Taxpayer Relief in Canada - Do I Qualify

If you have a tax problem in Canada, repercussions with the Canada Revenue Agency can be severe. If you filed your income taxes late or committed an infraction under the Canadian Income Tax Act, like failing to disclose income or writing off expenses that you weren’t entitled to, the Canada Revenue Agency has incredible power to punish you. By far the most common weapon that they use to punish you is your pocket book. 

When an income tax return is filed late and the CRA assesses what you owe, or a previously filed return is re-assessed and new monies are owed, the CRA will add interest and penalties to the amount of the tax debt that you owe. Often times, when an individual has a tax debt, the amount that they owe will double in size once the interest and penalties are calculated.

Sometimes individuals have personal circumstances that led to their tax problem which is why taxpayer relief in Canada exists. Taxpayer relief in Canada is a formal program offered by the Canada Revenue Agency where the CRA can agree to cancel all or part of the interest and penalties. You can qualify under the Taxpayer relief program in Canada for one of the following reasons:

1.       A natural disaster like a fire or flood. For example, you misstated expenses resulting in an inaccurate return filing because your basement flooded and all of your receipts were destroyed

2.       Extreme financial hardship

3.       A documented personal issue like a medical problem or death in the family

4.       An error on the part of the CRA

The only challenge with the Taxpayer relief program in Canada is that it is a long and complicated process and very few applications under this program are granted. To hire a professional to make an application under this program could cost you thousands. In addition, the CRA will not reduce the principal tax debt owed. The CRA does not offer any program that will reduce the principal tax debt that is owed.

Before considering making an application under the Taxpayer relief program in Canada you may want to first look at the principal amount of the tax debt you owe and whether you can afford to pay it off at all. Often people who owe a large tax debt are not even in a position to pay it, regardless of whether or not they receive interest and penalty relief under the Taxpayer relief program in Canada.

The longer you stretch out the time that you have a tax problem, the worse the tax problem will become. If the application under the Taxpayer relief program in Canada is denied, you will owe further interest that will have accumulated through the application period. The CRA will also continue to try to collect on the principal tax debt owed.

There are other financial programs available that will freeze the interest on the tax debt that you owe and can even eliminate or reduce interest, penalties and the principal tax debt that you owe. These programs can also stop CRA collection action and provide you with immediate relief. These programs are not available through the Canada Revenue Agency, however you may access them through a financial consultant who works with people who have debt problems.

For more information about the Taxpayer relief program in Canada or if you have a tax problem and need financial guidance or debt relief please visit www.debtcare.ca or call 416-907-2582.

What Does A Trustee Do?

If you have financial problems and have thought about consulting a trustee in bankruptcy, you may be curious about the role that they play in helping you deal with your financial problems, and may be asking yourself “what does a trustee do anyway?” 

The first thing to know is that a trustee in bankruptcy does not represent you. You may have seen advertisements by trustees that make it seem as though they want to help you. What does a trustee do? Well, they are a court appointed officer that administers bankruptcies and consumer proposals. They have an obligation to act in the best interest of both you and your creditors.

Let’s look at a bankruptcy as an example. When you visit a trustee to file for bankruptcy they review all of your household income, debt and other financial details and then advise you on what your monthly payment in bankruptcy will be. You make your monthly payment to the trustee in bankruptcy each month. If you have assets or surplus income for example, what does the trustee do? They will ensure that they collect equity in those assets or surplus income for the benefit of your creditors. They are not there to protect your income and assets, they are simply administrators of the bankruptcy process. If they can collect more money through your estate for your creditors, they will.

Consumer proposals are also administered by trustees in bankruptcy. When you visit a bankruptcy trustee directly to discuss a consumer proposal, they will assess your income, debt, assets and other personal household and financial information. What does a trustee do next? They will suggest an amount of a consumer proposal that they believe will be accepted by your creditors. This does not always result in the best deal for you, and if you visit a trustee directly you will have little to no negotiating power because they are simply administering your consumer proposal, so what they present to you is what they will be prepared to go forward with. They are not there to get you the best deal.

Do you do your taxes without the help of an accountant? Not likely. If you were charged with a crime would you defend yourself without a lawyer? Probably not. Dealing with a trustee in bankruptcy is no different; you should not do so unrepresented.

Having independent financial representation when considering a consumer proposal or bankruptcy is crucial because it enables you to have your personal and financial information reviewed by a professional who represents and is hired by you and who understands bankruptcies and consumer proposals. They can vet your personal and financial information, identify any issues before a trustee is made aware of them, and help you come up with a proposal to present to the trustee that you can live with.

Do not answer the question “what does a trustee do” the hard way. Filing a bankruptcy or consumer proposal is an official process. Once you have committed to either one of these processes there is no turning back, so it is important to do everything in your power to ensure that you enter into the process with all of the necessary information. The more informed you are, the better financial arrangements you will be able to make, which will save you thousands.

If you have more questions about this article “What does a trustee do?” or if you need representation in a consumer proposal or a bankruptcy please visit www.debtcare.ca or call 416-907-2582.

Divorce and Debt - A Match Made in…

Divorce and debt, debt and divorce; the two really go hand-in-hand. Debt and financial problems are one of the leading causes of divorce in Canada. When couples divorce and debt is present one or both parties can find themselves in severe financial turmoil. 

