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  • What is the CRA Late Filing Penalty?

    In Canada, if you file your income taxes late you will be subject to a CRA late filing penalty. This CRA late filing penalty can vary depending on how many times you have filed your income taxes late in the past. In addition to a CRA late filing penalty, you will have to pay interest on both the tax debt and the CRA late filing penalty.

    Here is an outline of current CRA late filing penalties:

    1.       The CRA late filing penalty for not filing your income taxes on time in 2012 is 5% of the balance owing. In addition, the CRA will also charge a further late filing penalty of 1% per month that you haven’t filed, up to a maximum of 12 months.

    2.       Now, if you were charged a CRA late filing penalty in 2009, 2010, or 2011 because you filed late on any of those tax years, your CRA late filing penalty for filing late in 2012 may be increased to 10% of the balance owning. You may also be subject to an additional late filing of 2% for each month you haven’t filed, up to a maximum of 12 months.

    3.       The interest that will be added to the tax debt and penalties will compound daily.

    Individuals who find themselves behind filing taxes for many years can wind up in serious financial trouble. Once many years of tax returns are assessed at one time, the tax debt is determined, the penalties are applied and the interest is applied on the sum, your tax debt can grow to a size that can become impossible to pay.

    Once this occurs, the CRA will demand their money. First you will receive a letter, then perhaps a call, and once your cheque hasn’t arrived your file will be turned over to CRA collections and that’s when the real trouble begins.

    The CRA collections department has the authority to do many things in an attempt to force you to pay.

    • They can garnish up to 50% of your wages
    • They can garnish up to 100% of the income of subcontractors and small businesses
    • They can notify your clients of your tax problem
    • They can freeze your bank account
    • They can place a lien on your home, vehicle and business assets (such as equipment)

    A tax problem that spirals out of control can seem impossible to stop. The good news is that there are financial programs designed to deal with tax debt. These financial programs are quite effective in stopping CRA collection action and enabling you to make a monthly payment that you can afford. Some programs even involve reducing your tax debt and freezing the interest.

    The best thing you can do if you are behind filing returns is to file them. For each month that passes, penalties grow, and for each day that passes, interest grows. Get in to see a financial consultant as soon as possible to start coming up with a financial plan to deal with your tax debt so that you can make arrangements and avoid collection action.

    For more information about CRA late filing penalties or if you need help with your tax debt please contact DebtCare Canada at 1-888-890-0888 or visit www.debtcare.ca.

  • Filing a Consumer Proposal in Ontario – What you SHOULD know

    If you are thinking about filing a consumer proposal in Ontario there is a lot that you should know. Filing a consumer proposal can be a sound option for dealing with debt depending on your personal circumstances. When making a consumer proposal you are essentially making an offer to your creditors under the laws and regulations set out in the Bankruptcy and Insolvency Act (BIA). The BIA is federal legislation so the process to file a consumer proposal is the same whether you are filing a consumer proposal in Ontario or BC.

    Here is how the process works:

    1.       The amount of the consumer proposal is determined using a formula based on your income and ability to repay the proposal on a monthly basis, and then that payment is multiplied by a term of 4-5 years. The sum is the amount of the proposal. This can result in the debt being reduced.

    2.       Once the consumer proposal offer has been formulated, the official offer is made through a trustee in bankruptcy.

    3.       Your creditors then have 30 days to accept or reject the proposal. As long as creditors that represent 51% of the debt in your proposal vote yes, the proposal is accepted. Creditors who do not respond or vote lose their vote and go on record as not opposing the consumer proposal.

    4.       If your consumer proposal is accepted (and many are) you will then make a single monthly payment to the bankruptcy trustee for the term of the consumer proposal.

    Consumer proposals offer many benefits:

    • They can be paid off early so if your financial situation improves you can pay off the proposal at any time.
    • While the consumer proposal will have a short term negative impact on your credit report, the consumer proposal is removed from your credit report 3 years from the date it is paid in full, so the sooner you pay it off, the sooner you can rebuild your credit – the ball is literally in your court.
    • They stop collection action. All collection action with respect to unsecured creditors included in the consumer proposal will stop. This includes wage garnishments.
    • They offer a single monthly payment which is very convenient.

