Managing CRA and Tax Debt: Top 10 Strategies
With an increasing number of individuals facing tax debts in Canada, it becomes crucial to understand the best ways to manage these obligations. In this comprehensive guide, we’ll give you 10 tips for dealing with CRA and Tax Debt Problems. These tips, backed by our experts, will help you navigate complications with the Canada Revenue Agency (CRA) and manage your tax debt effectively.
If you’re seeking help with your tax debt, we recommend consulting with a Licensed Insolvency Trustee. They can provide expert advice tailored to your unique situation.
Remember: Many people often confuse “tax return” with “tax refund.” Your tax return is the document that you (or your tax professional) complete and file with the CRA. It contains all your personal information and calculates whether you owe money or are due a refund. Your tax refund is the amount you receive after the CRA has assessed your tax return.
10 Strategies to Handle Tax Debt Effectively
Here are ten strategies that will help you avoid landing in a tricky situation with the CRA.
File Your Taxes Timely
By filing your taxes on time, you avert any penalties and accrued interest if you end up owing money to the CRA.
File Even If You Don’t Expect To Owe
Even when you don’t anticipate owing any taxes, you should still file your return. The government uses the information from your return to calculate your Ontario Trillium Benefit and your Canada Child Benefit. Also, you won’t receive your refund if you don’t file your return.
Know Your Tax Bracket
If you end up owing tax each year, research if it’s because you’re in a higher tax bracket based on your total income. If you have multiple jobs, withdraw money from RRSPs, or have other sources of income, you might need to make installments to avoid a hefty tax liability at the end of the year.
Understand Deadlines for Self-Employed Individuals
The deadline for self-employed persons to file taxes is extended to June 15th, not April 30th. However, the deadline for any amount owed remains April 30th. Thus, making installment payments when you are self-employed is crucial to avoid a significant tax debt at year-end.
Consider Using a Tax Professional
If bookkeeping and tax returns aren’t your strengths, it might be beneficial to hire a professional. You can learn from them for a few years and then transition to filing your tax returns independently.
Maximize Tax Deductions
To reduce the taxes you pay and potentially receive a refund, take advantage of all tax deductions, including RRSPs. The money contributed to your RRSP lowers your taxable income and reduces the amount you have to pay in taxes. It also helps you save for your future.
Address Your CRA Debt Promptly
If you owe the CRA money, try to make your payment on time to avoid penalties and interest. If you can’t pay the full amount, contact the CRA to arrange for payment. You might need to reduce expenses or use your assets to manage the payment.
Bankruptcy Can Eliminate Tax Debt
Bankruptcy can eliminate your tax debt, but you need to act early before the CRA files a tax lien on your property. Once a lien is placed on your house, your tax debt becomes a secured debt.
Negotiate with CRA Through a Consumer Proposal
A consumer proposal allows your trustee to negotiate a deal to repay a lesser amount with the CRA and other creditors. If a majority of creditors agree, all creditors included must accept the offer, including the CRA.
Don’t Ignore Your Tax Debts
Ignoring your tax debts won’t make them disappear. The CRA possesses extensive and powerful collection practices. Unpaid tax debt may also impact your credit score. Take charge of the situation proactively.
Conclusion
Tax debts can cause significant stress and financial strain. However, with the right strategies and a proactive approach, it’s possible to successfully manage them. Remember, the key is not to ignore your tax debts but take prompt action to resolve them. Consult with a Licensed Insolvency Trustee if you need expert advice on dealing with your tax debt.
