Dealing with Debt to CRA: How To Navigate
Being indebted to the government, specifically the Canada Revenue Agency (CRA), can be a daunting experience. The common perception is that the government has an unlimited power to recoup this debt, which can cause distress and apprehension. This article will delve into what happens if you owe the CRA a significant amount of money and how you can navigate this situation.
The Consequences of Owing CRA
The CRA has the power to implement collection measures without having to pass through the court system. This can have significant implications on your financial stability. Here are some actions the government might take:
Income garnishing: A percentage of your wages could be deducted.
Bank account freezing: The CRA can seize funds from your bank account.
Withholding tax credits: Certain tax credits such as GST refund cheques or Trillium benefit might be withheld to offset the debt.
Arbitrary assessment: If any income tax returns are not yet filed, the CRA can arbitrarily assess them and apply penalties and interest to the debt.
Property lien: In case you are a property owner, the CRA can file a lien on your property, ensuring the debt is paid if the property is sold.
Preventing Collection Actions
The CRA normally resorts to these measures when they fail to reach an agreement with a taxpayer, or when the taxpayer neglects their statutory obligations under the Income Tax Act. The following steps can help you avoid these actions:
File outstanding tax documents: Make sure to file any outstanding tax documents and continue to file your income tax returns on time each year. This indicates to the CRA that you are making efforts to abide by tax laws.
Determine total debt: Knowing the total amount you owe is crucial for planning how to resolve your debt. Additionally, you need to figure out how much to set aside each month for next year’s income tax debt to avoid recurring debt.
Contact CRA for payment arrangements: Once your returns have been filed, reach out to the CRA to make payment arrangements. The CRA may request various documents to help determine a suitable monthly payment.
Stick to the payment plan: Once a payment plan has been agreed upon, it’s crucial to adhere to it. If you’re unable to make a payment, contact the CRA to discuss the missed payment and any changes in your circumstances.
When Payment Seems Impossible
Sometimes, despite your best efforts, the amount you owe to the CRA might be too high, or your budget might not allow for a monthly payment. In such cases, it’s recommended to consult a Licensed Insolvency Trustee (LIT).
An LIT can help you determine if filing for bankruptcy or a consumer proposal are the best options for you. In most cases, debt owed to the CRA can be included in both. With a few exceptions, the CRA is treated like any other creditor in bankruptcy and will cease their collection activity once a bankruptcy is filed.
An LIT can also provide ongoing support to ensure that you are not at risk of incurring future income tax debt. Even if bankruptcy is not the right solution for you, they can provide a financial assessment and expert advice to deal with CRA debt.
Beware of Scams
It’s also crucial to stay vigilant against scams. Fraudsters posing as CRA employees often contact Canadians, misleading them into paying false debt. This has led to fear among people who now often assume that any communication from someone claiming to represent the CRA is not genuine. To verify the authenticity of such communication, visit the official CRA website.
Conclusion
Owing the CRA a lot of money can be an intimidating situation, but understanding the possible consequences and knowing the steps to take to resolve the situation can alleviate the stress. It’s essential to stay compliant with your tax obligations, make arrangements for payment, and seek professional help if necessary. Remember, it’s not too late to address the issue and find a solution.
