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Ways to Reduce the Tax Debt Owed to the CRA

Tips for Reducing Tax Debt and Dealing with the CRA

When you owe tax debt to the Canada Revenue Agency (CRA), the situation can be tough to deal with. Not only do you have to worry about how you’re going to pay what you owe, but you also have to be concerned about interest charges as well as potential CRA collection actions.

The Canada Revenue Agency charges interest on all outstanding tax debt. This interest is compounded daily. This means that the longer you take to pay your tax debt, the more you’ll owe. That can make it nearly impossible to pay off a large tax debt in full if you don’t have the funds to pay it right away.

The CRA also has very strong collection powers which are different from nearly every other creditor. Not only does the agency charge interest to encourage quick payment, but it can also take several other steps – often without going to court – to collect on the debt that is owed.

The CRA’s collection powers can include:

  • Issuing a “set off” to other government agencies or departments.
    • The CRA can redirect money owed to you by other government agencies. For example, the CRA can take your GST/HST credit and apply it towards your tax debt
  • Garnishing your wages
  • Freezing your bank account
    • The CRA can also send a requirement to pay notice to a bank or other financial institution that is holding your money. If this happens, you will lose access to the funds in your account and they will be sent to the CRA to reduce your tax debt.

The CRA can also register your tax debt with the Federal Court of Canada, which has the same force and effect as a judgment obtained in a court. If this happens, it can get a writ or memorial and seize your assets and property. The CRA can then have your assets sold by a court enforcement officer and the proceeds of the sale will be used to pay off your tax debt.

Preventing CRA Collection Actions and Eliminating Tax Debt

Clearly, no one wants to be in a situation where the CRA takes collection actions. Not only are these actions disruptive and inconvenient, but they can cause incredible stress as well.

If you owe tax debt and are looking for help dealing with the situation, there are options available. These options include:

  • Negotiating a payment schedule with the CRA
    • The CRA may be willing to take monthly payments rather than a single payment. However, if you wish to arrange this with the CRA, you may be required to provide the agency with significant financial information, such as your income, your expenses, and more. For this reason, it’s important to work with a professional before you give any of these sensitive details to the CRA.
    • It’s also important to note that interest will likely still be charged on the outstanding tax debt owing until the amount has been paid in full.
  • CRA Taxpayer Relief
    • In certain circumstances, the CRA will consider relief from interest and penalties. However, you must apply for this relief, explain your case, and provide proof to support your claims. For this reason, it’s best to work with a professional.
    • The agency will usually only grant relief in situations that were out of your control (such as natural disasters, CRA errors, serious illness, etc.), if these situations prevented you from meeting your tax obligations.
    • While you may be able to have penalties or interest charges reduced, the CRA will never agree to reduce the overall amount of tax debt you owe.
  • Objecting to CRA Assessments or Reassessments
    • If you disagree with a CRA Notice of Assessment or Notice of Reassessment, you can file a formal objection. This is best done with the assistance of a professional to give yourself the best chance of success.
  • Reducing Tax Debt Through a Consumer Proposal
    • A consumer proposal is a legal process that allows you to pay a portion of the debt that you owe and have the remaining amount eliminated. Tax debt can be included in a consumer proposal.
    • A consumer proposal is sent to all of your unsecured creditors. If those that are owed the majority of the debt choose to accept the proposal, then all are bound by the terms.

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