    Now that we have covered how a consumer proposal works and the benefits, let’s look a little bit closer at the process of actually filing a consumer proposal in Ontario. 

    Consumer proposals are administered by a trustee in bankruptcy. The trustee in bankruptcy has an obligation to act both in the best interest of yourself and your creditors. Going to a trustee in bankruptcy directly to discuss a consumer proposal is dangerous because they will probe you and use your financial information to pay your creditors the maximum monthly payment. This leaves many without much financial breathing room which is why many consumer proposals fail. Trustees are also compensated based on a percentage of your proposal. A larger proposal means more compensation for the trustee. It is for these reasons that you should seek out your own independent financial representation if you plan to file a consumer proposal.

    Hiring your own representative is a small expense that can save you thousands of dollars. A good financial consultant who is versed in the BIA can look at your financial picture and help you to craft proposal terms to push with the trustee. They can also arrange the proposal with the trustee and represent you throughout the process. This is money well spent!

    If you would like more information about filing a consumer proposal in Ontario please call DebtCare at 1-888-890-0888 or visit www.debtcare.ca.

  • Credit Card Debt Relief Scams – Buyer Beware

    If you are drowning in credit card debt then there is no doubt you have been thinking about how you can get credit card debt relief. Fortunately for you there are more companies than ever before advertising credit card debt relief services, but it is very important to do your due diligence when choosing one if you want to avoid credit card debt relief scams.

    Here are some things that you should ask yourself in order to find a legitimate company:

    1.       Does the company have a website?

    2.       Is the company listed with Industry Canada?

    3.       Does the company have a bricks and mortar retail location?

    4.       Have past clients of the company made positive reviews about them?

    5.       Do the company and its employees have a presence online on sites like LinkedIn?

    If you want to avoid credit card debt relief scams, ask a lot of questions:

    1.       Does the company charge an upfront fee? If they do, this is a not a good sign. The company should be able to present you with financial options and advise you of the cost to participate in them. Only upon selecting a program should you pay any fee to the company.

    2.       Is the company going to hold the money you pay to them monthly and then disperse the money at a later date? Beware of credit card debt relief companies that collect money from you monthly on the premise that once it has accumulated, they will use it to settle your debt. You don’t know what could happen with the company in the future and this is risky business.

    3.       What will the impact be to your credit? Let’s be realistic – if you are behind making payments or know you will be soon, your credit has likely already taken a hit – or you should expect it to. Any debt solution that involves reducing your debt or freezing the interest will have a negative impact to your credit. A financial program that involves reducing your debt will cause you to pay off your debt much sooner so it really is short term gain for long term pain. Our point here is that the company that offers you debt relief should be open about the implications that different programs will have on your credit and have the ability to guide you through the process of rebuilding your credit.

    4.       Ask the company to be clear about their solution. Many companies will promote debt consolidation but there are different types of debt consolidation. Debt consolidation involves consolidating debts into a single monthly payment. Many credit card debt relief options achieve this but each is different. For example:

    a.       If a bank gives you a debt consolidation loan your creditors will be paid off in full. Pros: You can preserve your credit and your relationships with your creditors. Cons: You will pay interest on the debt and it will take a long time to pay off. Also, you must have good credit for this option.

    b.      You could refinance your mortgage to consolidate your debt. Pros: You can preserve your credit and your relationships with your creditors. Cons: You will pay interest on the debt and you will be stretching the debt out over your mortgage amortization.

    c.       If you go to credit counselling they will allow you to make a single monthly payment to them. Pros: Monthly payments are low. Cons: Damages credit, damages relationships with creditors, takes a really long time to pay off.

    d.      A consumer proposal also involves making a single monthly payment. Pros: Debt can be reduced, single monthly payment, stops collection action, interest is frozen. Cons: Damage to credit.

    e.      A bankruptcy will also result in a consolidated single monthly payment. Pros: Debt can be reduced, single monthly payment, stops collection action, interest is frozen. Cons: Damage to credit, ongoing reporting obligation to trustee, if financial situation improves payments could be increased.

