With tax season in full effect, worry may be at the forefront of some peoples’ minds. Worry that they won’t receive an income tax return. And even more worry that they will owe more than they can afford. It can be a huge shock to people when they get their income tax done and are given the unexpected news that they owe CRA. When someone is expecting to receive a return and are then told that they owe, it can easily cause financial stress on that person. What happens if you can’t afford to pay CRA?
If you owe taxes that you cannot repay, contact CRA and discuss a repayment plan. If you can’t pay the full amount in one lump sum, CRA is able to set up a payment plan with you so that you can stagger your payments throughout the year. If it’s still too much for your financial situation, it may be time to look into a debt repayment plan as it’s likely you are struggling to pay other creditors as well.
One option you could consider is a consumer proposal. Making a consumer proposal can be a good option when you have tax debt as you could potentially pay less than what you owe. However, Canada Revenue Agency (CRA) will not approve a proposal as easily as other creditors. CRA may not consider the same terms that credit card companies and financial institutions may accept because they never actually approved you for credit – your outstanding debt forcibly involved them.
Some advantages to making a consumer proposal when you have CRA debt are:
Canada Revenue Agency will often accept less than the full amount of the tax debt owing.
If your tax debt is less than 50% of your total unsecured debts, CRA may be forced to accept the proposed terms as long as your other creditors vote in favour of them.
Stops all interest charges on the date of the proposal.
Prevents collection activity and wage garnishments by CRA once the proposal is filed.
Generally speaking, a consumer proposal enables you to negotiate your tax debt obligations without going bankrupt.
If you book a free, no-obligation consultation with us, we will review this option, and all other options with you and come up with an option that best suits your needs.