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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.

LITPro can help you to Reduce Your Debt By Up To 70%

    • 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
  1.  

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.

Tax Relief

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

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.

However, speaking with a Licensed Insolvency Trustee may be helpful if you owe a lot of tax debt and cannot pay the full amount, and especially if you owe other debts as well.

Licensed Insolvency Trustees are professionals who have received specific training and who licensed by the federal Office of the Superintendent of Bankruptcy. They administer certain insolvency processes and provide people with information on debt relief options. Since each financial situation is unique, there is no one solution that is best for everyone.

One option that may be a possibility is a consumer proposal. In a consumer proposal, the trustee reviews your financial situation and makes an offer that is fair to both you and your creditors. This offer is typically for only a portion of the amount of debt you owe. The rest is eliminated when the proposal is completed. Tax debt can be included in a consumer proposal.

The proposal is then sent to all your unsecured creditors who will vote on whether they wish to accept it. If the creditors that are owed the majority of the debt choose to accept the proposal, then all are bound by its terms. This means you could end up in a situation where you only need to pay a portion of the tax debt you owe.

LITPro can help you to Reduce Your Debt By Up To 70%

    • 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
  1.  

How To Pay Off Tax Debt

Tax debt can be very tough to pay back. The Canada Revenue Agency (CRA) charges compound daily interest on the outstanding tax debt. This means if you owe a large amount and you’re not able to pay it right away, you could be charged a significant amount of interest. In cases where the CRA reassesses your tax returns, you could end up owing more money than you expected, which can obviously be tough to pay.

Outstanding tax debt can be quite serious. The CRA is able to take significant collection actions if you don’t pay what you owe. This can include wage garnishment, freezing your bank account, and much more. The agency can even take legal action against you.

If requested, the CRA may agree to a payment plan that will see you pay your tax debt in monthly payments, rather than a lump sum. However, before the agency will agree to this, it will often request proof that you attempted to pay in full on your own.

Here are some tips that can help you pay off your tax debt:

Adjust Your Budget

One of the first steps to take is to look at your budget and see where you can make adjustments so you have enough money to put towards your tax debt. Look at where your money is going and see if you can modify things so you have more money for tax debt. For instance, you may want to shift some of your entertainment budget or your clothing budget towards paying down tax debt.

Cut Spending

If you can’t find the money you need by moving things around, the next step is to reduce your spending. Look at where your money goes each month. If you’ve been tracking your spending, this will be easy to do, but even if you’re not, you can find out a lot of information by looking at your credit card and bank statements.

Try to cut costs wherever you can. Remember, the sooner you can pay off your tax debt, the better. Common cuts include cooking at home instead of eating out or getting takeout, staying at home instead of going to movies or shows, and cutting subscription services that you’re not currently using. The more you can reduce your spending, the more money you’ll have to put towards tax debt repayment.

Another good option is to use deal websites, apps, and coupons to save money when you shop. This can help reduce your spending significantly if you do it right.

Earn More

It might not seem easy to earn more money at first, but it is possible for a lot of people. A good place to start is by asking your employer if you can take on some extra shifts or work some paid overtime to earn more money. Another option is to start a “side hustle” and do some freelance or contract work to earn extra cash. There are a number of websites and apps that can help you do this.

Selling some items that you own but don’t use regularly can also earn you extra money. You can sell them online on an auction or classified site or you can have a yard sale or garage sale at your home. Not only can this be a good way to earn some extra money and pay down your tax debt, but it can also help you declutter.

Speak with a Licensed Insolvency Trustee

If you are struggling to pay off your tax debt, a bankruptcy trustee can review your financial situation and give you details on the options that are available to you. Once you have more information, you’ll be able to decide what option makes the most sense for your financial future.

Tax debt can be included in consumer proposals and bankruptcy processes. If you decide that either of these methods is the right path to take, a trustee can help you understand exactly what these processes mean and administer the process.

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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