Tax Debt Problems & The CRA
For different reasons, more and more Canadians have fallen into the tax debt trap.
There are multiple reasons for this including holding multiple jobs, receiving a pension from multiple sources and not making the right number of installments as a self-employed person.
Before you end up getting entangled in the tax debt trap, you should read the following tips that explain how you can deal with the CRA and avoid tax debts.
You should avoid any complications concerning the CRA as things can get nasty if you do not pay your taxes.
Here is what you need to know.
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1. Be Punctual in paying your taxes
The best way to avoid falling into the tax debt trap is by paying your taxes on time.
At the very least, paying your taxes ensures that you won’t be penalised or made to pay accrued interests.
2. Make sure you file your returns
Your tax returns are used by the Canadian government to calculate how much tax you owe them.
This information will also be used to determine your total Ontario Trillium Benefit as well as your Canada Child Benefit.
Keep in mind that failing to file your taxes will be to your disadvantage because then you will not be in a position to receive any refunds.
After all, the Canadian government will only refund money if they see that you have filed your income tax returns.
3. Know your Tax Bracket
After determining the extent of taxes owed by you to the Canadian Government at the end of the financial year, you should then conduct some research to find out which tax bracket your total income falls into.
Keep in mind that this total income is calculated according to the following factors:
- holding down multiple jobs;
- removing money from your RRSPs;
- Income from another source.
The best way to manage your tax liability is by making installment payments as soon as they become due.
5. Consider Hiring a Tax Professional
If you are not good at bookkeeping and if you are also not very good at preparing your tax returns, consider hiring a tax professional to handle these tasks.
Alternatively, why not use a tax preparer for some years to master the art of filing your returns.
Once you get the hang of things, you can then switch over to filing your taxes on your own.
6. Learn how to pay less tax and get a refund
Familiarize yourself with all the different tax deductions which include your RRSPs.
If you put money into your RRSP, then your total taxable income comes down and that in turn means you will have to pay lower taxes.
As you may know, the more money you save, the better your finances will be.
And, this will go a long way in making your future secure.
7. Do you owe money to the Canadian Revenue Agency?
The best way to deal with tax debt to the CRA is by making your payments to them early.
Doing so ensures that you won’t have to pay any penalties and you can also avoid having to pay interest.
If your debt exceeds your paying capacity, get in touch with the CRA to negotiate a better payment schedule.
Another way to reduce your tax debt is by cutting all non-essential expenses.
If you owe a considerable amount, then think about selling some assets or take a loan to clear your tax debt.
8. You can eliminate your tax debt by declaring bankruptcy
Declaring bankruptcy can help you get rid of your tax debt.
However, this option only works if you declare bankruptcy early.
If it wants, the CRA will agree to take out a tax lien on your property until you can clear your debt.
So, make sure you file for bankruptcy before things get out of hand completely.
As soon as the CRA places a lien on your property, your tax debt will be treated as a secured debt and your home will now be attached by the CRA.
9. Negotiate with the CRA
Tax debts are considered unsecured debts.
This kind of debt can, however, be cleared through a consumer proposal in which a trustee will negotiate a better deal in which you have to pay a lesser sum to the CRA and your creditors.
The CRA debt consumer proposal is the sole method you can use to get the CRA to accept your offer to pay back a lesser amount than the full amount owed by you.
10. Deal with your tax debt seriously
You should understand the fact that the CRA has a lot of power to collect the money you owe them.
Thus, you need to take your tax debt situation very seriously and you should not make the mistake of ignoring your obligation to the CRA.
The more proactively you deal with this situation, the better it is for you.
If you ignore your situation, it will get worse and there is no way that it will go away on its own.
Remember also that your consumer proposal is legally enforceable and is a debt settlement arrangement that you must file with a Licensed Insolvency Trustee.
The gist of this proposal is that you agree to repay your tax debt as well as your creditors as a percentage of the total outstanding amount in exchange for complete forgiveness of your entire total debt.
This option suits Canadians who owe money but who are not able to make their monthly debt payments.
It also helps you avoid having to file for bankruptcy and is the only proposal that is sanctioned by the Canadian Government.