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How to Handle CRA Tax Debt

Tax debt can be very difficult to deal with. Not only can a tax bill get very large, but the Canada Revenue Agency (CRA) has very broad and very strong powers that allow it to take steps to collect. If you do not pay your tax debt on time, not only does the CRA charge very high interest penalties, but the agency can also garnish your wages, seize and sell your assets, or freeze your bank accounts. Obviously, all of these actions are very serious and can be potentially devastating for your financial life.

Therefore, you’ll want to deal with your tax debt before you end up in any of these situations. Here are some tips for dealing with CRA tax debt.

File on Time

The most obvious way to deal with tax debt is to file on time. This is true even if you do not have the money to pay your taxes. Filing on time helps you avoid late filing penalties.

You’ll also want to respond to any CRA reassessments quickly. Not filing or ignoring the CRA won’t make your debt go away. In fact, it will only make the situation worse.

If you owe the CRA money, your best step is to pay them as soon as possible. The longer you wait, the more you will owe.

If You Cannot Afford to Pay Your Taxes

In some cases, individuals end up in a situation where they can’t pay their taxes. This is often because they made errors in previous returns and were reassessed, or they have not filed or paid their taxes in a while, which can lead to interest charges and penalties. Whatever the situation you are in, it is important that you take steps to deal with your tax debt as quickly as possible. As mentioned, the CRA is very powerful when it comes to collections.

The CRA does have taxpayer relief provisions that can waive penalties or interest charges. However, this relief is only provided in very specific situations, such as:

  • Extraordinary circumstances
    • Serious illnesses, injuries, or personal circumstances that prevented you from paying on time.
  • Actions of the CRA that result in penalties or interest
    • Such as processing delays or incorrect information being provided by the CRA.
  • Extreme financial hardship
    • In some situations, where paying your tax debt makes it impossible to afford the basic necessities of life, penalties and interest charges may be reduced or eliminated.
  • Other situations that prevented timely filing and payment
    • This included natural disasters, terrorist incidents, etc.

It’s important to know that this program will only potentially reduce or waive penalties and interest charges. It will not reduce the overall amount you owe. Also, the CRA expects to receive the money owed, so it is not easy to have penalties and interest charges dropped. Only very specific and extraordinary situations will be considered.

Negotiating a payment plan with the CRA will also not reduce the amount that you owe. Again, you will still owe the full amount, just over a longer period of time. If you negotiate a payment plan with the CRA and then miss a payment or do not file your returns, the CRA can (and likely will) cancel the payment arrangement and take action to collect the money owed.

As the process of dealing with the CRA can be very complex and difficult, it is highly recommended that you speak with an expert before agreeing to anything or providing any additional information to the CRA. Please contact the tax experts at Tax Solutions Canada today at 1 888-868-1400.