How to Deal with Back Taxes
There could be many reasons why a person wouldn’t have paid their taxes for several years. You could owe a lot of money and not be able to afford to repay it, you might have forgotten to pay, you may not have filed your taxes at all. Whatever your situation, if you owe tax debt to the Canada Revenue Agency (CRA) this problem won’t just go away. The CRA may not have contacted you yet, but it will. And, when it does, there’s a good chance that you will owe a big chunk of change.
This is because the CRA charges penalties for filing and paying taxes late. As soon as you miss the tax deadline (typically April 30th each year, for most people) there is an automatic late filing penalty of 5 percent of the tax owing. For each month that you do not file, you are charged another one percent.
In addition, if you filed your taxes, but did not pay the money that you owe, the CRA will charge interest compounded daily on the amount owing. Obviously, these interest costs and penalties add up quickly, which is why you will want to resolve your tax situation sooner than later.
What you Can Do About Back Taxes
If you have not filed your taxes in previous years, or you have not properly reported your financial situation on your taxes, the CRA has a Voluntary Disclosure Program that may be helpful to you. This program has been set up by the CRA to allow people to file returns that should have been filed or to change the information on a return that has been filed. However, this program is only for those who have not yet been contacted by the CRA about their tax debt (which is why it is named a “voluntary” program.) If the CRA has already requested that you file your taxes or pay your debt, then the program is not for you.
If you owe the CRA more money than you can afford to repay them, there are some options available to you. In certain extraordinary circumstances (extreme financial distress, a serious illness or death in the family, a natural or man-made disaster, etc.) you can apply to have fees and penalties waived. However, this option does not apply to everyone and it does not reduce the overall amount that you owe. The CRA will not ever accept less than is owed to it. In addition, you will have to show proof that you were unable to file or pay your taxes on time.
You may also be able to arrange a payment plan with the CRA. However, before it will consider this option, the CRA will ask for many details about your financial situation, including information on your income, your debts, your expenses, and your assets. This information will then be used to determine whether a payment plan is offered and, if it is, how much you will need to pay each month. It’s important to note that the CRA will want its money first, and consider it the top priority over any of your other financial obligations. This could hurt your overall financial situation. For example, the CRA may require you to only pay the minimum balance on your credit card in order to apply additional money to your tax debt. This could cost you, as interest rates on credit card debt are typically very high.
Before you take any steps to deal with back taxes, you will want to speak with a financial professional who understands Canadian income taxes. To speak with a member of our team, please call 1-888-868-1400 today.