There are a number of things that come into play with dealing with income tax debt.
All too often it involves emergency spending and the next thing you know, there are more bills to pay than there is money.
The CRA insists that any taxes due are paid directly or through some other legal alternative.
Non-payment of taxes, personal, business, GST/HST, etc. will remain on the record permanently.
For an individual it can seriously impact credit ratings, loan applications, or even employment opportunities.
For business owners it can impede the success of the company, influence potential investors, and worse.
If you are in a situation that involves the CRA, first seek assistance from a non-profit credit counselling organization.
It can review the financial situation and make viable suggestions to remedy the problem.
Will the CRA provide any relief for income tax debt?
The answer is possibly.
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Payment Terms to CRA (Canada Revenue Agency)
First and foremost, the CRA wants its money.
It is possible to negotiate a payment plan.
In that way you make regular payments over a specified period of time until the debt is resolved.
Begin by contacting the nearest Canada Revenue Agency office.
At that time you should be prepared to do the following:
- Explain – You will need to describe the circumstances and give good reasons why you need an extension.
- File – You must file all outstanding returns.
- Budget – You will most probably be required to project income and expenses. Most likely you will also need to verify why you would not qualify for a loan to pay off the debt.
Then it is up to the CRA agent to decide whether to allow you to establish a payment plan or not.
If not, then they can take legal action to collect their money.
It is important to note that even though you have a payment plan in place, the interest and penalties accrue until the entire sum is paid in full.
If you cannot come to an agreement on a payment plan, child tax credits and GST credits may be withheld.
If they want, they can also garnish wages.
There are some very specific reasons why the CRA may give you a break on interest and penalties.
They are outlined on the CRA website.
In a nutshell, it could be because of personal illness, natural disaster, or other serious conditions that the return was not filed.
This is for the penalty and interest portion only…not the actual tax burden.
Don’t expect the CRA to take less than they are owed.
They want all their money.
However, in cases where a Consumer Proposal has been filed by a licensed insolvency trustee, it is possible to negotiate a lower settlement amount.
This is not common, but possible.
If you find yourself in the position of owing taxes to the CRA, don’t delay.
Contact a licensed insolvency trustee or a financial advisor who can help you find the funds to pay your debt.
The consequences of leaving income tax debt unpaid can result in garnishments, asset seizure, or other legal actions.