Negotiating with the CRA
If you owe tax debt and the Canada Revenue Agency (CRA) comes calling, the best step is to pay what you owe in full. The CRA will not forget about you. It may not have contacted you until this point but, now that it has, this is an issue that isn’t going to just go away.
However, if you do not have the money to pay in full, you might be tempted to try to negotiate with the CRA. The reality is that, the CRA does not negotiate. It wants the money that is owed to it.
No matter how good of a negotiator you are, the CRA will not lower the overall amount of tax debt that you owe. You owe this money and the CRA wants to receive it. In fact, CRA agents do not even have the authority to reduce tax debt under the Income Tax Act. If you cannot pay what you owe and do not cooperate, rather than negotiate, the CRA will instead use its considerable powers to collect the debt. This could include freezing your bank accounts, garnishing your wages, or seizing your assets.
Obviously, you do not want it to get to that point.
Working out a Payment Plan
Depending on your financial situation, the CRA may give you the option of paying your tax debt via a payment plan. This probably seems like a good idea at first, after all, who doesn’t want to pay their debts over time in several smaller payments rather than a lump sum? However, the reality is that, before the CRA will consider a payment plan, they will want full details of your financial life.
This might seem like a reasonable request at first, however, remember that the CRA wants its money. In fact, it wants the money owed to it first. For this reason, the payment plan that the CRA proposes may not in fact be what is best for your financial situation.
For example, assume that you owe $2700 on your credit card and spend $100 a month on credit card debt repayment. The minimum payment that the credit card company requires might only be $20. You are paying more each month in hopes of paying down your debt faster and reducing interest payments. However, the CRA might look at these numbers and conclude that you are paying $80 a month to the credit card company that you could instead be paying towards your outstanding tax debt. This means that the payment plan the CRA proposes could put you in a bad financial situation.
As you can see, if you’re not careful, you can get into trouble trying to negotiate with the CRA. If you are in a position where you cannot pay your tax debt in full, it’s best to work with a professional when working out a payment plan. Please call us at 1-888-868-1400 for more information on how we can help.