    When looking for a company that offers debt solutions remember that if you do your research and ask a lot of questions you should be able to find a debt solution while avoiding credit card debt relief scams.

    For more information about credit card debt relief or if you need help with a financial problem please call DebtCare at 1-888-890-0888 or visit www.debtcare.ca.

  • Dealing with Collection Agencies: Harassment and The Collection Agencies Act

    In Canada, if you have a debt that goes into default, your creditor can assign your debt to a collection agency to be collected. The collection agency will then attempt to collect the debt from you. They will do this by calling you, sending you letters, and some creditors will even grant collection agencies the authority to sue you.

    Dealing with collection agencies is no fun! When a collection agency is after you they can be ruthless and even harass you. Some people find themselves feeling powerless when dealing with collection agencies.

     

    Dealing with collection agencies used to be even worse than it is now, but as a result of public outcry, the government decided to begin regulating them. Collection agencies are regulated provincially and all provinces have legislation that regulates the activities and conduct of collection agencies and their collections. In Ontario, for example, this legislation is referred to as the Collection Agencies Act and is administered by the Ministry of Consumer Services.

    Although all provinces regulate collection agencies, with regulations varying from province to province, here are some things that, across the board, collection agencies can’t do.

    • Ask you for payment without first having notified you in writing that they have been retained by your creditor to collect the debt.
    • Make phone calls to you with a frequency that would be considered harassment.
    • Make phone calls to you outside of the days and hours the legislation in your province mandates.
    • Ask you to pay a debt without having provided you with the name of the creditor and the total amount owed.
    • Provide personal information to third parties, such as other people in the household, or leave it on your voicemail.
    • Contact your employer (unless there is a court order), neighbours or friends to obtain an address or telephone number for you.

    Sometimes life throws us a curve ball and no one wants to end up with a debt in collections. Having a debt in collections is an indication of an underlying financial problem. While you may be able to count on things like the Collection Agencies Act to control the behaviour of your creditor’s collection agencies, you won’t be able to stop dealing with collection agencies until you have a plan to deal with your debt.

    So many people get stressed out when dealing with collection agencies that, instead of facing the debt head on, they alter their lifestyle. They stop opening mail or answering the phone. Don’t do this!

    There are financial solutions to deal with debt that is in collections and companies that specialize in these types of problems. Some financial solutions can even reduce the size of your debt or freeze the interest on your debt, and all financial solutions will stop collection action!

    Just imagine your life without the phone ringing off the hook every moment. Imagine being able to rebuild your credit. Imagine having control over your debt. All is possible – it’s up to you to take the first step.

    For more information about dealing with collection agencies or if you need help with a financial problem please contact DebtCare Canada at 1-888-890-0888 or visit www.debtcare.ca.

  • Finding Debt Relief from Holiday Credit Card Bills

    Credit cards are scary because they are easy to run up and then difficult to pay down. Did you know that last year it was reported that the average Canadian is carrying over $40,000 in unsecured debt? If you are one of these Canadians then you probably had credit card debt before you even started holiday shopping! Now the holiday shopping credit card bills are rolling in and you are likely thinking that you could really use some debt relief.

    Credit card debt presents the following challenges:

    1. Damage to your credit. Even if you are making your minimum payments credit cards can still damage your credit. Did you know that if you let your credit card balance get close to the limit, or if you go over the limit, it reduces your credit score? Yes, it is true, and not only does it reduce your credit score it also causes a message to appear on the credit report that indicates that the proportion of the credit card balances are too close to the credit limits.
    2. Minimum monthly payments are too small. Credit card companies set your minimum monthly payment at 1-3% of your balance. This is simply too small. If you make only minimum monthly payments on credit cards it can take many years to pay down the balance.
    3. Monthly compound interest. Unlike loans, credit card interest compounds monthly (12 times per year). This means that interest is added to your balance each month. When you combine the fact that your interest compounds monthly with the fact that your minimum monthly payment on your credit card is likely set at 1-3% of your balance, the effective cost to borrow using your credit card is significantly higher than the interest rate on your credit card.

    Credit card debt can quickly become overwhelming because once it accumulates it can become really difficult to pay off. Most people do not have the kind of cash flow needed to really get those credit card bills paid off.

