A big tax bill is never welcome to anyone when it arrives. It often feels even worse if the tax debt is the unexpected result of a mistake in filing, which can often happen. Anyone can need help with tax debt, from self-employed individuals to those owing personal income tax debt. Unfortunately, tax debt gets worse if you can’t pay it back right away. For this reason, it is important to act quickly before you accrue interest and penalties. The Canada Revenue Agency (CRA) could utilize their collection powers including collection calls and wage garnishments if you do not pay. Before your tax debt begins to accumulate, it is a good idea to explore all of your options for tax debt relief. Whether you filed your taxes late, or made a mistake that had your bill reassessed unexpectedly, you need a plan to deal with your tax debt. So, where do you start? And what do you do if you need tax debt help? In this article, we explore what to do if you need tax debt help.
What happens if you owe tax debt?
It is very common for Canadians to owe tax debt. It is all too easy to encounter an error when filing your taxes, or be faced with a tax bill you weren’t expecting. Typically, tax debt can be quick and simple to sort. Unfortunately, this is not the case for everyone. Unpaid tax debt can cost you if not handled immediately. For any mistakes in filing, the CRA will begin to charge penalties and interest. Not only that, but if you continue to owe tax debt, you will receive interest charges and further penalty fees on top. CRA penalties begin at around 5% for unpaid taxes, but they can go up to 50%. This interest will be billed until your balance is paid off in full. When left and not handled, this debt can quickly accumulate. Given the powers of the CRA, it is important to act quickly and communicate if you think you cannot make your tax debt payments on time. Consequences could include bank account freezes and wage garnishments. Thankfully, there are options for tax debt help, starting with the options that the CRA offers directly to taxpayers.
How to get tax debt help
Tax debt is undoubtedly one of the most stressful kinds of debt. Thankfully, there are a number of options you can take when it comes to gaining tax debt help. Before making a decision, you may want to consider the impact of the CRA and their collection powers. They could freeze your bank account, seize your assets, or even pursue legal action against you. Only a legal form of tax debt relief like a bankruptcy or a consumer proposal will stop collection calls and clear taxes. You should also act as quickly as you can in order to avoid any further consequences of your tax debt. Here are the most common ways to get tax debt help:
Arrange a voluntary repayment plan with the CRA
If all you need in terms of tax debt help is a bit of a break in making your payments, a voluntary repayment plan with the CRA may be the right option for you. The CRA will give you up to a year off if you are able to pay your taxes in full – if you aren’t able to, it will not negotiate your repayment terms. If you can, you can work with a CRA agent to make monthly payments until your tax debt is repaid in full. This includes any relevant penalties and interest too. You could choose to take out a loan to pay off your tax debt – much like a debt consolidation loan, however, there are risks involved with doing so. If, for instance, you only qualify for a high-interest rate loan, you could risk trading one debt for another. It is best to speak to a Licensed Insolvency Trustee for tax debt help if you are unsure.
Apply for Taxpayer Relief
The CRA also offers the opportunity to apply for Taxpayer Relief under the Income Tax Act. Depending on your circumstances, you can potentially reduce your interest and/or penalties through this application process for tax debt help. This relief is targeted at taxpayers who are experiencing financial hardship or extenuating circumstances. This this may be the case if you are struggling to pay rent or purchase groceries, although you will need to provide evidence. Taxpayer relief can be quite a lengthy process, and often it is easier to hire a tax lawyer or accountant to help you. You may also qualify for taxpayer relief if your penalties and interest were caused by mistakes made by the CRA. With the relief program, you can also apply for relief for the past decade if needed.
File a consumer proposal
If you can’t afford to pay your taxes in full, then you likely need a form of debt relief. Unfortunately, the CRA will not make a deal with you directly to pay less than the full amount owing. If your tax debt is still somewhat manageable, you could choose to file a consumer proposal. A consumer proposal is a legal form of debt settlement. Administered by a Licensed Insolvency Trustee, in a consumer proposal you put forward a manageable monthly repayment fee that is affordable for you. Your trustee will then negotiate this with your creditors on your behalf. Consumer proposals can reduce your debt by up to 80% including tax debt, and at Spergel we have an acceptance rate of 99% on any consumer proposals we file. Some advantages of consumer proposals include the reduction of debt, a freeze on interest, a stay of proceedings to protect you from creditors, and the ability to keep your assets.
File bankruptcy
If a consumer proposal isn’t appropriate for your circumstances, a good alternative may be to file bankruptcy. Although often considered to be a last resort when it comes to debt relief, bankruptcy is ideal if you have a high amount of tax debt and a low income whereby a consumer proposal may be too expensive. Bankruptcy is the process of assigning any non-exempt assets you may have over to a Licensed Insolvency Trustee in exchange for clearance of your debt, including tax debt. It enables you to begin a fresh financial future by clearing your debt and starting over. Bankruptcy also offers complete protection from creditors via a stay of proceedings. Find out more about how bankruptcy stops tax debt in Canada.
If you need tax debt help, we can help you find a quick and appropriate solution for your needs here at Spergel. Book a free consultation today to begin addressing your tax debt today. Our Licensed Insolvency Trustees are experts in negotiating with the CRA and clearing tax debt. Don’t let your tax debt get out of control – get the tax debt help you need today. You owe it to yourself.
