If you owe a lot of income tax, according to your tax assessment from the Canada Revenue Agency (CRA)(formerly Revenue Canada), and you have difficulty paying it, what should you do? Follow this check-list to make sure you get the best result possible. First, understand what CRA can do.
CRA’s powers: take your tax debt seriously
Nobody likes to pay taxes, so CRA has strong powers to make sure they collect what people owe.
- They charge penalties and interest on all overdue taxes.
- They can withhold child tax credits and GST credits until your debt is paid.
- They can take money from your bank account or your pay (through a garnishee).
What’s more, CRA will not willingly accept less than full payment. They have millions of taxpayers, and can’t afford to set a precedent that would force them to accept less from everyone else.
So you must treat tax debt seriously, and promptly. If you put it off, it’ll get bigger, and the Canada Revenue Agency may take steps that really disrupt your life.
First: verify what you owe
Start by knowing what you really owe. Your solution must be based on your real situation, or it will probably collapse.
- Make sure you have submitted all your outstanding tax returns. CRA will insist on this anyway, and you need to show that you are acting in good faith.
- Review all your returns for the past several years to make sure you are taking advantage of all possibilities to reduce what you owe. Professional help from an accountant or tax preparation service could be a good investment, unless your case is exceptionally simple.
- If your non-payment was genuinely caused by a serious event beyond your control, consider applying to the Fair Practices Commission of CRA to have your interest and penalties cancelled. Causes they may accept include natural disasters, serious illness, CRA actions, and loss of employment.
Then: consider possible solutions
Learn the choices you have for income tax debts in Canada, and choose the least drastic solution that will work for you. In all but the simplest solutions, you will benefit from professional advice. Contact a licensed bankruptcy trustee for help; your initial consultation will be at no charge