10 Ways to Solve Tax Debt Problems
How to Solve your Tax Debt Problems
If you owe tax debt to the Canada Revenue Agency (CRA), this debt can be difficult to pay. The CRA charges interest daily, so if you don’t pay what you owe right away, it becomes even more difficult to do so as time goes by.
File Your Taxes Even if you Cannot Pay
Some people find themselves in a position where they know they’re going to owe more tax debt than they can afford to pay, so they don’t file their taxes at all. This is a mistake. Even if you aren’t able to pay your tax debt, you should still file since the CRA charges penalties for returns that are filed late.
It’s important to remember that it’s not a crime to owe tax debt, but it can be considered a crime to not file your taxes at all. Even if you can’t pay on time, you should still file.
Know What You Owe
Once you file your taxes, the CRA will conduct a review and send you a Notice of Assessment. This document will tell you if you owe tax debt. The CRA can also conduct another review later. If this happens, you will receive a Notice of Reassessment that will replace this initial assessment.
It’s important to read these documents carefully when you receive them as they will show you if you need to take any next steps (such as paying a tax bill).
Keep your Documentation
If you file your taxes online, you won’t need to submit actual copies of invoices, receipts, etc. However, you should still keep these documents, as you may need them if they CRA requests them. Also, if you disagree with the agency’s assessment or reassessment, having the right documentation can strengthen your case.
Don’t Think the CRA Won’t Find You
You might think that the CRA won’t notice if you don’t file your taxes or you don’t pay your tax debt. There’s a chance that the agency won’t notice right away, but it will eventually contact you. The CRA is a very powerful organization and it wants to receive the tax debt that it is owed.
You should not count on the agency not finding you. Instead, you should work to resolve your problems as quickly as possible before they get worse.
Understand CRA Collection Powers
The Canada Revenue Agency has very strong collection powers that it uses to collect tax debt that is owed to it and to influence negotiations. The CRA can freeze your bank account, garnish your wages, or even register your tax debt in court and seize your assets.
It’s important to understand the CRA’s powers before you try to deal with the agency, as the consequences of doing something wrong can be quite serious.
Be Skeptical of “Too Good to be True”
If a tax situation seems “too good to be true,” it probably is. For example, consider the Global Learning Gift Initiative (GLGI), which was a tax shelter that provided those who donated with tax receipts for amounts that were much higher than what was initially donated. The CRA concluded that the program was an illegal tax shelter and began to deny tax credits and reject tax deductions associated with it. This often left people with large tax bills.
This shows how situations that seem “too good to be true” often come with significant consequences, so you should use caution.
Negotiate a Payment Arrangement if Necessary
If you cannot afford to pay the tax debt you owe, the CRA may be willing to negotiate a payment arrangement so you can make monthly payments instead of paying all at once. It’s important to work with a professional during this negotiation as the agency may require significant financial disclosure from you before agreeing to a payment arrangement.
Object to CRA Assessments if you Disagree
If you disagree with a CRA Notice of Assessment or Notice of Reassessment, you can file a formal objection. This is called a Notice of Objection. Working with a professional helps you have the best chance of success with your objection.
Understand Taxpayer Relief Options
The CRA may be willing to grant relief from interest and penalties in cases of severe financial hardship or in situations where circumstances beyond your control prevented you from meeting your tax obligations. Having a professional on your side can drastically increase the likelihood of your taxpayer relief application being accepted.
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