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Will the CRA Forgive My Tax Debt?

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CRA Debt Forgiveness

Owing tax debt to the Canada Revenue Agency (CRA) is often a tough situation to be in. That’s because the agency charges significant interest that compounds daily. This puts people in a situation where the longer they take to pay their tax debt, the more costly (and more difficult) paying that debt becomes.

Paying tax debt can be especially tough in situations where a person receives a CRA assessment or reassessment that states that they owe more than they expected. If you assume that you owe a certain amount (or nothing at all) and then you find yourself looking at an assessment or reassessment that says you owe significantly more, you might not be able to pay this amount, at least not right away. That means interest will start adding up and your situation will get more and more difficult as time goes on and the amount you owe increases.

In situations where a person owes more in taxes than they can afford to pay, they often find themselves searching or CRA debt forgiveness and wondering if the CRA will forgive tax debt.

The reality is that the agency expects to collect the taxes that are owed to it. The agency does not forgive tax debt, nor does it forget about taxes that are owed. Even if the agency is not actively trying to collect the debt, these taxes are still owed.

However, if you are struggling with tax debt, there are things you can do to potentially improve your situation.

Make a CRA Payment Arrangement

If you’re not able to repay your tax debt all at once, the agency may be willing to agree to a payment arrangement. This is a situation where you are able to pay your tax debt in monthly payments rather than a lump sum.

In this situation, interest may continue to accumulate on all unpaid taxes until you have paid in full.

Keep in mind that the CRA will never agree to an arrangement that sees it receive less than is owed to it. In the eyes of the CRA, tax debt that is owed should be paid in full.

Speaking with a tax professional before you request a payment arrangement is important. Not only can the CRA be very difficult to negotiate with but the agency may request significant financial disclosure before agreeing to a payment arrangement. It’s a wise idea to speak with an expert before you give the CRA this information so you have the full picture as to how the agency will use the details you provide.

CRA Taxpayer Relief Provisions

While the CRA will never take less than the tax debt owed to it, it may be willing to reduce or even completely eliminate interest and penalty charges in certain situations. However, this relief typically only applies to situations where returns were filed late or where payments were missed due to circumstances beyond a taxpayer’s control. This includes situations such as natural or human-made disasters, CRA errors, serious illness, a death in the immediate family, or other such situations.

The CRA may also consider relief in situations of severe financial hardship, such as job loss or circumstances were paying the interest and penalties will result in an inability to afford basic living expenses.

When applying for taxpayer relief, working with an experienced professional is critical. Even small mistakes in your application could result in it being rejected. An expert will give you the best chance of having success with your application.

Object to a CRA Assessment or Reassessment

If you receive a Notice of Assessment or Notice of Reassessment from the CRA and you disagree with it, you are able to file a formal objection. This is done by completing a Notice of Objection and submitting it to the CRA. In your objection, you will need to explain why you believe the CRA has made an error and prove proof (such as receipts, invoices, etc.) to support your case.

Working with an experienced professional in these situations will give you the best chance of a successful objection.

Speak with a Licensed Insolvency Trustee

A Licensed Insolvency Trustee is an individual who has received specific training, who is licensed to provide assistance with debt relief, and who can administer insolvency processes in Canada. Tax debt can be included in these processes, including in consumer proposals and bankruptcies.

In a consumer proposal, an offer is made to all of your unsecured creditors to pay a portion of the debt you owe in monthly payments. If the creditors that are owed the majority of the debt choose to accept the proposal, then all are bound by its terms. Once you have made the payments detailed in the proposal, your remaining debt is eliminated. A consumer proposal allows you to pay a portion of the debt you owe (which can include tax debt) without having to pay the full amount.

Bankruptcy is a situation where your debts are eliminated and you are able to start your financial life fresh. This is usually the last debt relief option considered, but it can be the right choice depending on your situation.

If you are struggling with debt, including tax debt, speaking with a trustee can be a good idea. They will review your situation and give you details on all the available options. It is then up to you to use this information to make the right choice for your financial future.

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