How to Deal With Income Tax Debt (CRA Debt Forgiveness)
How Can I Get CRA Debt Forgiveness For Income Tax Debts?
When you have unpaid income tax, you might feel a lot of pressure to try and get it sorted.
However, many people are unaware of the best course of action to take – no matter if they haven’t paid on time or filed their taxes correctly.
Plus, having to deal with the Canada Revenue Agency (CRA) is one of the most daunting things you’ll have to do.
With the worry that they can seize your money, withhold HST credits, etc. it’s something that no one wants to face.
As well as these risks, they can also charge high levels of interest and enforce certain penalties on what you owe until you’ve fully paid off the remaining balance.
More and more people throughout Canada are facing this issue – even those who correctly file their taxes.
Whether it be because of a life disruption, insufficient funds within your bank or simply because you have multiple sources of income, it’s vital that you discover the best ways to deal with your tax debt.
This is where a Licensed Insolvency Trustee comes in.
Guiding you on the most suitable steps to take, you could help to rebuild your finances.
On a more general approach, however, here are some top tips on how you can repay your income tax debt:
- Apply for tax relief provisions – this is suitable in the case that you’ve had a serious illness, loss of employment or have been in a similar scenario in which you couldn’t pay your tax debt.
- Thoroughly inspect your past returns – this will indicate the areas in which you can reduce what you owe the CRA.
- Get a better understanding of the debt situation by filing outstanding tax returns.
- Negotiate with the CRA directly – this way, you can repay your tax debt in full (plus any interest that accrued) during a 12 month period.
What if those options aren’t viable?
If you owe a significant amount in income tax debt, then the above might not be the best solution.
Instead, you could take either of the following actions with the assistance of your Licensed Insolvency Trustee.
A Consumer Proposal
If there is no chance of you repaying your income tax debt, then filing a Consumer Proposal might be the best step to take.
Something that millions of people do every year, it’s a form of debt resolution that will help to relieve some of the stress of repayment and that’s legally binding.
Accepted by the CRA, this agreement with them will include all outstanding insolvencies, including all of the taxes that you currently owe them from the previous year.
With the guidance of your LIT, your previous taxes, along with your current year taxes will be handled accordingly.
With a CRA proposal, a LIT will start by assessing your situation, before creating a repayment plan that’s suitable for you and that is accepted by the government.
Breaking up the payments into manageable chunks, it makes the prospect of paying it in full far more attainable.
However, with this option, you need to keep in mind that the proposal has to be agreed with your creditors in order for it to be followed through.
During this voting process, they have 45 days to agree or reject the proposal.
If the amount that you owe is high, then the CRA will decide whether or not you are allowed to repay in this form.
However, if the creditors hold a larger portion of what you owe, then they make the final decision (usually if they hold 50% or more).
Filing for Bankruptcy
Another action that you could take if you can’t sufficiently pay off your debts immediately is to file for bankruptcy.
An alternative to a Consumer Proposal and a step that’s mostly suitable if you don’t qualify for the above (i.e. your debts are over $250,000), it will help you to regain financial freedom quickly as your debts will be discharged.
Although you, of course, have to repay the debt in agreed terms, any legal action against you stops and you will no longer be harassed by your creditors.
One downside to this (which also applies to the Consumer Proposal) is that it will be put on your record, so that in the future, if you want to apply for a loan the lender will see that you were bankrupt.
One of the main differences between this and a Consumer Proposal, however, is that you’ll have to turn over your assets to your trustee, whereas the risk of this doesn’t exist with a proposal.
Which Should You Choose?
When looking for a debt resolution, it’s good to compare and contrast the two above options.
If you want to repay the debt in realistic and attainable chunks (that are less than what you owe) then a Consumer Proposal could be the better option.
Whereas if you want to have a fresh financial start, bankruptcy could be just the ticket.
The action, however, that you decide to take will wholly depend on your financial situation.
By looking at both options and discussing with your LIT, you’ll be able to work out which one is the most suitable.
Discover More Today
Do you want to find out more about dealing with income tax debt?
Then don’t hesitate to get in contact with one of Bankruptcy Canada‘s local and licensed trustees.
You can do this by either calling us on (877) 879-4770 or by emailing us through our website.