Don't stress about CRA debt, there is relief.
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By Bromwich+Smith Staff | 598 words | Reading Time: 3 minutes | Date: 2022/03/04
For many Canadians, unpaid taxes can be the hardest debt to deal with and 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 solutions.
Steps to take to repay income tax debt
- 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.
- Communicate with the CRA
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.
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.
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.
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.
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.
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!