If you have Canada Revenue Agency (CRA) back taxes, it might help to know that you are not alone. Tens of thousands of Canadians have back taxes at some point in time. The good news is that it is not illegal to owe money to CRA as long as you have filed the returns properly – so you won’t have to worry about potentially facing criminal prosecution.
The bad news is, if you have back taxes and cannot pay CRA exactly the way they want to be paid, this can quickly become a huge problem that can get very stressful. Why? Because CRA will do whatever is within their means to collect the back taxes from you. This includes using all the tricks and tactics in their enforcement collection toolbox that can throw you into financial turmoil.
So what can you do if you cannot pay your CRA back taxes?
Get a fair and affordable payment plan in place that CRA will accept and that you can live with. Take a realistic look at your budget and consider what you can pay. Expect CRA to push you hard on what they consider fair. Risk: Negotiating a payment plan with CRA can be risky. When contacting CRA directly you are opening yourself up to very well trained collection agents who have significant power under both the Income Tax and Excise Tax Acts. They know how to lead you into divulging more information about yourself than you are required to provide and this leaves you in a worse situation where they know the details of how to squeeze you.
With that said, doing nothing will leave you wide open to harsh collection efforts by CRA. Unless you can pay in full on a very short timetable, we never recommend that you contact CRA directly. It is generally better to use a 3rd party professional to negotiate with CRA because the professional will know your rights and the consequences of certain disclosures. This will go a long way to ensuring you are treated fairly and receiving the full benefit of CRA repayment policies – not simply what the collector chooses to tell you.
If you are thinking about borrowing against your home or obtaining other credit to repay CRA, do so before CRA puts a lien on your home. Risk: This should be negotiated through a tax professional who specializes in this area. If you go directly to your existing bank or lender you can damage your relationship with them. Many lenders, especially banks, frown upon back taxes and view them the same as having bad credit. You may not only be declined for the increased financing but the lender may also cancel existing loan arrangements they have with you.
If you are currently suffering from financial hardship, cannot pay your CRA back taxes and have no fair and practical solution to repay your debts, then a consumer proposal may also be an option. A good professional advisor will be skilled at looking at all your options and explaining them to you – from objecting, appealing, seeking reductions of the amounts of interest and penalties being charged to you, borrowing to pay, obtaining repayment terms, and if none of these are right for you the right of protection under Federal Law against all creditors (including CRA).
For most, the consumer proposal is a last option, but for some it is the best option. Why? Without bankruptcy it provides immediate relief from CRA enforcement action, stops CRA interest, usually reduces the size of the tax debt, and allows for a single reduced monthly payment. Risk: Consumer proposals can be complex and your ability to qualify largely depends on your personal circumstances. While only a licensed trustee in bankruptcy can actually file a consumer proposal for you, trustees are not all skilled in evaluating your options to solve your tax problems under the various CRA policies, so they will direct you towards a consumer proposal or even a bankruptcy. A skilled tax professional will be entirely on your side of the table looking after your interests ahead of CRA and other creditors when advising you about all your options.
Do not wait until CRA freezes your bank account, puts a lien on your home, garnishes your wages or takes some other action that can be embarrassing, damage relationships and result in financial hardship. The ‘wait and see approach’ will most certainly catch up to you in the long run and you will be in a much worse situation than you are in today.
For more information about what to do if you have back taxes please call 1-888-868-1400 or visit www.taxsolutionscanada.com.