Licensed Insolvency Trustee Blair Mantin was a guest of CTV Vancouver’s ‘News at Noon’ today. With tax season in full swing, the prospect of facing tax debts is front and center for many British Columbians. The focus of this segment helps to address the question of: “How do you end up owing the government money, and what can you do about it?”
Watch the clip here, and read more below:
“Why would an individual owe taxes?” A few common causes:
- Working multiple jobs: This is extremely common, especially in Vancouver where many people may be working multiple jobs in order to make ends meet. The problem is that each employer may only be deducting sufficient income tax that would be owing for a low rate, while working a second job may actually push the individual to a higher tax bracket. The end result could be a tax bill at the conclusion of the year, usually arriving long after the money has been spent. The solution? Ask your secondary employer to withdraw some additional tax from your paycheque. In the event you’ve overpaid your taxes, you’ll enjoy a nice refund at tax time.
- Cashing in RRSPs: When RRSPs are withdrawn, normally 10-30% is withheld by the financial institution to partially offset the tax liability. The challenge is that this amount may not be enough if you are being pushed into a higher tax bracket. It’s not uncommon for someone to think they are doing the right thing by cashing in RRSPs to pay debts, only to realize they have traded one debt problem for another come tax time, and no longer have the same RRSP to depend on later in life.
- Receiving Employment Insurance (EI) Benefits: It may seem unlikely, but it is very common for individuals to discover that not enough income tax was deducted from their EI benefits. This can be particularly problematic if you received EI benefits AND had employment income during the same tax year.
“Why would a self-employed person owe taxes?” Some common causes:
- If you are self-employed, CRA requires that you do some extra work, such as collecting (and of course remitting) certain taxes at source, like GST and payroll source deductions.
- When times are tough, business owners often use money that should be sent to CRA to fund operations
- CRA takes the position that these funds are essentially property of the government and should not have been used to fund the business
- If you are a business owner who owes significant GST or source deductions, it’s often just a matter of time until CRA takes very aggressive collection actions against you, which could include seizing assets, freezing bank accounts and more.
What can you do?
- The most important thing is to file your returns on time, every time, with no exception:
- Even if you have tax debt, it’s a much better strategy to be considered fully compliant with a known debt, than to be classed as a ‘non-filer’
- Often CRA’s collection activity will be driven more by trying to prompt tax compliance than by the actual amount of tax debt outstanding
- If, after filing returns, you’ve got more tax debt than you can handle, don’t delay in seeking professional assistance from a Licensed Insolvency Trustee to negotiate the balance. CRA cannot bargain with you on outstanding amounts owing and the only way to ‘negotiate’ with CRA is to file a Consumer Proposal with a Licensed Insolvency Trustee.
- Using a Consumer Proposal, often CRA will accept 30-50% of the debt, with no interest, payable over 3-5 years in full settlement.
- Every Licensed Insolvency Trustee in Canada will meet with you for free to explore this option (and others) to get you back on track.
With over 29 years of experience, Sands & Associates is BC’s largest firm of Licensed Insolvency Trustees focused exclusively on assisting individuals and small businesses achieve their “debt free” goals.