Navigating Personal Income Taxes and Interactions with the CRA
Canadian citizens often find themselves at a crossroads when it comes to comprehending the national tax system and their relationship with the Canada Revenue Agency (CRA). Unfortunately, this lack of clarity often leads to tax returns not being filed on time and tax debts not being paid promptly, which can result in penalties or even legal action by the CRA. This article will address these issues and provide some guidance on dealing with personal income taxes and the CRA.
The Dilemma of Personal Income Tax Debt
Personal income tax debt is a significant problem for both salaried and self-employed individuals in Canada. But why is this the case?
Consequences of Late Tax Payment
If you fail to settle your taxes by the stipulated deadline, the CRA will impose a late filing penalty. This penalty equates to 5% of your balance for the current year, plus an additional 1% for each full month your return is late, up to a maximum of 12 months.
When and What Action Does the CRA Take?
The moment you’re assessed or reassessed, any amount you owe becomes immediately payable in full. If you fail to pay the debt or contact the CRA to discuss payment, the agency may resort to legal actions to recover the unpaid amount. However, the CRA usually waits 90 days after mailing the Notice of Assessment or Reassessment before initiating such action.
Possible legal actions the CRA may take include:
- Salary garnishment.
- Freezing and/or garnishing bank accounts.
- Seizing income tax refunds until all outstanding returns are filed and taxes paid.
Placing a “Writ of Sale and Seizure” against your property
Deducting amounts owing to you by other federal government departments and transferring them to the CRA (e.g., GST/HST credits)
Dealing with Tax Debt through Bankruptcy or Consumer Proposal
Contrary to popular belief, personal income tax debt can be negotiated through bankruptcy or a Consumer Proposal. Upon filing either of these, an automatic stay of proceedings comes into effect, halting all of the CRA’s collection actions. Interest and penalties also stop accruing from the date of filing. With a Consumer Proposal, you get the chance to negotiate a payment arrangement with the CRA and other unsecured creditors. In general, tax debts can be discharged upon completion of a bankruptcy or Consumer Proposal.
Strategies for Managing Tax Payments
The thought of paying taxes is often met with negativity, but there are ways to make this obligation more manageable. Discussing with the CRA about setting up an installment plan ahead of the tax season is one option. Alternatively, you can have more tax deducted from your salary, pension benefits, Old Age Security, or Canada Pension Plan benefits to reduce your end-of-year tax bill. Consulting with a financial planner or professional accountant can also provide insights into strategies for minimizing your taxes payable.
Importance of Annual Tax Return Filing
Many Canadians underestimate the importance of filing their tax returns each year. Doing so not only keeps the CRA updated on your current tax situation, but also helps determine your eligibility for certain benefit payments.
Even if you have no income to report, you should still file an income tax return to qualify for certain tax credits and benefits such as GST/HST, provincial credits (e.g., Ontario Trillium Benefit), Canada Child Tax Benefit, and the Universal Child Care Benefit.
Should you find your Notice of Assessment confusing, don’t hesitate to call the CRA at 1.800.959.8281 for assistance. If you disagree with the assessment, you can file a Notice of Objections stating your reasons for dispute. Remember to keep your income tax records and supporting documents for six years—the timeframe within which the CRA can reassess your taxes.
Seeking Professional Help for Outstanding Tax Debts
If you’re having difficulty paying your income taxes or if you’re burdened with a significant amount of tax debt, consider seeking help from a debt solutions professional. They can provide valuable advice and assist you in taking control of your financial situation.
In conclusion, dealing with personal income taxes and the Canada Revenue Agency may seem a daunting task, but with the right knowledge and approach, it can become manageable. Always remember to file your tax returns on time, pay your taxes promptly to avoid penalties, and don’t hesitate to seek professional help when needed.
