It’s income tax season and many Canadian filers may be turning to online tax preparation services, like Liberty Tax.
These services are great options for submitting your income tax return, and for finding more deductions and rebates you may not have known about. But what happens if you’re assessed with a tax debt that you can’t afford to pay?
Online tax preparation services like Liberty help you file your taxes – but they don’t help you avoid CRA collections.
If you owe a tax debt that you can’t pay, either through
1. File even if you can’t pay.
If you know you will owe a tax debt, file anyway before the income tax deadline of April 30. Not filing will only makes things worse.
If you don’t file, you can be assessed with failure to file penalties, and even be charged with tax evasion.
It’s better to get your return in and look into options for how to clear the tax debt, instead of just letting it fester.
2. Seek outside tax help.
While online tax services like Liberty are good tools for filing your return, they are not debt consultants. Case in point: at our last check, Liberty Tax Canada didn’t appear to have a dedicated resource page about owing a tax debt.
Even if you use a tax service to get filed, the best people to help with an outstanding tax debt are, of course, people who understand debt. Even if you work with an accountant to get your taxes filed, the accountant will not necessarily have access to tax debt resources.
Instead, you want to seek advice from an experienced tax debt consultant, preferably one like DebtCare Canada with a specific program for dealing with the Canada Revenue Agency (CRA).
3. Don’t negotiate with the CRA on your own.
The CRA offers options to negotiate a payment plan and even has some debt forgiveness programs for outstanding interest and penalties. While these can help do not attempt to use them alone.
This is because the CRA can take the information you provide through these programs and use it to start collection action. For example, if you fill out a financial disclosure form with your banking information, the CRA now knows where you bank and can decide to freeze your account if you miss a payment.
It’s far better to work with a CRA negotiating specialist.
4. Look for ways to pay the outstanding tax debt.
Ideally, it’s better to not owe the CRA at all. So, if you know that you will owe a tax debt you can’t afford to pay, you would (generally) be better off financially taking out a loan or accessing home equity and paying the CRA with that money, and then owing the lender instead of the CRA.
This is because CRA collection action is so much more aggressive than what the majority of creditors can enforce.
Also, many lenders will arrange a fixed payment plan, so you can plan out repayment in a realistic timeframe with realistic terms. The CRA may not do the same.
5. Consider debt consolidation options.
What can you do if you can’t get a loan big enough to cover the tax debt? The answer here lies in debt consolidation.
If you have too much debt to qualify for a loan, or a bad credit history, you might look into debt consolidation options, or filing for insolvency.
Filing for a consumer proposal or for bankruptcy effectively takes care of your unsecured debts by declaring that you are unable to pay them.
In a consumer proposal, you make a settlement proposal to your creditors – including the CRA. If accepted by the majority of your creditors, your unsecured debts are paid for with a lesser amount. You must be able to prove that your creditors will get more money this way than if you were to file for bankruptcy. In a consumer proposal, there is a debt limit of $250,000 (not including your mortgage).
If you have more than $250,000 in debt, you might consider a different kind of proposal, or filing for bankruptcy. In a bankruptcy, your assets are often sold to make up the debt owed.
While filing for insolvency is often not the first choice, it’s a better option than owing a tax debt to the CRA. If you owe a tax debt, the CRA can start collection action – which could include wage garnishments, freezing bank accounts, liens on assets, and in some cases even criminal charges.
Also, if you wait to pay your tax debt, you will be charged even more because you’ll start to incur interest and penalties.
If you file your taxes through an online service, like Liberty Tax, remember to:
- File your taxes on time.
- Reach out to a debt consultant if you can’t pay.
At DebtCare Canada, we provide access to one of the only programs in Canada that can resolve a CRA tax problem. We can help you deal with your tax debt quickly.
Contact us today for a free consultation. Call 1-888-890-0888 or visit www.debtcare.ca.
