Dealing with Debt Part 4 – Income Tax Debt in Canada

Many, many Canadians struggle with income tax debt in Canada. Income tax debt in Canada can occur for many reasons, many of which were not intentional on the part of the taxpayer. Sometimes a taxpayer earns more than he or she expects, not realizing the tax implication. Other times taxpayers unwittingly declare expenses they are not entitled to. Once a tax return is filed later or re-assessed resulting in an amount owing, the Canada Revenue Agency will add penalties and interest retroactive on this tax debt causing it to double and even triple in size. 

When a large income tax debt is owed to the Canada Revenue Agency it can be paralyzing. The Canada Revenue Agency will demand to be paid in full and has incredible authority and resources to collect the income tax debt from you. This can include freezing your bank account, placing a lien on your home or other assets, garnishing your wages and even criminal prosecution. Many people feel so overwhelmed when they have a tax debt that they simply ignore it because facing it is too stressful; but this is the worst thing to do because the Canada Revenue Agency will catch up eventually and the consequences will be catastrophic.

So what can a Canadian who has income tax debt in Canada do? The first thing is to realize that you have to deal with it and be pro-active instead of reactive. Waiting until the Canada Revenue Agency has taken collection action against you before dealing with the income tax debt will only result in major financial consequences that could disrupt your overall quality of life. When the Canada Revenue Agency does not have an enforcement measure in place you have more leverage because you are voluntarily dealing with the problem.

If you are behind in filing returns, get them filed. It is not illegal to owe money to the Canada Revenue Agency; failing to file is illegal and is tax evasion under the Income Tax Act. Yes, once you file your late returns you will owe penalties and interest but before you can truly deal with your income tax debt you must know how much you owe.

If you know that you have failed to declare income on a past tax return or written off expenses that you know you were not entitled to, consider filing a Voluntary Disclosure Application with the Canada Revenue Agency so that you can become tax compliant. Again, it is not illegal to owe money to the Canada Revenue Agency, but it is illegal to fail to disclose income and write off expenses that you were not entitled to.

If you do not have the liquidity to pay off your tax debt, get financial help. Work with a debt consultant to weigh your financial options. Income tax debt is like any other debt. There are Federal Government Programs in place to provide Canadians with a legal avenue to deal with their debt. These avenues in many cases do not involve bankruptcy and can stop Canada Revenue Agency collection action.

Do not do fancy footwork, transferring assets into the names of loved ones or attempt to hide your money. These efforts will be fruitless. Not only can you risk tangling your loved one up into your problem but you will also live a life fraught with worry wondering if tomorrow will be the day that the Canada Revenue Agency catches up with you.

Remember, you are not the first Canadian who has a tax problem and you will not be the last. There are solutions and all you have to do is take the first step towards them.

For more information about dealing with debt or to get help with income tax debt in Canada please visit www.debtcare.ca or call 416-907-2582.

Canada Revenue Agency Income Tax Debt and You

Canada Revenue Agency income tax debt can be crippling when your payments fall behind. Interest and penalties accrue at an alarming rate, and what starts off as a small debt can grow into something a lot more difficult to pay.

Income tax debt is much more serious than other types of debt because the Canada Revenue Agency has many more resources to collect the money from you, as opposed to regular creditors such as banks and finance companies. Banks and finance companies must take you to court and obtain a judgment against you before they can take any legal enforcement action. The Canada Revenue Agency does not.

When income tax debt is owed, it is a demand debt and the Canada Revenue Agency will demand to be paid in full. Very seldom will the Canada Revenue Agency consider making a voluntary payment plan arrangement with a consumer or a small business. If they do, they will request full financial disclosure, including your banking and employment information. This is done to ensure that if you can’t honour the payments, they know where to go to attach a lien or garnishment.

The financial disclosure is also used to determine your cash flow. They will not consider monthly payments that you have to make to other creditors, such as credit card companies and loan providers. They will deduct your basic living expenses from your income and they will want to be paid what’s left. For most individuals, this is unrealistic and results in total destruction to the consumer’s credit rating.

Outside of the financial implications of a tax debt, other problems can arise. The stress associated with a tax debt can cause medical problems like depression and anxiety. In extreme cases, individuals have even contemplated suicide when the stress of having an income tax debt to the Canada Revenue Agency proved to be too much to handle.

Similar to dealing with other debt problems, an outstanding income tax debt can also cause a strain on relationships. When financial problems emerge they can cause otherwise happy couples to have major problems. Wage garnishments sent to employers by the Canada Revenue Agency can cause unbelievable embarrassment and are very difficult to stop once they are in place.

If you have an income tax debt, the most important thing to do is attack it; don’t ignore it. It will not go away by itself. Ignoring it will eventually result in the Canada Revenue Agency taking collection and enforcement action against you.

There are resources available to individuals and businesses that are struggling with a tax debt. These resources generally do not involve bankruptcy. There are Federal Government programs available to help individuals and businesses that have tax debt. Do not attempt to negotiate with the Canada Revenue Agency yourself, as this could have dangerous consequences. Instead, work with agencies that have access to Federal Government programs and experience negotiating with the Canada Revenue Agency. For more information about Canada Revenue Agency income tax debt and to see if you qualify for relief contact Michael Goldenberg at DebtCare Canada by calling 888-890-0888 or visit www.debtcare.ca