Will CRA Make a Settlement to Reduce Your Tax Debt?
Many people who are faced with a large tax debt feel as though they have no options. If you owe taxes and do not make your payments, then interest and penalty charges quickly add up. However, if you have a large debt, you may not be able to pay it to pay it in full, which means interest continues to accumulate, making it even tougher to pay. This leaves many people feeling helpless and looking for CRA debt forgiveness.
The Canada Revenue Agency (CRA) also has the power to take action against taxpayers who do not pay their debts. These actions could include garnishing your wages, freezing your bank account, seizing your assets, and much more.
When you are facing the harsh reality of a tax debt, you may be wondering whether the CRA will accept a settlement to reduce your tax debt. Most people want to pay their taxes, but they may not be able to pay the full amount. They want to do what the law says they should, but due to the large amount of tax debt they owe, they find it almost impossible to comply. Many people who are in such situations wonder if there are CRA debt forgiveness programs that they can take advantage of. Unfortunately, this isn’t the case.
While the CRA does have programs where those who qualify could receive relief from interest and penalties – it does not have the same authority as the IRS in the USA. The agency can never make a settlement on principal under the Income Tax Act. The only way to reduce your principal tax debt is under other Federal Legislation, which has its own implications and benefits. This Federal Legislation is not the first choice and should only be considered when all of your other options are exhausted.
The good news is that other options are possible. However, it’s crucial to handle your interactions with the CRA with care. The agency is traditionally a very tough negotiator and, while you may be able to find some relief through some programs, you could also potentially end up in a difficult situation if you take a wrong step. For instance, before the CRA agrees to negotiate any sort of payment plan, it will require that the taxpayer provide the agency with a significant amount of financial information. If you’re not careful, you could end up giving the CRA details that can be used against you.
It’s also important to note that the CRA considers debts owed to it to be the priority. This means that not only do they want tax debt to be paid as quickly as possible, but they also want this debt to be paid first, before other financial commitments. In many cases, the payment plan that the CRA offers will be very aggressive and could make it more difficult to afford your other debts and expenses. You don’t want to wind up in a situation where meeting your CRA payment commitments forces you to go deep into debt with other creditors just to afford your living expenses.
This is why it’s crucial to work with experienced professionals when dealing with and negotiating with the CRA.
Looking for CRA Debt Forgiveness? Talk to a Ex-CRA tax dispute expert for free.
We can help by:
- 1| Offering a comprehensive solution that is focused on achieving the most favorable possible outcome for your tax issue;
- 2| Communicating with the CRA on your behalf and navigate the entire CRA dispute process; and
- 3| Offering a complete solution to your tax problems, including ex-CRA professionals in affiliation with tax lawyers from Farber Tax Law.
Can You Go to Jail for Not Paying your Taxes in Canada?
Canadians can potentially receive prison time for various tax offences. These include purposely providing a false or deceptive statement on a return, willfully attempting to evade taxes, destroying or altering records, or other such situations. You could also be faced with criminal tax evasion charges (which can potentially result in imprisonment) if you commit fraud or wilfully claim credits or refunds that you are not legally entitled to receive. In general, if you intentionally break or ignore Canadian tax law, you could face criminal charges and possibly jail time for tax evasion.
Examples of tax evasion include not reporting foreign assets or income from foreign sources, participating in illegal tax schemes, deliberately making false statements or misrepresenting your financial situation, and other similar situations. All of these examples could potentially result in criminal charges and prison time for tax evasion.
However, in the majority of cases, people who owe the CRA money do not wind up in jail. That said, even if jail time is not likely, that doesn’t mean the CRA can’t punish you significantly if you do not pay your taxes. The CRA has incredibly strong powers and, unlike most other creditors, they can take collection action against those who owe debt without getting a court order.
For instance, the CRA can garnish your wages if you owe money and do not pay. This means that money that you would have received from clients or your employer will instead be directed to the CRA and applied towards your tax debt. If this happens, you will have to find a way to manage your financial life without receiving your full pay. This can obviously be incredibly difficult.
The agency can also freeze your bank account and use the funds in it to pay off your debt. This means that any money that you have saved in your account will be frozen. You won’t have access to it and the CRA will use these funds to pay your tax debt.
Both of these situations can be financially devastating. If the money you have earned or saved is used to pay your taxes, you can’t use it to pay your other bills or debts. This means you’ll likely need to take on additional debt to make ends meet, and this can lead you down the path to serious financial trouble.
The CRA can also seize your assets and sell them, then use the money to pay off your debt. This means the agency can take your car, cottage, boat, rental property, or even your principal residence and sell it to the highest bidder. In these situations, you won’t just lose the asset, but you’ll also have to pay all reasonable costs and charges that the CRA incurs. Plus, if the CRA does not make enough money from the sale to pay your entire debt, you will still be responsible for the remainder.
