Owing the government money can be overwhelmingly stressful. When you owe the CRA money, there is concern that any collection action will result in loss of income and will leave an individual without sufficient resources to meet their basic living expenses let alone any other debt payments.
CRA has the right to proceed with collection action without a Court Order. Essentially, when you owe the CRA money and you can’t pay it, the government can:
Garnishee your wages
Put a freeze on your bank account and seize the funds on deposit and continue to seize subsequent deposits;
Withhold certain tax credits such as GST/HST refund cheques and set those credits off against the debt;
Arbitrarily assess any unfiled income tax returns and apply penalties and interest to the debt owing; and
If you are a homeowner, file a lien on your property that would ensure the debt is paid if the property is sold.
The government doesn’t act on any of the above right away. These actions will usually be taken by CRA when the following occurs:
The tax debtor has ignored their obligation to pay the taxes owing;
The tax debtor has ignored all phone calls and letters from CRA requesting contact;
The tax debtor is non-compliant in their tax filings leading to arbitrary assessments;
To avoid collection by CRA, you need to file any outstanding tax documents and continue to file your income tax returns on time each year. CRA is big on tax compliance. It’s not illegal to owe them money but it is illegal not to file your returns.
This will help you improve your situation by complying with the tax laws. It also helps you determine how much debt you owe them.
Once the amount is determined, you can figure out how you’re going to pay them and also know how much you should be sending them each month for next year’s tax debt so you do not continue to have debt owing year after year. Sending them the money monthly avoids the temptation to spend it and will help stop the cycle of owing taxes every year.
After your returns have been filed, start making some meaningful payments towards the debt. The CRA may ask you to provide various documents to help them determine a suitable monthly payment. This may include an income and expense statement that outlines your other financial obligations.
Expect to sacrifice some of the niceties of life, such as recreation or vacations, to get this debt under control. This applies not to just CRA debt but also to other debt.
Finally, make sure you stick to the payment plan that was agreed. CRA wants to see a concentrated effort and compliance with the income tax obligations. Whatever you do, don’t enter into a payment arrangement that you can’t keep. You will miss payments and CRA will start collections once again.