It is that time of year again; soon the tax man will be knocking at the door asking for your 2014 assessment. If you know that your taxes are all in order and are expecting a refund, that is great! However, if you are in the opposite camp, and are afraid that once those taxes are filed you are going to end up owing money to CRA, you might be a bit worried.
Tax debt is really scary, and for good reason. Unlike other creditors, CRA does not need a court order to freeze your bank account or send a wage garnishment letter to your employer. Not only do these things impact your personal life, they can also begin to impact your professional life. This is not a good situation to be in!
So, what can you do when you know that, upon receiving your assessment, there will be a balance owing at the bottom of the document?
- Think filing late in order to give yourself time to get your finances in order will do the trick? Think again. CRA applies a late filing penalty to every month you miss (5% of your 2014 balance owing, plus 1% of your balance owing for each full month your return is late, to a maximum of 12 months). This doubles if you also filed late last year or in one of the preceding years.
- If you have the means to pay off the debt in its entirety, do so as soon as possible. This might mean using some available credit or dipping into your savings, but since the debt is not interest free and CRA is unforgiving when payments are missed, this is by far your best option.
- If you don’t have the ability to pay off the debt, consider a consumer proposal. Filed by a registered trustee in bankruptcy, a consumer proposal, once accepted, can stop interest, consolidate all debts (not just the tax debt) into one monthly payment, and in some cases can even bring your total debt down. But there are pitfalls, and to avoid them this should not be entered into without meeting with a debt consultant to give you independent advice prior to filing your proposal.
Ignoring a tax debt in the hopes that it will go away is not a good idea. All this approach will garner is a higher amount owing once penalties and interest have been added. Don’t ignore the debt – deal with it.
For more about what to do when you end up owing money to CRA, or any other debts, please contact DebtCare Canada today by calling 1-888-890-0888.