Do you owe money to the Canada Revenue Agency (CRA)? Then you are one of thousands of Canadians – it is a more common problem than you might think.
A tax debt can be scary because it is the one type of debt that can grow exponentially in a short time frame. By the time CRA adds penalties and interest, a tax debt can quickly double and triple in size, making it even more difficult to pay off. Even without penalties and interest, many Canadians find the prospect of paying their tax debt a challenging one.
Penalties and interest are one problem, but what can you do if you need to reduce your principal tax debt in order to be able to enter into a payment arrangement that doesn’t ruin you financially? Unfortunately, CRA does not make settlements on principal tax debts with taxpayers or private organizations. In fact, even those programs that do offer relief from interest and penalties, programs which may be difficult to get approved under, they also do not actually reduce the principal debt.
How to Reduce or Eliminate Principle Tax Debt
Here is how a bankruptcy or consumer proposal works:
- Step 1 – The Licensed Insolvency Trustee assesses your income, debts, assets, liabilities and family composition, among other financial criteria.
- Step 2 – Based on various calculations, the trustee will determine whether a bankruptcy or proposal makes the most sense. Typically, a bankruptcy is better suited to an individual who has limited to no equity in assets and very limited income, whereas proposals are geared more towards individuals with steady income or individuals with equity in assets.
- Step 3 – Once you choose a debt solution, your trustee will complete the necessary paperwork and will send notice to CRA and your other creditors.
- Step 4 – Any unsecured creditors taking collection action against you must stop. Interest on your debt also stops.
- Step 5 – If your consumer proposal is accepted or once a bankruptcy is filed, you begin making a single reduced monthly payment to your trustee which is then dispersed to your creditors.
Not only do these two options help you reduce your principal tax debt, both can offer a reduced total debt load, making life far more manageable from a financial perspective.
If you’re concerned about your ability to pay the amount listed on your Notice of Assessment from CRA, we can help. While it may be overwhelming now, Spergel can help you regain your financial footing and give you a fresh start.