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How Do I Get Rid of Tax Debt?

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 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 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 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 a 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 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.

LITPro can help you to Reduce Your Debt By Up To 80%

    • You can keep your car, home, and RRSP
    • Stop harassing creditor calls immediately
    • Improve personal cash flow quickly
    • We negotiate your debt and provide a path to financial stability
    • Lowers your payment
    • Works with any level of credit score
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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

If you are struggling to pay your bills as they become due and/or dealing with a large amount of debt, a Licensed Insolvency Trustee can help. A trustee is licensed by the federal Office of the Superintendent of Bankruptcy to provide information on debt relief options and administer certain insolvency processes, such as bankruptcies and consumer proposals.

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.

If you file for bankruptcy or consumer proposal, you receive legal protection from your creditors, which includes the CRA. They are not able to take any legal action against you once you file and any actions that have already started must stop. This means the process puts and end to wage garnishments and frozen bank accounts. Speaking with a trustee can help you determine which option for resolving tax debt problems is best for you.

LITpro.ca has been helping consumers and small business nationalwide and with a debt settlement service, you can deal directly with a professional proposal administrator to help you understand your personal financial situation and the debt relief options available, tailored for your needs.

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