The CRA not only uses these tactics to collect debts and encourage people to pay their taxes, but they also use them as threats to influence negotiations. If you are having trouble paying your tax debt, speak with a professional before you attempt to negotiate with the CRA.
How to Get Rid of CRA Debt?
CRA debt will not go away on its own. Even if the CRA has not yet contacted you to attempt to collect the debt, it does not disappear. If you owe taxes and have not paid them, the CRA expects that this money be paid back in full. You can’t just get rid of CRA debt by ignoring the situation or negotiating with the agency. By law, the CRA cannot accept less than is owed.
However, if you want to try to get the penalty and interest portion of your tax debt reduced, this could be a possibility. This situation can be very helpful to people. If you owe a large amount of tax debt, you will also likely owe a lot of interest and penalties. Interest accumulates daily, so the amount you owe goes up every day. Putting a stop to interest and penalties can be very important to people who are in such situations. However, before you attempt to eliminate your penalty and interest charges, there are several key things to know:
- First – and as we have mentioned – CRA will not negotiate on principal. CRA will not reduce the principal portion of your tax debt even if it would be fair and make full business sense because they have no authority to do so under the Income Tax Act. Trying to get them to lower the amount you owe is a fruitless endeavour.
- Reducing some or all of the interest and penalties associated with your tax debt can mean a significant amount of savings and make the remaining balance possible for you to repay (even if on terms) – so it makes sense to consider Taxpayer Relief. To qualify for Taxpayer Relief, you must be able to prove to CRA that an extraordinary circumstance led to the tax debt, penalties and interest or your inability to pay it.
- These extraordinary circumstances include medical problems, disability, disaster, financial hardship, death, error on behalf of CRA, etc… If you qualify, you may be able to have your interest and penalties reduced or eliminated. This program can help significantly, especially since interest and penalties can get so large that they sometimes end up being more than the initial tax debt.
- However, being approved for taxpayer relief is at CRA’s discretion. Relief submissions must outline not only your grounds for relief but must also contain evidence to substantiate your claim. The more complete, robust and documented the submission is, the higher the likelihood is that it will be approved.
As noted above, for all of these scenarios, the best way to deal with a tax debt is to seek professional tax help. Negotiating directly with CRA can be dangerous, and the best way to keep yourself protected is by working with an organization that has experience negotiating with CRA and navigating through various CRA programs.
The experienced professionals at Farber understand how to effectively negotiate with the CRA. We have a proven track record of resolving tax problems for our customers. For more information on how we can help, please contact us today.
Looking for CRA Debt Forgiveness? Talk to a Ex-CRA tax dispute expert for free.
Can a Tax Debt be Forgiven?
In Canada, tax debt is not forgiven. The CRA expects to receive the money that it is owed in full. In the eyes of the agency, this is money that is owed, and they expect to receive it in full. To ensure that taxpayers pay what they owe, the agency has a wide variety of collection powers and tactics that it uses to enforce compliance and get people to pay tax debts. To convince people to pay as soon as possible, the agency has is the ability to charge interest and penalties on outstanding taxes.
If you do not pay your taxes on the day they are due, the CRA begins to charge compound daily interest on the outstanding balance. The interest rate charged can change every three months and the CRA posts the current rate on its website. As you can imagine, if you owe a large amount of tax debt, the interest can be very costly. Since interest is charged daily, the longer you go without paying your taxes, the more you owe. This can be a serious problem for many people and a big reason why taxpayers seek relief.
Another way that the CRA can pressure taxpayers into complying is by charging penalties for returns that are filed late or not filed at all. If you owe taxes and do not file your taxes by the deadline, you can be charged a penalty of is 5% of your balance owing, plus 1% of the balance for each full month the return is late, to a maximum of 12 months. However, if you were also charged a late filing penalty in any of the three previous years, you could be charged an even higher amount. This penalty could be 10% of your most recent balance owing, plus 2% of the recent balance owing for each full month the return is late, to a maximum of 20 months. This is clearly a significant amount and one that can make it difficult to pay off your tax debt.
Of course, interest and penalty charges are not the only methods that the CRA uses to collect the debts that it believes are owed. The agency has many strong collection powers and these powers are often much stronger than what other creditors can do. For instance, the CRA has the legal ability to freeze your bank account, preventing you from accessing the money you have saved and then using these savings to pay off what you owe in taxes. The agency can also garnish your wages if you are an employee or your invoices if you do freelance or contract work. In this situation, you will not receive the money that you worked for and your employer or client will be required by law to send this money to the CRA. The CRA can even seize your assets and sell them to pay off your outstanding tax debt.
