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Tag: a tax problem

  • Late Filing of Income Tax Returns – How Late is Too Late?

    With tax time right around the corner, some folks are already getting their receipts in order. Others however are not so concerned with filing their taxes on time because they are already late filing for previous years. If you find yourself in the latter group, you may want to think about changing your tax filing strategy.

    Late filing of income tax returns is a slippery slope, often with a snow ball effect. Unfortunately, those hardest hit with income tax problems are small business owners. This is for a few primary reasons:

    1. The owner doesn’t have the “know how” when starting out to keep solid records and when tax time comes he is lost.
    2. The owner doesn’t have the money when starting out to hire an accountant and instead tries to do the taxes himself and makes mistakes or gives up because he finds it too challenging.
    3. The owner spends trust monies, such as H.S.T., and doesn’t want to file because they will have to repay the money.
    4. The owner knows that there will be money owed but has no way to pay it.

    Here is the problem. It is not against the law to owe money to the Canada Revenue Agency. It is illegal to not file your tax returns. Like most problems, a tax problem with not go away by itself and will continue to grow over time.

    You see, the most common penalty that the Canada Revenue Agency uses to penalize a later filer is a financial penalty. First, when you file your tax returns late you will be subject to a penalty. This penalty will grow each time you repeat the offence. For example, if the first year you filed late was in 2009, the second year you filed late was 2010 and the third year you filed late was 2011 you would be assessed a late filing penalty in 2009, it would then be greater in 2010 and greater again in 2011. In addition, interest will continue to accumulate on the debt.

    Many individuals think that if they don’t file it will buy them more time to come up with a plan to pay the tax debt. This doesn’t work. Eventually, over time, employers file tax slips, your clients will file T4A income slips or declare the income paid to you as expenses and the CRA will be in a position to estimate your income. It is very common for the CRA to perform what’s called a “notional assessment,” which is essentially an estimate of what they believe you earned and the corresponding tax debt, interest and penalties that you should owe.

    Once this occurs the CRA will proceed with collection action against you, which could include a wage garnishment, freezing your bank account, contacting your clients, and more…

    If you have a tax problem, what you need is a financial plan. Your first step is to work with a financial consultant who specializes in tax debt to help you determine if in fact there is any way that you can reasonably pay your tax debt once your returns are filed. If the answer is one of the following: a) yes, in instalments; b) yes, if the interest was frozen; c) yes, if the amount of the debt was reduced; or c) no, I simply can’t, then believe it or not there are financial solutions to help you deal with your tax problem, avoiding the stress and embarrassment of having the CRA come after you. You have to make the decision to take the first step towards facing your past due returns and the tax debt you will owe if you want to have an opportunity to put your past due taxes behind you.

    For more information about what to do if your tax returns are past due or how to deal with a tax debt please contact DebtCare at 416-907-2582 or visit www.debtcare.ca.

  • Taxpayer Relief in Canada – Do I Qualify

    If you have a tax problem in Canada, repercussions with the Canada Revenue Agency can be severe. If you filed your income taxes late or committed an infraction under the Canadian Income Tax Act, like failing to disclose income or writing off expenses that you weren’t entitled to, the Canada Revenue Agency has incredible power to punish you. By far the most common weapon that they use to punish you is your pocket book.

    When an income tax return is filed late and the CRA assesses what you owe, or a previously filed return is re-assessed and new monies are owed, the CRA will add interest and penalties to the amount of the tax debt that you owe. Often times, when an individual has a tax debt, the amount that they owe will double in size once the interest and penalties are calculated.

    Sometimes individuals have personal circumstances that led to their tax problem which is why taxpayer relief in Canada exists. Taxpayer relief in Canada is a formal program offered by the Canada Revenue Agency where the CRA can agree to cancel all or part of the interest and penalties. You can qualify under the Taxpayer relief program in Canada for one of the following reasons:

    A natural disaster like a fire or flood. For example, you misstated expenses resulting in an inaccurate return filing because your basement flooded and all of your receipts were destroyed

    1. Extreme financial hardship
    2. A documented personal issue like a medical problem or death in the family
    3. An error on the part of the CRA

    The only challenge with the Taxpayer relief program in Canada is that it is a long and complicated process and very few applications under this program are granted. To hire a professional to make an application under this program could cost you thousands. In addition, the CRA will not reduce the principal tax debt owed. The CRA does not offer any program that will reduce the principal tax debt that is owed.