    Getting debt relief from your holiday credit card bills can be achieved three ways:

    1. By paying off the debt by liquidating your savings, getting help from family or winning the lottery. Unfortunately this is an option that most folks don’t enjoy.
    2. By consolidating debt through:
      1. A loan with the bank – you will need good credit for this option.
      2. A mortgage refinance – you will need a home with equity for this option.
      3. By taking advantage of an alternate financial program.

    If you don’t have good credit or assets then an alternate financial program may be the best choice for you.  An alternate financial program will enable you to make a single monthly payment, as in a debt consolidation, and will stop the interest from accruing on your credit cards. Sounds like a great solution right? Well, really the right solution will depend on your personal financial circumstances. Before making any of the above choices your best bet is to speak with a financial consultant who is hired by you, one who can offer you unbiased financial advice so that you can get debt relief from your holiday credit card bills and start off the year on fresh financial footing.

    For more information about finding debt relief contact DebtCare at 416-907-2582 or visit www.debtcare.ca.

  • Getting Out of Debt in the New Year

    So the holidays are over and no doubt the holiday bills have started rolling in. It is easy to do serious financial damage during the holidays. Debt can take a mere couple of weeks to rack up, but can take months and even years to pay off. Getting out of debt in the New Year is on many families’ ‘to-do’ lists, but getting out of debt is easier said than done.

    Your ability to get out of debt in the New Year will greatly depend on your own personal circumstances. Let’s review some of your options.

    Getting out of debt the good old fashioned way. Getting out of debt the good old fashioned way will take resources because it will involve using your existing assets and cash flow to get out of debt. If you don’t have savings or investments that you can liquidate to pay down debt you will have to take a good hard look at your budget. Think of the time frame in which you would like to be debt free. If it is 24 months for example, then take your total debt, divide it by 24 months and then increase the monthly amount by 30% (to account for interest).  Do you have enough room in your budget to pay off the debt on a monthly basis?

    Getting out of debt through a debt consolidation. Getting out of debt through a debt consolidation is an option for homeowners who have home equity or for those with very good credit. Though traditional debt consolidation can be a good choice for getting out of debt – the debt consolidation interest rate, fees and terms will determine whether it is the best choice for getting out of debt.

    Getting out of debt through a financial program. If you don’t have assets or savings to pay off your debt and you don’t have room in your budget to get out of debt in a reasonable period of time, then an alternate financial program may be the best solution for you. Some financial programs involve freezing the interest on your debt and even reducing your debt. This can result in greatly reduced monthly payments, making the prospect of getting out of debt a reality for an individual who doesn’t have much to put towards getting out of debt.

    It’s a jungle out there and with so many companies promoting different things it can be hard to know what the best financial choice is. Making the wrong financial choices can cause you to pay more in the long run and can even harm your credit. So how do you know a financial friend from a financial foe? By trusting your instincts and doing lots of research. Do they have a website? Do they have a bricks and mortar location? Do they have people following them on social media? Have you heard of them before? If you are dealing with a debt company or mortgage brokerage, is the company’s management accessible to you?

    Doing your due diligence and then partnering with a financial service provider who can help you come up with a meaningful solution to deal with your debt will be your first step towards getting out of debt and enjoying financial freedom in 2013.

    For more information about getting out of debt in 2013 or if you need help with your 2013 financial planning please contact DebtCare at 416-907-2582 or visit www.debtcare.ca.

  • Top 5 Tips for Financial Fitness in 2013

    The holidays are behind us and 2013 has officially arrived. The holidays were a time for family and cheer; the New Year is an opportunity for new beginnings. If your New Year’s resolution involves getting financially fit, then this is the article for you!

    Here Are DebtCare’s “Top 5 Tips for Financial Fitness in 2013”:

    Financial Fitness Tip #1 – Determine what you really spend. For one week, closely monitor your spending. No expense is too small to track this week. If you buy a coffee, track it! You can do so using ‘notepad’ on your smart phone or by keeping a small notebook with you.

    Financial Fitness Tip #2 – A good budget will be the roadmap to your success. Put together a strong budget that includes both your fixed costs, like rent/mortgage, utilities, car payments, etc., along with a realistic estimate of everyday soft costs. Try to find places in your budget where you can save.

