Tuesday, 27 March 2012

Debt to Income Ratio Crisis in Canada – How to Deal with Debt and Protect Your Assets

While the recession in Canada may have subsided, debt continues to cripple Canadians. So many Canadians struggle with debt for a myriad of different reasons. Many families who find themselves drowning in debt didn’t have it occur simply because of overspending. Those who lost employment or income during the recent recession represent a large group of individuals who have been trying to figure out how to deal with debt. Other reasons that people run into problems with debt include divorce, disability or other major life changes that create an immediate impact on one’s ability to pay his or her debts. 

The Globe and Mail has reported extensively on the “debt to income ratio crisis in Canada”. An individuals’ debt to income ratio represents the amount of debt an individual has measured against his or her income. In 2010, the Globe and Mail reported that the debt to income ratio of Canadians has surpassed the debt to income ratio to our American counterparts. 

In 2012, the Globe and Mail reported that the debt to income ratio report from Statistics Canada revealed that as of the third quarter of 2011, the average Canadian's debt-to-personal-disposable-income ratio was 153 percent. That's up from 150.6 percent in the previous quarter and higher than 148.3 percent a year ago. It seems that the debt that Canadians carry is ever increasing. 

One reason for this trend we surmise has to do with how Canadians families cope with loss of income. When a major breadwinner in the household loses income, one natural solution may be to use credit cards to bridge the gap until that income might be coming in again. Another reason for this trend is because of banks and finance companies over-lending to people based on their household income so when one person suffers a loss of income the payments become unmanageable for the family to continue to maintain. 

When a financial crisis emerges, naturally people begin to worry and wonder “what will happen to my home?”, “what will happen to my car?” and how to deal with their debt while protecting their assets. Most people want to pay their debt and don’t want to end up bankrupt. You can deal with debt and protect your assets and without filing for bankruptcy.  

There are many programs available to help Canadians to deal with debt without going into bankruptcy. These programs are also quite effective at enabling people to deal with their debt while keeping their home and vehicle. They are also able to stop enforcement action like wage garnishments.  

If your debt to income ratio is through the roof and you want to deal with your debt and protect your assets, you must act before things spiral out of control. Financial and debt consultants are a good option to help you not only deal with your debt but work through your budget and other financial affairs to help you get back onto a firm footing. Unlike bankruptcy trustees, financial and debt consultants represent you, not your creditors, and offer many more options than bankruptcy to deal with a financial crisis. 

For more information about the debt to income ratio crisis in Canada and how to deal with debt and protect your assets please call DebtCare Canada at 416-907-2582 or visit www.debtcare.ca  

Tuesday, 20 March 2012

CRA Income Tax Debt and how it Affects Small Business Owners

It’s tough to be a small business owner. Many small business owners really struggle the first few years that they are in business. When trying to build up a business there can be times where the business does well and times when it does not. Where sole proprietors are concerned their business income is almost one and the same as their personal income. While a sole proprietor can write off business expenses, the revenue that is left must be declared as personal income on her CRA income tax returns.

Small business owners, especially sole proprietors are the group that is by far the most at risk of running into trouble with the Canada Revenue Agency. Small business owners may not have the revenue at the beginning to afford bookkeeping services and often do not plan from the “get go” to set aside money to pay their Canadian income tax debt. It is sometimes hard to estimate what one might earn in a year and CRA income taxes are usually due on an annual basis. Tax time can be shocking to small business owners because not only is it more expensive for an accountant to prepare returns for an individual and a business but small business owners sometimes underestimate what they will actually have to pay.

One very common example of where small business owners can run into trouble with the Canada Revenue Agency is when they collect HST on behalf of the government. HST is trust monies that must be paid to the CRA and often small business owners will remit their HST on an annual basis. Time and time again we have seen small business owners who don’t set aside their HST money because they are certain that they will be able to pay it when the time comes to file their CRA income tax return. If the business is not doing well when tax time rolls around, coming up with the money to pay the HST may be a more difficult prospect than what they anticipated.

At this point usually one of two things will happen; the small business owner will miss his or her filing deadline fearing what the CRA will do when they process the HST return and then learn that the small business owner doesn’t have the money to pay or he or she might look for expenses to reduce the amount of HST owed. The latter is where huge problems can happen. Aggressive tax preparers may be able to make your income tax return result in an amount that you feel you can pay, however this can land you in big trouble if the CRA decides to look into your books.

The worst thing small business owners can do if they are worried about their CRA income tax debt is fail to file or manipulate their books. Both actions are illegal and can create a legal problem beyond the financial problem they would have had, had they filed their returns on-time and transparently.

No one goes into business wanting to have problems with the Canada Revenue Agency but it happens. Bad things happen to good people and usually tax problems don’t escalate because the person intentionally set out to create them.

The most important thing to do if you are a small business owner who has a tax problem is face it and work with a financial consultant to get your finances straight. Financial consultants are not tax preparers and are able to look at a business’s finances to come up with a strategy to help the business deal with its CRA income tax problem.

For more information about CRA income tax debt and how it effects small business owners or if you are a small business owner who is in trouble please visit www.debtcare.ca or call DebtCare Canada at 416-907-2582.

Tuesday, 13 March 2012

Dealing With Canadian Income Tax Debt

Tax time is here. For those who anticipate a large refund it is an exciting time. For those who know they will have to pay it is quite the opposite. Thinking about doing your taxes, knowing that you are about to face a large Canadian income tax debt, one that you know you will not be able to pay in full, can be dreadful. 

