Dealing with a Large Tax Debt
If you’re about to file your taxes and you realize that you’re going to owe more than you can afford to repay, you might be tempted to not file at all. This won’t help you. The CRA will charge you a late filing penalty when you do file. This penalty is 5 percent of the balance owing for the current tax year, plus one percent of your balance owing for each month your return is late. Obviously, these charges can add up very quickly and can make it even more difficult to afford your tax debt.
The CRA also charges interest on any unpaid amount, at a rate of 5 percent per year. This interest is compounded daily, so every day that you do not pay the money that you owe to the CRA, you will be charged more.
Therefore, it’s important to deal with your CRA tax debt as soon as you can. However, what should you do? Unless you can afford to pay the full amount in a short period of time, it’s best to speak with a professional. Dealing the CRA can be complicated and confusing at the best of times and CRA collection agents can be very difficult to deal with, especially if you owe a lot of money.
There are a few options available to you if you owe the CRA more money than you can pay:
- Negotiate a payment plan
- You may be able to negotiate a payment plan with the CRA that will see you pay your debts in installments. However, the CRA will likely want to see proof that you have tried to pay your debts in full and have been unable to do so.
- In addition, the CRA will want to see many of your key financial details, such as your assets, liabilities, debts, income, and expenses before agreeing to a payment plan. In this situation, the CRA may request that you pay as much as you possibly can each month, which could cause you to be unable to pay your other debts and expenses. The CRA will want to get their money first, before anyone else, so they won’t be very concerned with satisfying your other financial requirements.
- Note that the CRA will never lower the overall amount that you owe.
- Apply for taxpayer relief
- The CRA does have a taxpayer relief program for those who are having difficulty paying their tax debt. However, this program can only waive or cancel interest charges and penalties. It does not reduce the overall amount that is owed.
- You may have to prove why extenuating circumstances made it difficult to file or pay your tax debt on time and the CRA will only grant this exception in certain situations.
- File a Consumer Proposal or Bankruptcy
- If you are facing serious financial hardship and are unable to pay your tax debts, you may wish to consider filing a consumer proposal or bankruptcy. You will need to speak with a Licensed Insolvency Trustee to do this.
As you can see, dealing with the CRA and a large tax bill can be very difficult. You don’t want to make any costly missteps at this point. If you are having trouble paying your taxes, give us a call at 1-888-868-1400 before you contact the CRA. We can assist you.