarding the CRA and tax debt. At Spergel, our Licensed Insolvency Trustees will sit down with you to review your unique financial circumstances, and advise you on the best way to approach the CRA to determine what they may accept. The most important thing to note is that ignoring your tax debt or collection calls from the CRA will not make the problem disappear. It will instead make it worse thanks to the collection powers of the CRA including consequences like placing a lien on your property. With the income tax deadline fast approaching, you need to be proactive to make your own life easier, particularly if your tax debt is large. Licensed Insolvency Trustees can explore CRA debt forgiveness. They will also help you to establish how much you owe and the best form of debt relief for making repayments. Options like filing a consumer proposal or a bankruptcy may be the best way of putting you back in control of your finances, and stop the CRA collection agencies from contacting you once and for all.

If you are worried you owe a tax debt, our Licensed Insolvency Trustees at Spergel are here to help you determine how to move forward. Book a free consultation with one of our reputable trustees to learn how to make a tax debt repayment plan, or to discuss how a form of debt relief can completely remove your tax debt obligations. The sooner the act, the sooner you can gain peace of mind with a wider range of options available.

Chris Galea

Chris Galea

Chris Galea is a Chartered Accountant and Insolvency and Restructuring Professional with over 20 years’ experience as an LIT (Licensed Insolvency Trustee). He is also our resident expert on tax debt, COVID debt, and the region of Saskatchewan, Canada. When he’s not at the office educating people about bankruptcies and consumer proposals, Chris is playing pick-up hockey with his friends, spending time with his family, and learning Spanish!

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