Knowing that you have undeclared income, are behind filing returns, or simply owe a tax debt that you cannot pay is extremely stressful. In these instances, many folks fall into the trap of ignoring the problem until CRA forces them to deal with it – this is the absolute worst thing you can do.
The New Year is also problematic for those who are already behind filing taxes because of things like increasing penalties. It never looks good if you are caught cheating on your taxes or not filing – the longer you leave taxes unreported, the harder it will be to get relief, no matter the avenue you choose to take. This is why it is a smart idea to sort things out as soon as possible.
CRA have a duty to collect taxes they think are owed and their vast collection agent team are experts in this field. Just like we hear stories from people about their wildly successful share purchases (but never the losers!) you seldom hear people talk about their tax nightmare. The CRA collection team will get your attention – usually with a sharp shock to your financial well being. We have written elsewhere about these tactics (some not so clean!) but suffice it to say that CTRA’s powers are huge. Without a warning they can freeze your bank account, garnishee your wages, put a lien over your house and seize your entire self-employment income. They can raise tax assessments against you and your business based only on the information they find from third parties. It can get very ugly, very quickly.
There are a number of programs and approaches that can be leveraged to deal with a CRA tax problem quickly and swiftly.
Take undeclared income and late filing as one example. If CRA has not approached you yet about your tax debt then you can make an application under the Voluntary Disclosure Program, declare the income and avoid penalties, interest and prosecution.
Not declaring income and late filing is tax evasion. Even if CRA is already on to you – so the Voluntary Disclosure Program is not an option – that still does not mean do nothing and hopefully they will “lose my file, go away, or some miracle!” At any time CRA can re-assess a past return or notionally assess a return that you have failed to file, determine what taxes they think you should owe and assess penalties and interest accordingly.
A Notional Assessment is a big problem because CRA will not take into consideration your legitimate expenses and tax credits. This is an even bigger problem if you are self-employed and have not filed for many years. You can only claim input tax credits on GST/HST going back 4 years.
In the case of late filing, time is never on your side. It is not illegal to owe money to CRA (the criminal part is not filing the required returns), so it is better that you clean up your taxes coming into the New Year so that the only issue you have left to face is the financial burden of having a tax debt.
On that note – there are ways to deal with these problems that are very fair to the taxpayer. The challenge thought is that if you try to negotiate directly with CRA they will often trick you into providing them with information that could cause you to fall prey to severe enforcement action later. Again, in this regard time is not your friend. Avoiding is simply making the problem worse.
It is important to take a long, hard look at your finances and begin making contingencies before CRA starts coming after you. If you have been assessed penalties and interest one of the programs that you can use to reduce penalties and interest is Taxpayer Relief.
If you have suffered extreme financial hardship, have medical problems, a disaster has occurred, there has been some extraordinary circumstance or CRA has erred in some way – and you can prove it – then you can qualify under the Taxpayer Relief provision.
The important thing to know is that a tax problem is not the end of the world and there are solutions and strategies that can be deployed so that you can clean up your finances and enter 2014 knowing that your tax problem will soon be behind you.
For more information about how to deal with a tax problem please visit www.taxsolutionscanada.com or call 1-888-868-1400.