An Unrivaled Guide: 5 Steps to Follow If You Can’t Pay Your Taxes
Tax season can be a nerve-racking time, especially when you discover you owe money and there’s no refund in sight. Whether the amount is small or large, if you can’t afford to settle it, it’s essential to know the steps to take. This guide will help you navigate these turbulent waters and shed light on the 5 steps to take if you can’t pay your taxes.
Understanding Tax Refunds and Tax Debts
To comprehend why some people owe taxes while others receive a refund, you need to understand how income tax works. Individuals who receive a tax refund have overpaid their income tax during the previous year. This overpayment often occurs when individuals access tax credits, such as those for child care, tertiary education, or workplace training. A comprehensive list of all available tax credits can be accessed on the Canada Revenue Agency’s (CRA) website.
On the contrary, individuals who owe taxes have not paid enough income tax. This is common amongst freelance or gig workers as their employers are not required to make all the necessary deductions that a full-time employee would have. As a result, freelancers and gig workers must budget to pay off tax from their earnings each year.
There is also a third category of individuals who neither receive any refund nor owe any money. These individuals have perfectly balanced their income tax for the year.
The Consequences of Not Paying Taxes
Failing to pay your taxes can lead to severe consequences. The CRA will initially attempt to collect the owed amount by contacting you three times over the phone. If these calls prove unsuccessful, a written warning will be issued. If the taxes remain unpaid, the CRA can commence legal action within 90 days of sending the assessment or reassessment notice.
The CRA can employ various methods to recover the money, including:
- Garnishing your wages;
- Freezing your bank account and seizing funds;
- Seizing and selling your assets
The Possibility of Appealing Your Tax Amount
Yes, you can appeal the amount you owe in taxes. You have one year and 90 days from the date of confirmation, reassessment, or redetermination to apply for an appeal for income tax and GST/HST. To do so, you must submit a Notice of Appeal on the Tax Court of Canada website.
When appealing, it’s advisable to hire a lawyer experienced in dealing with the CRA. However, this will come at a cost. Additionally, you should confirm that all your taxes are filed and current, you are within the deadlines to file an appeal, and you have a valid appeal.
The Deadlines for Income Taxes
Typically, you must file your tax return and pay any outstanding balance by April 30. However, if you or your spouse or common-law partner are self-employed, you have until June 15 to file your tax return.
The Process of Paying Your Taxes
The CRA provides various flexible options for individuals to pay their taxes. These options include online payments through online banking, CRA My Payment, credit card, debit card, PayPal, or Interac e-Transfer. You can also make a wire transfer.
Alternatively, you can pay by mail using a cheque or money order, in person at your bank or credit union, or at a Canada Post location using cash or debit. For more information, visit the CRA’s website.
The 5 Steps to Take If You Can’t Pay Your Taxes
If you cannot afford your tax bill, don’t panic.
Here are the 5 steps to take if you can’t pay your taxes:
- File your taxes on time: Even if you can’t pay what you owe, it’s crucial to file your tax return on time to avoid penalties.
- Negotiate with the CRA: Contact the CRA to arrange a payment plan. If your circumstances change and you can’t afford the plan, promptly inform the CRA to find a solution.
- Reevaluate your finances: Assess your assets, income, and liabilities to ascertain your current financial responsibilities. See what you can de-prioritize to free up money to pay your taxes.
- Find additional income sources: Consider joining the gig economy, finding part-time work, renting out a spare room, or offering services to people you know.
- Consult a Licensed Insolvency Trustee (LIT): If your tax debt is overwhelming, an LIT can help you review your finances, outline your debt relief options, and manage your tax debt.
If you’re worried that you won’t be able to pay your taxes, contact a Licensed Insolvency Trustee for a free consultation.
