How To Pay Off Tax Debt Fast
Tax debt can be difficult to pay down. Here are some strategies and tactics that can help
How to Solve Tax Debt Problems
If you owe a tax debt to the Canada Revenue Agency (CRA), you might be wondering if there is anything you can do to make it easier to pay this debt. Unfortunately, the CRA charges compound daily interest on any outstanding tax debt, and this can make it difficult to pay what you owe, especially if you have a large tax debt or a debt that has been outstanding for a while.
However, there are still options that could help.
Negotiating with the CRA
One option that many people think of is trying to negotiate with the CRA to reduce the amount owing. However, this isn’t possible. The CRA will never negotiate and accept less than is owed to it. In the eyes of the agency, the tax debt is owed in full, that full payment is what the agency expects, and it will not take any less. In fact, the CRA has very strong collection powers and it uses these powers to enforce compliance. If you owe a tax debt and do not pay, the agency can freeze your bank account, garnish your wages, seize your assets, and much more. Since the CRA has such strong powers, it knows that it can get what is owed and, thus, it’s not willing to negotiate to lower the amount owing.
However, in some circumstances, it may be possible to reduce or eliminate penalties and interest charges.
Receiving Relief from Interest or Penalties
The CRA outlines are a very specific set of circumstances where relief will apply. Most of these situations involve circumstances where taxpayers are unable to meet their tax obligations due to circumstances beyond their control.
For instance, relief from penalties and interest may occur in situations that prevented a taxpayer from filing or making a payment when due, such as:
- Natural or human-made disasters (such as fire or flood)
- Civil disturbances or service disruptions (such as postal strikes)
- Serious emotional or mental distress (such as the death of an immediate family member)
- Serious illness or accident
- Actions of the CRA, such as processing delays or incorrect information being provided
The Canada Revenue Agency may also consider reducing or waiving interest charges in situations of severe financial hardship. This includes circumstances where a taxpayer has experienced the loss of employment, situations where the accumulated interest represents a significant portion of the payments, and circumstances where paying the interest on your tax debt would cause a prolonged inability to afford the basic necessities of life.
If any of the above situations apply, a taxpayer or their authorized representative will need to complete a request to cancel or waive penalties or interest and provide supporting documentation. This means you must provide a complete and accurate description of why your situation warrants relief as well as evidence or supporting documentation to back up your claims.
The CRA may also grant relief in circumstances other than those listed here.
Legal Options to Reduce or Eliminate Tax Debt
Tax debt can be included in the bankruptcy or consumer proposal process. If you are struggling with debt, speaking with a trustee can help. Most trustees offer a free consultation where they will review your situation and provide you with details on the available options. If you decide to proceed with a process such as filing for bankruptcy or completing a consumer proposal, the tax debt you owe to the CRA can be included in the process. This means there is a legal option that can help you deal with your CRA tax debt.
Speaking with a tax lawyer can help you determine which option for resolving tax debt problems is best for you.
How You Can Reduce or Eliminate Tax Debt Owed to the Canada Revenue Agency
Most Canadians are required to file income taxes every year, including people who live outside of Canada but earn money in Canada. While many people receive a refund when they file their taxes, that isn’t the case for everyone. If you file your return and owe tax debt, you’ll be expected to pay by the deadline (there are different deadlines depending on your circumstances).
If you don’t pay your tax debt by the deadline, the Canada Revenue Agency (CRA) can take serious actions.
First, the CRA starts to charge interest on the outstanding debt. This interest compounds daily, so he longer you take to pay your tax debt, the more you will end up owing.
This interest can be a big problem for people who owe a lot of tax debt since the interest adds up quite quickly when the initial amount owing is already considerable. However, depending on your situation, there are possible ways to reduce or eliminate the amount of interest you pay on a tax debt.
How to Reduce or Eliminate Interest on Tax Debt
In certain circumstances, the CRA may be willing to reduce (or even eliminate) interest and penalty charges. However, this typically applies only in situations where circumstances beyond a taxpayer’s control prevented them from making payments when they were due.
Situations that may warrant relief include:
- Natural or human-made disasters
- This includes situations such as fires and floods, as well as civil disruptions such as postal strikes
- Serious illness or accident
- Situations where a taxpayer suffers a serious illness or accident, or serious emotional or mental distress (such as the death of an immediate family member)
- Actions of the CRA
- Includes instances where the CRA provides incorrect or incomplete information, as well as situations involving processing errors, delays in providing or processing information, and other undue delays
- Other circumstances
- The CRA may be willing to grant relief from penalties and interest on tax debt in situations other than the ones mentioned here
If you wish to receive relief from interest and penalties, you will need to submit a request to the CRA. It is best to work with a skilled professional when doing so, as it is crucial to complete the request correctly. Working with an experienced professional will give you the best chance of success.
How to Reduce or Eliminate Tax Debt
The Canada Revenue Agency will never accept a payment arrangement that sees it receive less than the full amount owed to it. While, in certain cases, the agency may waive or reduce interest and penalties, it won’t reduce the actual tax debt owing.
If you contact the CRA to let the agency know that you’re having trouble paying your tax debt, the agency may be willing to accept a payment plan that sees you make monthly payments instead of making a lump sum payment. However, you’ll still need to pay everything you owe.
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