    Financial Fitness Tip #3 – A family that plays together stays together. If you are planning on tightening your belt in the New Year in an effort to reach your financial goals and you have a spouse and/or children, you are going to have to make them aware of your plans. As a family you can work together to find savings in your household and curb unnecessary spending.

    Financial Fitness Tip #4 – Review your debt. Look at your unsecured debts, interest rates and minimum monthly payments. Do you have room in your budget to double or triple up on your minimum monthly payments? You will need to. Since the minimum monthly payments on credit cards are generally set so low and the interest on credit cards is generally high, you will find it nearly impossible to pay off your credit cards in a reasonable amount of time by making only minimum payments. If you want to work towards financial fitness you will need to create room in your budget to pay down your credit cards.

    Financial Fitness Tip #5 – Request your credit report from Equifax. Even if you think your credit is going to be bad, it is still a good idea to request your credit report. It is important to know where you stand so that you can consider the state of your credit in your financial decisions. On the flip side, you may think your credit is great but learn that there are issues that you were not aware of that are impacting your credit score.

    Once you have a plan to deal with your debt, a budget, and an understanding of your credit, you must follow through with your plan to deal with your debt: you must follow your budget and you must work towards improving your credit. Achieving financial fitness takes time and commitment!

    When you achieve financial fitness you will find that you have more cash flow, can begin to amass savings and investments, qualify for lower rates on credit products, and more.

    The New Year is a better time than ever to commit to becoming financially fit!

    For more information about getting financially fit for 2013 or if you need help with your 2013 financial planning please contact DebtCare at 416-907-2582 or visit www.debtcare.ca.

  • Small Businesses Can Be Subject to a Wage Garnishment From The CRA Too But How?

    Starting a successful small business takes hard work and perseverance. Unfortunately, small business owners are one of the largest groups that find themselves with tax problems.

    One of the main reasons why small business owners commonly run into trouble with the CRA is because it is tough starting a business and generally in the first couple of years small businesses are not really profitable. In many cases, small business owners don’t pay for bookkeepers and simply collect their receipts all year long. Then, at the end of the year, these owners go to an accountant with what records they have or attempt to do the returns on their own.

    This can result in incorrectly declared expenses and income that can end up costing the small business owner dearly in a re-assessment or audit.

    Other times, small business owners misunderstand filing requirements and fall behind filing returns. In some extreme cases, small business owners do not set aside their H.S.T. and then find that it is impossible to pay it when tax time comes.

    When things reach a breaking point and the CRA begins pursuing the small business owner to collect the tax debt, there are many collection methods – similar to when they collect from a consumer. Just as they can freeze a business bank account, they can also freeze a business owner’s bank account. Typically, when an individual has a tax debt and is employed, the CRA will send a wage garnishment to the employer directing the employer to forward a percentage of the individual’s earnings to the CRA. When a small business owes money to the CRA the CRA can send a notice to the business’s clients, directing them to forward the proceeds of all invoices to the CRA.

    With an individual, HR departments are generally used to receiving wage garnishment notices from the CRA. For small business owners however, this can have a lethal impact on a business and a business owner’s reputation, as many clients and companies may not want to deal with a supplier who has a tax problem.

    A small business owner who has a tax problem must act quickly to avoid the consequences of CRA collection/enforcement action. Tax problems are usually financial problems, requiring a financial solution. At the end of the day, tax debt is debt like any other debt, only the CRA has greater collection powers than regular creditors which creates a major sense of urgency.

    If you are a small business owner with a tax problem you definitely want to come up with a plan before you face the embarrassment of having your clients notified that you have a CRA debt and are facing a possible 100% garnishment of your receivables, which can cause irreparable financial hardship. If the worst has already come true and your receivables are already being garnished you still may be able to stop it.

    Working with a good financial consultant who routinely works with individuals and small businesses who have problems with the CRA is your first step towards a meaningful solution to your tax problem.

    For more information about how to avoid or stop a garnishment of your receivables please contact DebtCare at 416-907-2582 or visit www.debtcare.ca.

  • 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.