One reason it is so scary is because once the Canada Revenue Agency assesses the amount of your Canadian income tax debt they will demand to be paid in full. The Canada Revenue Agency also has powerful authority to collect Canadian income tax debt that’s owed to them. Canada Revenue Agency collection practices range from demand letters, to calls, to enforcement action like wage garnishments and tax liens. 

Fear of what the Canada Revenue Agency will do once they determine that you owe a Canadian income tax debt is the main reason that individuals procrastinate and avoid filing their tax returns. This is the worst thing you can do if you have a Canadian income tax debt because it is illegal. In addition, the Canada Revenue Agency can add interest and penalties that can cause your Canadian income tax debt to double in size. 

So what can a Canadian taxpayer do when he knows that once he files his Canadian income tax return he will owe more than he can pay? 

The solution to any problem will come with a plan. First, you do not have to go it alone. There are many organizations that help people deal with Canadian income tax debt. Debt and financial consultants are a great resource to get the help you need. 

A plan will involve looking at your income, assets, and personal debts (debts that you have in addition to your Canadian income tax debt like loans and credit card balances etc.) and coming up with scenarios so that your representative can make a proposal to the Canada Revenue Agency enabling you to repay your Canadian income tax debt in a manner that you can live with. 

So what happens if you review your financial situation and there is no additional ability to pay anything to the Canada Revenue Agency? Well you can’t draw blood from a stone but you also can’t ignore the problem resulting in the Canada Revenue Agency taking action against you that can severely disrupt your life. 

If it happens that there is no way for you to repay your tax debt, you can find relief through Federal Government programs that can eliminate interest, penalties and even principal tax debt. Participating in one of these programs can enable you to breathe a sigh of relief because it may be the route that enables you to deal with your Canadian income tax debt upon terms you can live with.

You don’t have to be afraid of your Canadian income tax debt because there are resources to help you face your tax debt before everything spirals out of control. 

For more information about dealing with Canadian income tax debt contact DebtCare Canada at 416-907-2582 or visit www.debtcare.ca 

Tuesday, 6 March 2012

Debt Reductions Companies in Canada – Do Your Due Diligence

When making a big ticket purchase like a vehicle, you do your research right? You check the history of the vehicle, ensure it has not been in accidents, learn about the ownership, check the maintenance record for the vehicle and more. Your personal finances are no different and if you are in financial trouble, before choosing a company to help you, you really should do the same kind of research. 

“The banks are offering a program that’s about to run out” or “time is running out on Federal Government Programs”; sound familiar? Debt reduction companies are spending hundreds of thousands of dollars on advertising per/year to sell you on this message. The question is; is it true? And do they “really” help? Is there really a program that all of the banks collaborated on and is time running out? Is it true that the Federal Government programs that help Canadians get out of debt could end in the near future? And…what do they do anyway? Let’s get to the bottom of it.

First of all; all of the banks have not gotten together to offer a debt reduction program, hence time is not running out; because it simply isn’t true. The only Federal Government programs that help Canadians deal with debt are administered under the Bankruptcy and Insolvency Act (BIA). The Federal Government has made no announcement that there is a plan to eliminate the BIA legislation and there is no other Federal Government program that we are aware of that helps Canadians get immediate, legislated, debt relief. Seeking debt relief under the BIA does not mean that you have to go bankrupt and Federal Government programs are a viable means to get out of debt when a financial crisis emerges. The BIA offers different remedies to deal with debt, but the principal program offered by debt reduction companies doesn’t even involve relief under the BIA.

Debt reduction companies collect money from you on a monthly basis over a period of years with a promise that in the future they will settle your debt. By way of contrast, debt consulting companies represent you and provide you with a range of options to deal with debt that could include a consolidation or even enrolment in a credit counselling or Federal Government program. Debt reduction companies have one primary goal and that is to collect your money on a monthly basis. This is where the money that they use to advertise to you comes from. The Financial Consumer Agency of Canada (FCAC) recently issued a consumer alert about debt reduction companies; you can view the alert here http://news.gc.ca/web/article-eng.do?nid=649969.

Before you deal with a debt reduction company, do your due diligence. While writing this article we took some simple steps that any consumer who has access to a computer can take to research a company; the results really scared us.

We visited the first debt reduction company’s website and there were many red flags. First, there wasn’t any information about the company’s ownership. Are they Canadian? American? Who is their president and what does he or she stand for. The company publishes no information about their ownership whatsoever. Red flag #1!

We Googled “who owns [company name]” and nothing came up. Red flag #2!

We went to Linkedin and ran a search by company name to see how many professionals on Linkedin are employees of the debt reduction company. The only profile that came up was an individual page branded for the company – not one employee and not a single name of anyone associated with this company emerged as a result. You would expect that a company that bills itself as a national provider of debt reduction services would have at least one employee with a profile on Linkedin; the world’s largest professional networking site. We would liken this to you not knowing a single person who has a Facebook account. Red flag #3!

Finally, we searched “[company name] reviews” and on the first 3 pages of Google we found no less than 6 pages by companies who represent people and individuals themselves who reported very serious claims about this debt reduction company. Red Flag #4!

Don’t believe everything you hear! Ads are paid for by the advertisers, companies pay the BBB to be members and any company who doesn’t wilfully and publicly provide information about their corporate structure and ownership, may not be a company you should commit to paying hundreds of dollars per/month for years to come.  When it comes to debt reduction companies do your due diligence.

For more information about debt reduction companies and how you can do your due diligence please call DebtCare Canada at 416-907-2582 or visit www.debtcare.ca