CRA Debt Relief: Exploring Your Options for Dealing with Tax Debt

Don't stress about CRA debt, there is relief.

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By Bromwich+Smith Staff | 1426 words | Reading Time: 7 minutes  | Last Update: 2023/03/10

For many Canadians, unpaid taxes can be the hardest debt to deal with and often the most stressful. Tax debt can be challenging to pay off all at once and especially if it has accumulated over years. As well, in terms of Canadian taxes in 2022 such as HST for the self-employed, RRSP and RRIF withdrawals and the Canada Emergency Response Benefit (CERB) they can all add up to quite a large tax bill. 

Why is tax debt so stressful? Simply put, it's because the Canadian Revenue Agency (CRA) is a pretty intimidating creditor since they have many ways of collecting the tax debt you owe them. 

For instance the CRA can:

  • Withhold tax credits
  • Seize money in your bank account
  • Garnish your wages
  • Charge you interest and penalties

Although dealing with the CRA can feel overwhelming, remember tax debts are no different than other types of debt. There are ways to manage your CRA debt, and rebuild your worth.

Steps to take to repay income tax debt

  1. Get a clear picture of what you owe

Complete and submit all outstanding tax returns. This is a crucial first step as once you see what you owe, you will be better prepared to figure out how to manage your debt. Bromwich+Smith has partnered with HR Block, to offer our clients 20% off on Assisted, or DIY tax options.

  1. Communicate with the CRA

We know this can be difficult, but one of the most important things to remember with any of your creditors, having an open and honest line of communication will help you! If you reach out to your creditors with a plan, they are more likely to accept a payment plan that you propose- as long as you can stick to it. With a clear picture of how much tax debt you owe, get in touch with the CRA and establish a payment schedule you can afford. It’s important to note that the CRA will charge interest on the remaining balance at a rate of 5%.

Does getting a loan to pay off your tax debt make sense?

The CRA encourages you to either reduce your expenses or borrow funds to pay off their tax debt. The CRA charges 5% on late payments (plus penalties), which may cost less than what most lenders can offer you. We would recommend that you try to avoid paying off tax debt with a high-interest loan as it can create more financial problems down the road.

You can also apply for taxpayer relief if you can’t pay your tax debt due to events beyond your control, like a serious illness, natural disaster or loss of employment. Think about engaging the services of a tax lawyer to assist you with this application or direction.

After you have submitted your current ( and any outstanding taxes) you will have a clear picture of what is owed. You may be putting off filing in fear that you will be adding to your debt. You may be able to find deductions, and have a small return. That money will go directly to the debt owed, and reduce your overall debt and the added interest. For many Canadians, there are additional tax deductions available including options for those who have continued to work from home due to the pandemic. Make sure you know what deductions are available to you, and when in doubt seek help from a trusted tax agency. 

What if I can’t afford to repay my tax debt?

If you can’t afford to repay your current debt, you have options available for debt relief. The first step would be to schedule a free consultation with a Licensed Insolvency Trustee (LIT). A LIT can help you explore your debt relief options. This could include a consolidation loan, consumer proposal, or bankruptcy.

A Licensed Insolvency Trustee, can also bring all collections activity to a halt for you. Along with reducing your tax debt through a consumer proposal or supporting you with filing bankruptcy. 

Debt Consolidation

A debt consolidation loan consolidates all of your creditors into a single loan, with you being required to pay back 100% of the debt with interest. 

If you still have a good credit rating and significant assets to secure a loan and you want to have a debt consolidation with consolidate your debts into one monthly payment, a bank debt consolidation loan may be a great option.

A Consumer Proposal

By filing a consumer proposal it may be possible to negotiate with the CRA about the amount of tax you owe. A consumer proposal is a legal form of debt forgiveness, sanctioned by the Bankruptcy and Insolvency Act, that provides protection from your creditors, lawsuits or wage garnishments.

Filing Bankruptcy

Another option that a LIT can help you with is filing for bankruptcy. There are many differences between a consumer proposal and bankruptcy. But both debt forgiveness programs reduce or eliminate unsecured debts, including tax debt. A Licensed Insolvency Trustee will be able to help you understand if this solution makes sense for you.

While a bankruptcy is often considered as a last resort, for some it is the best option available. We know that the fear of having a bankruptcy on your credit score may hold you back from looking into it as a debt relief option. If you are currently behind in paying your creditors, it will reflect as a missed payment on your credit score for the next three years.

Don't stress about CRA debt, there is relief.

Regardless, if you are feeling financial stress and don’t know where to start, we’re here to help. There is relief available for CRA Debt. With Bromwich+Smith you are never alone and we ensure that our expertise will leave you feeling hopeful and confident. Call our Licensed Insolvency Trustees today for a free, no obligation, confidential consultation 1.855.884.9243. Let’s see you flourish!

CRA Debt Relief FAQ for Canadian Taxpayers:

1- What are the different options available for CRA debt relief in Canada? The CRA offers several debt relief programs, including the Taxpayer Relief Program, the Fairness and Service Code, and the Voluntary Disclosures Program. These programs have different eligibility requirements and you need to qualify for them. A Licensed Insolvency Trustee is able to assist with debt relief programs including a Consumer Proposal and Bankruptcy.

2- Will participating in a CRA debt relief program affect my credit score? Participating in a CRA debt relief program may impact your credit score, if it is reported to credit bureaus including Equifax or TransUnion. The impact on your credit score may vary depending on the program you proceed with.

3- What are the consequences of not paying my tax debt to the CRA? Not paying your tax debt to the CRA can result in additional interest and penalties, wage garnishments, bank account seizures, or legal action. You may encounter changes to your stress levels, lack of sleep, lack of appetite, or a change in your personal relationships.  It is important to take control of your debt to the CRA or any other creditor.

4- How can I negotiate with the CRA to reduce my tax debt? It is important to have open communication with all of your creditors including the CRA. By taking the first steps and contacting them and providing information on your financial situation, they will be more likely to work with you to reduce your debt. You can ask if they are able to offer a reduction in interest and penalties on top of a payment plan.

5- Can I make a payment arrangement with the CRA for my tax debt? Yes, you can make a payment arrangement with the CRA for your tax debt.

6- What happens if I declare bankruptcy and have tax debt to the CRA? If you declare bankruptcy and have tax debt to the CRA, you may be able to discharge the debt. However, there are certain requirements that must be in place and only a Licensed Insolvency Trustee can help you eliminate CRA tax debt.

7- How long does it take to resolve my tax debt through a CRA debt relief program? The length of time it takes to resolve tax debt through a CRA debt relief program will depend on the program you enroll with. CRA debt can be eliminated in as little as a few months, or up to 5 years.

8- How much does it cost to participate in a CRA debt relief program? The cost of participating in a CRA debt relief program will vary based on the debt relief program. Some programs  will have no cost, while others may require the payment including fees or charges. It is important to review the terms and conditions and ensure you fully understand the costs involved before you sign up for the program.


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