As you can see, not only is there no CRA debt forgiveness, but the agency can and will take significant action to collect what it is owed.
If you owe a large amount of tax debt, it’s important that you have your situation resolved properly and promptly. At Farber, our team has a proven history of successfully negotiating with the CRA to solve tax issues.
CRA Debt Forgiveness Rules
It is a common misconception that your debt can be forgiven by the CRA. This does not happen. If you owe tax debt, it is your responsibility to pay this debt.
However, it is certainly understandable that those who have large tax debts find themselves looking for CRA debt forgiveness or any option that could help them. For those who are having trouble paying tax debts, it can sometimes seem like the situation is hopeless. Bills continue to come in while your tax debt gets larger and larger due to interest. If you’ve filed your returns late and you owe money, you will find yourself responsible for paying large penalties as well. This can be very tough to handle.
However, while the CRA will not accept a settlement to reduce your tax debt, there are various financial options available to individuals facing tax debts, and so exploring them is a good idea. The best way (and really the only way) to completely eliminate your tax debt is to pay it – payment terms can be available under certain circumstances if the appropriate requests are made.
You may be able to successfully negotiate with the CRA and come to a payment arrangement that makes sense for you. However, to do so, you will need to explain your circumstances and why you should receive an extension or a payment plan. CRA agents are trained to collect tax debt as soon as possible and they typically do not agree to long-term payment arrangements without a strong case being presented to them.
We can help. The team at Farber Tax Solutions can review your situation, including your interactions with the CRA, and then prepare a case for why you should be receive extended payment arrangements. We handle all communication with the CRA on your behalf and work to get you the best possible resolution. Our experience and knowledge of CRA processes give us a strong advantage against seasoned CRA negotiators.
Working with a professional can not only assist you in navigating complex and confusing CRA processes but can also help you avoid pitfalls that could cause serious problems. Remember that the CRA has incredibly strong powers and can withhold tax credits and begin collection action against taxpayers who owe money. This means that negotiating with them is a very serious situation and it’s critical that it is handled properly.
It’s important to know that, in addition to potentially negotiating new payment terms with the CRA, there could be other options available as well.
For example, the CRA does have the ability to cancel or waive interest charges and penalties, accept late or amended returns, or make adjustments to refunds or taxes payable at its discretion. However, it only does so under certain circumstances.
If you wish to apply for relief, you will need to provide proof to the CRA to show why you believe you are entitled to it. For instance, if you state that you are experiencing serious financial hardship, the CRA will want to see details about your income, expenses, assets, and more. Providing the CRA with this information could potentially help your situation, but it’s always important to use care when giving the CRA access to your financial details. You never know how the agency will interpret the information you give them.
Another option is the CRA’s Voluntary Disclosure Program (VDP). This is a program that is designed to give taxpayers a “second chance” to correct errors on prior year returns or to file returns that have not been filed. Under the VDP, a taxpayer could receive relief from prosecution and, in some situations, be granted relief from penalties as well.
However, to be accepted into the program, certain conditions must be met:
- The disclosure must be voluntary. This means that you must come forward and apply for the program before the CRA contacts you to investigate your tax situation or take any compliance action against you.
- You must include all missing or incorrect information in your application. This means that if you made several errors or omissions in a prior return, for example, your VDP application must provide the information to correct all issues, not just one.
- The VDP is only applicable in situations where a penalty applies.
- The information that you are providing or correcting must be at least one-year old.
- You must be able to pay the taxes owing. For instance, if you did not file a return three years ago and owe money, you must either pay what you owe or be willing to make payment arrangements with the CRA.
If you apply for the VDP, the CRA will make a determination as to whether or not you willfully provided incorrect information initially. This can affect the amount of relief that you could potentially receive.
If you are considering applying for the Voluntary Disclosure Program or seeking any other taxpayer relief provisions, it’s crucial to handle the situation with care. When you apply for the VDP, you are giving the CRA information that it does not currently know. This can potentially be dangerous. If you apply and then are not accepted, you could end up in significant trouble. Working with a professional, such as the team at Farber Tax Solutions, can help you fully understand your situation and give you the best chance of a successful outcome. For more information on how we can help, please contact us today.
Working with a professional in these situations is critical. The team at Farber Tax Solutions is comprised of legal, and ex-CRA experts who will correctly analyze your situation before speaking with the CRA and provide them with information in the manner that is most likely to result in relief. We work with you to level the playing field against CRA agents.
Looking for CRA Debt Forgiveness? Talk to a Ex-CRA tax dispute expert for free.
