Paying your Income Taxes through a Payment Plan
There are many different reasons why someone could end up owing a lot of money to the Canada Revenue Agency (CRA). You might have forgotten to declare some income, you might have been unable to pay your taxes in previous years, or you may have filed your taxes late, which can lead to large penalties and interest charges. Regardless of the reason, if you are faced with a large tax bill, it might be too much for you to pay all at once.
When the CRA contacts an individual about tax debt, their first request is always that you pay the full amount all at once. If you’re unable to do this, the CRA may then offer you the option of setting up a payment plan. However, before they will suggest this option, you may need to show that you are currently unable to pay your tax debt in full. The CRA could ask you for details regarding your oncome, your expenses, your assets, and your liabilities before agreeing to a payment plan.
Before you Agree to a CRA Tax Payment Plan
While it may seem reasonable that the CRA ask for your financial information (after all, you do owe money and who wouldn’t rather pay small installments rather than a lump sum) providing this information to the CRA could lead to a variety of issues. One of the most important is that, once you owe the CRA money, it not only expects to have the debt paid quickly, but it also often expects to be paid before you pay down any of your other expenses or debts. Once they know your financial situation, they will begin to make demands that could harm your overall budget and financial situation.
For example, if you currently budget to put $20 a week into an emergency fund, the CRA will determine that this money could be going towards your tax debt instead. The same is true for any debt payments larger than the minimums. The CRA will want this money to go towards you tax debt.
Unfortunately, the CRA is typically not generous or understanding when it proposes a payment plan.
It’s also important to remember that the CRA has powers that other debt collectors do not. If you can’t pay your phone bill one month, the phone company might charge you a penalty. If you don’t pay for a while, they might cut off your phone service and/or send your debt to a collection agency. However, if you make a payment plan with the CRA and do not follow it, the CRA can garnish your wages, register a lien against your home, or freeze your bank accounts until the debt is paid. The CRA can also take any money that you may be owed by another federal agency (such as GST/HST credit payments) and apply these directly to your tax debt. The CRA can even seize your assets.
Before you consider negotiating with the CRA or providing the CRA with any of your financial details, it’s a very good idea to speak with an expert, such as the former CRA employees at Tax Solutions Canada. Call us today at 1-888-868-1400.