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Canada Revenue Agency (CRA) has said that 9 out of 10 Canadians file and pay their income taxes on time – so while a majority are on track, that still leaves many Canadians carrying tax debt, potentially spelling big costs and high stress levels for consumers struggling to pay.

With another year’s tax deadline to pay now passed, Licensed Insolvency Trustee and President of Sands & Associates Blair Mantin joined Global News to share some key facts Canadians should know about tax debt, and what you can do if you can’t pay your taxes and need help.

Watch the clip here, and read more below:

What if I Can’t Pay my Taxes?

Learn some key facts about having a debt with Canada Revenue Agency that you should know if you’re unable to pay your income tax balance.

  1. Not Filing and Paying Taxes on Time Can Cost You…Daily!

If you were among the filers unable to pay their income tax balance in full before this year’s deadline, unfortunately your balance is going to grow. CRA’s add-ons to tax debt can make even a modest balance balloon very quickly with:

  • Compounding daily interest on the unpaid latest balance owing.
    • Interest can also be applied to unpaid instalment requirements, GST remittances and more.
  • Late filing penalties if your return is not filed on time and you have a balance owing. For example:
    • In 2021 most people had until April 30th to file and pay their 2020 returns, with self-employed individuals having until June 15 to file, although they still must have paid the balance owing by April 30th.
    • Late filing penalties started at 5% of your 2020 balance owing plus an additional 1% for each full month you filed after the due date, to a maximum of 12 months.
    • Late filing penalties may be charged at double the rate if you’re a habitually late filer – a 10% penalty plus 2% interest per month – making this tax debt even more expensive than many credit card interest rates!
  • Even if you’re unable to pay your balance in full, filing as soon as possible still helps you avoid ongoing late-filing charges.

If you don’t owe anything on your income tax return, it’s always in your best interest to file. Being able to prove your income for credit or housing applications, and receiving benefits such as GST, GIS, Canada Child Benefit etc. are all reasons (besides fulfilling what CRA views as your obligation) to get your tax return filed on time.

Tax Debt Relief – COVID-19 Pandemic

Interest relief provisions have been offered by CRA due to the COVID-19 pandemic. If you received any COVID-19 benefits and had total income of less than $75,000 in 2020 you will get interest relief on your 2020 taxes owing, although you would still have needed to file on time to avoid late-filing penalties.

  1. Your Tax Debt Does Not Expire

Although you may be able to avoid your balance owing for a period, for most people unpaid income tax debt will catch up to them eventually!

Unlike some types of common consumer debts that are subject to a statute of limitations you can’t “wait out” money owing to government bodies like CRA for tax debt or student loans. These debts are not subject to the basic two-year liability limitation period that stops other creditors (such as credit card issuers) from taking legal action against you for unpaid debts under BC’s Limitation Act.

Tax Debt Relief – COVID-19 Pandemic

CRA’s offer to extend interest relief for 2020 amounts owing does not include ANY past amounts owing to CRA. If you had a debt prior to the COVID-19 pandemic, you can expect CRA collection to escalate as CRA resumes its collection activities that were previously suspended until February 2021 to assist Canadians in dealing with the COVID-19 pandemic.

Learn More about BC’s Statute of Limitations on Debt

  1. Your Employment Income and More is at Risk

Normally CRA will not start legal action until 90 days after the mailing date of your Notice of Assessment / Reassessment, and CRA’s legal warning about action being started against you normally consists of:

  • 1 attempt for a verbal legal warning by telephone
  • 1 written legal warning letter being sent

In some cases however, CRA is not required to inform you of actions it is taking. Whether you have advance notice or not, CRA is a powerful creditor and if you have unpaid tax debt (or even unfiled tax returns), they can implement severe collection action virtually overnight.

Other types of creditors may not be able to impact certain income sources when it comes to wage garnishments or asset seizures but CRA can resort to attachments on wages due to you from your employer (as much as 100%!) as well as:

  • Self-employment or sub-contractor earnings from your clients.
  • Pension and EI benefits (CPP, OAS).
  • Rental or lease income from your tenants.
  • Personal property such as your bank accounts, home, investment and insurance proceeds.
  1. Tax Debt Forgiveness is Possible

There is hope for those dealing with tax debt! Contrary to what many Canadians may believe, if you find yourself facing an unmanageable CRA debt there are in fact two solutions that can allow you to have virtually all types of CRA debts forgiven/written-off, including income taxes, business GST and more – in addition to any other consumer debts you may have.

Both options can effectively help you deal with your debts and stop actions such as wage garnishments and accruing interest and penalties:

  • Consumer Proposals: A unique consolidation and settlement solution that allows you to cut your consolidated debts down to an amount you can afford to repay, with the unpaid balance written-off by your creditors. No borrowing is required, and no further interest charges are applied.
  • Bankruptcy: If your situation leaves you unable to afford any meaningful repayment towards your debts, filing for bankruptcy can allow you to have full forgiveness for virtually all your debts. The process often lasts as little as 9 months and is generally quite private and straight-forward.

In Canada, these debt management strategies are accessible only by working with a qualified Licensed Insolvency Trustee. There is no cost to connect to discuss your situation and evaluate all your options, and no referral is necessary.

Additionally, BC residents can get help from a qualified Licensed Insolvency Trustee and request services and support remotely, without needing to leave the comfort and convenience of home.

Get your plan to be debt-free, connect with a caring, non-judgmental debt help professional from Sands & Associates – book your free confidential debt consultation today.