Taxpayer Relief Programs
Those who are struggling to pay their tax debt have options that could make it easier to do so. For instance, the CRA may be willing to grant relief from interest and penalties in certain situations, such as if extraordinary circumstances or actions of the CRA have prevented a taxpayer from meeting their tax obligations. This includes situations where natural or human-made disasters, civil disruptions, serious illness, significant emotional distress, or service disruptions such as a postal strike prevented a taxpayer from filing or paying their taxes on time. Processing delays or errors in CRA materials that created confusion or caused a return or payment to be received late or processed incorrectly may also warrant relief.
In addition, the CRA may consider situations of serious financial hardship as circumstances where relief may be provided. For example, if a taxpayer experienced a loss of employment and thus is in a situation of extreme financial hardship, relief may be considered. If the interest charges make up a significant portion of the payments owed, the CRA could potentially waive some interest and penalties as well. This is also true in situations where paying the outstanding debt, interest, and penalties would result in a prolonged inability to afford the basic necessities of life (food, shelter, medical help, etc).
There are also other situations where the CRA may consider relief, however it is entirely up to the discretion of the agency. It’s also important to note that a taxpayer will be required to deliver proof of their claims. In many cases, this means you will need to provide significant financial disclosure to receive relief. This is certainly true in cases of financial hardship. To receive consideration, you will need to provide the CRA with details of your income, expenses, assets, liabilities, and more. Whenever you are providing the CRA with such sensitive information, it’s crucial that you do so with extreme care and with an understanding as to how the agency may use this information. Working with an experienced professional at this point is crucial.
Be careful not to say too much in your submission. We have seen people who were rejected for relief when they had grounds because they included unnecessary information that actually caused the application to be rejected.
If you have a medical problem and have not sought treatment – get it. Better late than never and, as mentioned, you must be able to substantiate your grounds for relief; if your grounds are medical, seeking treatment is a good start. Depression, addiction and anxiety are three medical problems that many people struggle with and that often go untreated.
If there is no realistic way that you can pay the tax debt, even if the penalties were cancelled, then you may want to consult your tax professional about the process of making a consumer proposal. A consumer proposal can stop collection action, allow you to make an affordable monthly payment, freeze the interest accumulating on your tax debt, and, in some cases, even reduce your tax debt. A tax professional that specializes in helping people with tax problems should have experience with Licensed Insolvency Trustees and should be able to help you start the process to see if a consumer proposal is the right answer for you. It is not the right answer for everyone, but for some it provides immediate, much needed relief.
Can you Negotiate Payment Terms with The CRA?
When you are dealing with a tax debt, the worst thing that you can do is ignore it – it will not go away on its own and CRA will get more and more aggressive in their attempts to get what they believe is owed to them.
As mentioned, the agency has very strong powers and trying to ignore the issue or attempting to avoid the CRA can lead to serious issues such as wage garnishment, frozen bank accounts, seized assets, and even potential criminal charges.
While the CRA will never accept less than is owed to it, it may be possible to negotiate a payment plan with the agency. This sort of plan can prevent the CRA from taking further collection actions against you. However, it’s important to handle any and all communications with the CRA properly. The agency can be very difficult to deal with.
CRA agents have years of experience in both the fine details of Canadian tax law as well as in negotiating with taxpayers. This means they have the upper hand in nearly every negotiation process. Not only are they experienced, but they know that they have very strong powers. They use these powers as a threat to influence the negotiating process and encourage taxpayers to take whatever deal they offer. If you know that the CRA is going to freeze your bank account if you don’t come to an agreement, you’ll be a lot more likely to accept nearly any terms that avoid this fate.
However, agreeing to a bad deal with the CRA can be financially devastating. The CRA considers tax debt owed to it to be the priority when it comes to debt and expenses. This means that it wants to be paid as quickly as possible, even if doing so makes it incredibly difficult for a taxpayer to afford their other bills and expenses.
This is why it’s critical to work with a professional when attempting to negotiate or even communicate with the CRA. Small mistakes can be significant and agreeing to terms without having a professional review your situation can lead to serious financial issues.
The team at Farber has years of experience in communicating and negotiating with the CRA. We understand the agency’s processes and have extensive knowledge of tax law that we use to level the playing field and give our clients a fair shot at getting a good deal. We have a long history of resolving tax issues for our clients.
The Farber team is made up of legal and ex-CRA professionals who get the job done. You can trust us to be on your side. We will review your tax situation, determine the best course of action, and handle all interactions with the CRA to assist in every way we can at every step of the way.
For more information about dealing with a tax debt, whether through a payment plan, Taxpayer Relief, or the Voluntary Disclosure Program, please contact Farber Tax Solutions today. Our team is ready and available to help.