Tax season will be approaching come April, and that can mean large tax bills. Tax debt is a common problem, and it is easy to get into if you’re not careful. Maybe you owe back taxes and can’t afford to pay them back as yet? Perhaps you just forgot to file your taxes in time one year?
Tax bills can add up if you haven’t been paying bills on time, have missed or were late filing some years, or have been disorganized with managing your finances. Keeping track of your taxes and when they are due is essential, as it can be a great preventative measure saving you a lot of stress later.
If you do end up owing tax, the Canada Revenue Agency (CRA) is compelled to collect on any outstanding debts you may have. The CRA will usually communicate with you on upcoming payments and when they are due, and missing payments will lead to interest and penalty fees adding up. Therefore it is essential to manage your debt or outstanding tax right at the beginning because the longer you delay it, the more difficult it will be to resolve. It will become more expensive, too, as interests and penalty charges add up to extreme amounts over several months.
The CRA may utilize its strong collection powers to collect, and depending on your situation, could even press charges liable in court. Other possible outcomes could be that the CRA seize your assets, freeze your bank accounts or garnish your wages directly from your employer or pension without prior notice.
However, some solutions can address your situation and help you manage your tax debts. If you’re unable to pay them off at the onset, assessing your charges and figuring out how to handle them is better than avoiding the topic altogether.
Tax debt relief is possible with an experienced team that is knowledgeable on the strategies for resolution. Here are some comprehensive ideas on how to resolve your tax debts.
Negotiating Payment Terms
If your case isn’t very contentious, it may be possible to resolve your tax obligations through a series of payment arrangements. The CRA may allow for terms where you pay a fixed portion of your debt back for several months until the debt is resolved.
To do this, you will be required to present documents and information. You will explain your circumstances and the need for an extension and file all outstanding tax returns. After reviewing your income and expenses, the CRA may or may not accept your offer. Contact your nearest Revenue Canada office for more information.
Taxpayer Relief Programs
There are certain programs the CRA will offer to individuals with extraordinary circumstances. If you have been unable to resolve your tax debt due to financial hardship, in some cases, the CRA may forgive outstanding penalties and interest. Individuals who were unable to pay due to personal illness, mental stress, or emotional instability become eligible for these taxpayers relief programs. There is a limitation of 10 years to apply for such programs.
Using Available Finances
RRSPs or RESPs may be cashed in to pay tax debts in some cases. That may not be the best course of action for all individuals but is an option when in duress or no other choice. However, this may not be necessary, as consumer proposals can protect your RRSP and buy you time to work out another arrangement with the CRA. Also remember that cashing certain investments comes with its own tax requirements and you don’t want to pay one tax debt to end up in a new one the very next year. Talk to your investment company before you cash anything to make sure they can hold the proper amounts back.
Debt Forgiveness and Settlement
Generally, the CRA does not accept anything less than the full outstanding amount owed to them. It is understood that all individuals must pay back their debts in full. However, portions of income tax and other unsecured tax debts may be discharged in specific cases. You can file a bankruptcy or a consumer proposal with a Licensed Insolvency Trustee. This is especially helpful if you have found yourself with tax debt that you just can’t seem to get ahead of.
If you file a consumer proposal with a trustee, you could potentially settle your debt for less than the full assessment amount, principal and interest. The CRA is at liberty to decide how far that reduction will go, based on individual circumstances and assets.
Working With a Tax Specialist and Keep the New Filings Under Control
How do you determine if you should cash in those RRSPs or apply for a consumer proposal instead? There are many possible solutions to your financial problems, and it may be overwhelming trying to figure out the options on your own.
Work with a Licensed Insolvency Professional before taking action. Not only are debt relief professionals knowledgeable in their field, but they will also assist and advise you on the best course of action for you specifically. Always be careful to get credentials of the person you are working with as there are many companies who will advertise services that they can’t provide.
Lawyers and accountants may also be able to help you make sure you keep your future filing up to date, with fiscal and legal matters, maybe even with interest and penalties, but the debt issue can only be resolved through tax specialists. Tackle your tax debt problems head-on, in a responsible and organized manner through a free consult today. Part of the process of getting out of tax debt is making sure you create new habits so that you can’t fall into the same patterns.
The most easily implementable solution for small tax debts is to finance your debts. One option is to repay the CRA monthly. If this is not possible, another option is to pay the terms of a low line of credit, loan or mortgage. Always consult with financial professionals before deciding on financing. Our licensed professionals can help review your outstanding debt and help you figure out the course of action suited to you.
There you have it- a comprehensive guide on strategies to resolve tax debt. Financial difficulties are hard to deal with, and our debt specialists are here for you. We have years of experience providing dedicated service to clients and can advise you on all the different ways to deal with your situation.
To learn more about resolving your tax debt, call Kevin Thatcher & Associates at 1-866-702-9801 or contact us here.