What Happens if I Owe CRA More Tax Debt Than I Can Afford to Pay?
- 1 What Happens if I Owe CRA More Tax Debt Than I Can Afford to Pay?
- 1.1 How to Deal with More Tax Debt Than You Can Afford
- 1.2 Make a Payment Arrangement with the CRA
- 1.3 Request Taxpayer Relief
- 1.4 Speak with a Licensed Insolvency Trustee
- 1.5 Resources & Articles For Managing Your Finances On Your Own
- 1.6 Struggling With Bills During Covid-19 , What To Do?
- 1.7 Tax Debt & Spouses in Canada FAQ
- 1.8 How To File For The Chapter 11 Bankruptcy Protection
- 1.9 Contact Us
How to Deal with More Tax Debt Than You Can Afford
Most people who have tax debt are able to repay what they owe. However, in some cases, a person will have so much tax debt that they won’t be able to afford it. This is especially true in cases where a return has been reassessed. If this happens, you could suddenly be faced with a large tax bill that you didn’t expect.
To make matters even worse, you may find that you’ve been charged interest dating back to when your return was initially due. You might even be charged a penalty, depending on the situation. If this happens, you may owe a larger tax debt than you’re able to afford.
So, how do you deal with this situation? The answer will depend on your circumstances.
Make a Payment Arrangement with the CRA
If you don’t pay your tax debt when it’s due, the CRA will start charging compound daily interest on the outstanding amount. This means the longer you take to pay, the more you’ll owe.
Therefore, if you can’t pay in full, it makes sense to at least pay something, since you won’t be charged interest on the amount you’ve paid.
One way to do this is to set up a payment arrangement with the CRA. If you do this successfully, you’ll be able to make monthly payments and have them applied to your tax debt. You will, however, still be responsible for paying the full amount of your debt.
The CRA will not accept a payment plan for anything less than the full amount owing. Also, you may still be charged interest on the remaining tax debt until your total is paid in full.
In addition, the CRA might require you to show that you attempted to pay your debt in full by reducing your expenses before it will agree to a payment plan.
Request Taxpayer Relief
In some situations, the CRA may be willing to reduce or eliminate interest or penalty charges. This can help you afford to pay your tax debt. However, this relief will only be granted in certain circumstances, such as:
- Extraordinary circumstances that prevented you from meeting your tax obligations.
- This may include natural or human-caused disasters (fire, flood, civil unrest, etc.) or serious emotional or mental distress (such as a death in the immediate family)
- Actions of the CRA such as processing delays, errors in CRA materials, or other such situations that were the primary cause for a taxpayer to file late or supply incorrect or incomplete returns
- Situations where severe financial hardship has resulted in an inability to pay interest and penalties
If you are considering applying for taxpayer relief, you will want to work with a professional. The CRA can be very difficult to communicate and negotiate with and having an experienced tax professional on your side will greatly increase your chances of success.
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Speak with a Licensed Insolvency Trustee
If you are unable to pay your tax debt, speaking with a Licensed Insolvency Trustee can be a good idea. A trustee can review your financial situation and provide you with information on the options available that could help solve your tax debt problem.
Trustees are also able to administer certain insolvency procedures, including:
- Consumer Proposal
- In a consumer proposal, the trustee determines what a fair offer to your creditors will be. In most cases, this offer will be for a portion of the debt owing. This offer is then sent to all your unsecured creditors (including the CRA) who will vote on whether they wish to accept it. If the creditors that are owed the majority of the debt vote to accept, then all of your unsecured creditors are bound by the proposal. A consumer proposal can include tax debt owed to the CRA and could be the right option to pursue if you are only able to afford to pay some of your tax debt.
- Filing for bankruptcy is often considered the “last resort” for anyone struggling with debt. While bankruptcy is typically only filed once all other options have been considered, it can be the right option for some people. Tax debt can be included in a bankruptcy.
Each financial situation is unique, and there is no perfect option that works for everyone.
can help you determine how to proceed with your financial future and assist you in dealing with situations where you owe more tax debt than you can afford to pay.
Resources & Articles For Managing Your Finances On Your Own
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...
Dealing With Tax Debt And CRA Worried that you will be responsible for your spouse’s tax debt? Unsure of how filing a consumer proposal will affect your husband or wife? Stop harassing creditor calls immediately Improve personal cash flow quickly We negotiate your...
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