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Worried About Tax Debt? Here’s What You Can Do!

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How to Deal with Tax Debt Stress

If you owe a tax debt to the Canada Revenue Agency (CRA), the situation can be very stressful. The CRA is a large and powerful agency and it has very strong powers. Having to deal with CRA agents calling, requesting payment, and threatening collection action can lead to a lot of anxiety and worry.

What Makes Tax Debt So Stressful

The main reason why tax debt is so stressful is that the CRA has incredibly strong collection powers. Unlike other creditors, the CRA can take money that is owed to you by other government departments and agencies (such as GST/HST credits), garnish your wages, and freeze your bank account all without going to court. Since the agency can do these things without a court order, the CRA is much more likely to take these actions than other creditors.

Nobody wants to deal with these situations. If you owe tax debt, you’re likely anxious about what the CRA will do and worried that the agency will take serious collection action against you.

Another reason tax debt causes so much worry is because dealing with CRA agents, processes, and policies is often very complicated. Not only are agents incredibly experienced negotiators, but they also have an in-depth knowledge of tax law and CRA procedures that few others possess. This means that trying to communicate or negotiate with the CRA usually causes a lot of confusion and anxiety.

If you are dealing with tax debt that you can’t afford to repay, or if your tax situation is causing you stress and worry, here are some tips that may help.

CRA Payment Arrangements

If you owe tax debt and aren’t able to pay, the CRA may be willing to accept a payment arrangement. In most cases, this will mean the agency will accept monthly payments rather than expecting the full amount in one lump sum.

However, while this can make paying your tax debt easier, there are some important factors to keep in mind. The first is that interest is usually still charged on the remaining outstanding tax debt until your total is paid in full.

Another factor to keep in mind is that the CRA may require you to prove that you attempted to pay your taxes in full (by cutting your budget, borrowing money, etc.) before it will accept a payment schedule. This means you’ll have to give the agency significant information about your income, your budget, your expenses, and more.

If you are hoping to negotiate a payment arrangement, working with a tax professional is important. They will know how to present your case accurately and have a full understanding of how the CRA may use the information you provide, so you can determine the best course of action to take.

Taxpayer Relief Provisions

In some instances, the CRA may be willing to reduce interest and penalty charges to make it easier for a person to afford their tax debt. However, this is only possible in particular situations, such as ones where certain circumstances caused you to file or pay late (natural disasters, significant emotional distress, illness, etc.) or if you are facing a severe financial hardship (such as a job loss or a situation where paying the interest and penalties would make it impossible to afford basic life necessities).

However, know that the CRA will never take less than the full amount owed to it. The agency may reduce interest or penalties, but it won’t ever reduce the amount of actual taxes you are expected to pay.

If you are in a situation where taxpayer relief may be considered, you will need to apply to receive this relief. Working with a tax professional can help ensure that your application is completed correctly and that you provide proof to support your case. This will give your application the best chance of being accepted.

Meeting with a Licensed Insolvency Trustee

A Licensed Insolvency Trustee is a person who has completed specific training and is licensed by the federal Office of the Superintendent of Bankruptcy. Trustees review financial situations, provide information on the possible options to resolve debt troubles and administer certain insolvency processes (such as consumer proposals and bankruptcies). Tax debt can be included in these legal insolvency processes.

When you meet with a trustee, they will look at your situation, determine which debt relief options are available, and give you details on all available options. It is then your decision as to how you will proceed. Meeting with a trustee can help you figure out how to deal with tax debt (and other debt) so you can resolve your financial issues and stop stress and worry.

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