    Before considering making an application under the Taxpayer relief program in Canada you may want to first look at the principal amount of the tax debt you owe and whether you can afford to pay it off at all. Often people who owe a large tax debt are not even in a position to pay it, regardless of whether or not they receive interest and penalty relief under the Taxpayer relief program in Canada.

    The longer you stretch out the time that you have a tax problem, the worse the tax problem will become. If the application under the Taxpayer relief program in Canada is denied, you will owe further interest that will have accumulated through the application period. The CRA will also continue to try to collect on the principal tax debt owed.

    There are other financial programs available that will freeze the interest on the tax debt that you owe and can even eliminate or reduce interest, penalties and the principal tax debt that you owe. These programs can also stop CRA collection action and provide you with immediate relief. These programs are not available through the Canada Revenue Agency, however you may access them through a financial consultant who works with people who have debt problems.

    For more information about the Taxpayer relief program in Canada or if you have a tax problem and need financial guidance or debt relief please visit www.debtcare.ca or call 416-907-2582.

  • Canada Revenue Agency Forms and Requests: – Beware

    If you have a tax debt that you cannot pay in full, you should be very careful dealing directly with the Canada Revenue Agency (CRA). In fact, many agencies, including law firms, advise people who have large tax debts not to deal with the Canada Revenue Agency directly.

    Why? Because CRA agents are hired by the government to collect the tax debt from you. Their primary objective is to close your file and that will only happen in one of two ways: pay the tax debt you owe, or file a consumer proposal or bankruptcy.

    The Canada Revenue Agency has many tools in its arsenal to collect your tax debt. These tools include garnishing your wages, freezing your bank account and placing a lien on your property. They cannot however take these enforcement actions against you unless they have done their homework. For example, they can’t freeze your bank account unless they know where you bank, they can’t place a lien on your home unless they know you own a home, and they can’t garnish your wages unless they know where you work.

    Of course, the Canada Revenue Agency does have its own ways to find this information, but sometimes you can be your own worst enemy in this regard. Many people want to make payment plans with the Canada Revenue Agency to pay their tax debt and will directly contact the Canada Revenue Agency to attempt to do so. The CRA always wants to be paid in full. Generally they won’t accept a long term payment plan unless it involves paying off the tax debt within 24 month, which many people are unable to do when they have a large tax debt. This is where Canada Revenue Agency forms and requests come in.

    Say for example you owed $40,000. Over 24 months, your monthly payment would be $1,666 per/month but you can only afford to pay $500 per/month. When calling the Canada Revenue Agency they may indicate that they are willing to accept a temporary 3-6 month payment plan based on $500 per/month if you fill out a Canada Revenue Agency form providing financial disclosure. This form will ask you about your income, income sources, expenses, assets, liabilities, where you bank and more. Once they receive your financial disclosure, they may disallow payments for expenses that do not include shelter, food and transportation and then demand a much larger monthly payment. They may accept the lesser monthly payment for 3-6 months but the danger is that if they demand more, or when the short term payment plan you negotiated expires, the CRA will have all of your personal financial information that you provided in the Canada Revenue Agency form and can proceed to take enforcement action against you. Don’t get caught in this trap.

    If you owe money to the Canada Revenue Agency there are solutions available to you. If the CRA has presented you with one of these Canada Revenue Agency forms for financial disclosure, seek professional help immediately. A seasoned financial consultant with experience dealing with the Canada Revenue Agency can help you negotiate a repayment arrangement that you can live with and help you protect your personal information.

    For more information about Canada Revenue Agency forms and requests to beware of or if you need help with a tax problem, please contact DebtCare Canada at 416-907-2582 or visit www.debtcare.ca.