Divorce and debt are a toxic combination because when couples divorce they can no longer share living expenses and each will have new living expenses in addition to monthly payments on debt. In a divorce, the higher income earner may end up having to take more responsibility over the debt. In other cases, the lesser income earner may agree to take responsibility for the debt in order to gain assets such as the home. One party may end up having to make spousal or child support payments. Whichever way you look at, getting divorced is expensive and both parties can end up with serious financial consequences.

If you are getting a divorce and debt is present, seeking financial guidance will be very important. The financial guidance you need may vary.

Perhaps you are not the spouse who was responsible for the monthly household bills. Learning how to manage a budget will be important if you want to come out of your divorce with your credit and finances intact. Budgeting is eye opening because it reveals exactly how much money you spend each month and on what, as well as how much disposable income you have left once your bills are paid. Budgeting can reveal potential future financial problems that you may face before they emerge and become an emergency. Budgeting also plays a key role in ensuring that all payments to creditors get made on time each month.

Perhaps you are exiting the marriage in debt. This is a trickier problem because if you have gone through a divorce and the debt that remains is unmanageable, this can impact not only your credit but also your quality of life. Even if you are able to manage your minimum monthly payments, the overall amount of debt may be too much to pay off in any reasonable amount of time. If this is the case, it may be time to come up with ideas to speed up the amount of time it takes you to get out of debt.

The type of debt that you have and amount of debt that you have will play a major role in the type of financial solution that you choose to deal with your debt. Secured debt is different than unsecured debt, and even some secured debts can be managed as part of an overall financial plan that will get you out of debt. If you are struggling with debt after a divorce, your financial plan may include consolidating your monthly payments into one and freezing the interest on your credit products. The interest on some credit products, like high interest credit cards, can make them impossible to pay off. Once the interest is frozen, these debts become much easier to repay. Some financial programs also may involve reducing the overall principal of the debt that you owe.

The best thing you can do in the aftermath of a divorce to deal with the debt that has resulted from the divorce is to seek financial guidance from a financial professional who can represent you in the restructuring of your debt to give you a fresh start.

For more information about divorce and debt please visit www.debtcare.ca or call 416-907-2582.

Credit Counselling Canada - How Does It Work and Who Qualifies

If you are having challenges managing your debt there are many solutions available. The solution you choose will largely depend on your personal and financial circumstances. The amount of debt that you have, for example, will change the financial solutions available to you.  

Credit counselling Canada is a service that helps many Canadians deal with financial challenges. Credit counselling Canada, like any other financial solution, has its pros and its cons. While Credit counselling Canada can help Canadians with any amount of debt, you are best suited to consider it as an option if you owe $7,000 or less in total debt. 

Credit counselling Canada is largely funded by creditors and is not for profit. The credit counselling agency will make a proposal to your creditors that allows you to make a reduced, fixed monthly payment each month. This proposal is not a consumer proposal and this proposal will not reduce your overall debt. It simply provides for a reduced monthly payment.

The main benefit here is that if you cannot manage your current monthly payments, this will enable you to do so. People who have payday loans and only payday loans are best suited to consider credit counselling Canada. Generally people who have multiple payday loans and no other debt only owe a small amount of money, so other financial options, such as a consumer proposal, are not available to them. Credit counselling Canada will enable someone who has expensive payday loans to make a single reduced monthly payment that they can afford.

The cons of a credit counselling program include:

·         Damage to credit (likely damage to credit has already occurred though if you are not managing your monthly payments)

·         Overall amount of debt is not reduced

·         Depending on the repayment plan you negotiate, it could extend over many, many years

The cons that exist with Credit counselling Canada are the primary reasons why an individual who owes more than $7000 should consider other financial options rather than jumping into a credit counselling program.

A consumer proposal is often a better option than a credit counselling program. When a consumer proposal is arranged, it is formal and final. If your creditors accept a consumer proposal you have the option to pay it off in full at any time. While a consumer proposal can also have some negative impacts on your credit, your credit can often be repaired faster with a consumer proposal when compared to a credit counselling program. Evidence of a consumer proposal will be removed from your credit report three years from the date it is paid in full.

A consumer proposal may reduce the overall amount of your debt, and because you can pay it off in full, the ball is in your court as far as how long it takes for you to pay it off in full.

Generally speaking, if you have a financial problem that is resulting in an inability for you to make your monthly payments, or if you have too much debt, you should seek financial guidance. It is advisable to seek this guidance from an independent financial professional who you can hire to help you make the best financial decision and who does not work for the company that is providing you the services. For example, if you are considering a credit counselling program, do not go directly to the credit counselling agency because they will advise you based on the programs they have available, or if you are considering a consumer proposal, do not go directly to the trustee in bankruptcy or you may not get the best deal.

For more information about credit counselling Canada or to see if you qualify please visit www.debtcare.ca or call 416-907-2582.

Canada Revenue Agency Forms and Requests: - Beware

If you have a tax debt that you cannot pay in full, you should be very careful dealing directly with the Canada Revenue Agency (CRA). In fact, many agencies, including law firms, advise people who have large tax debts not to deal with the Canada Revenue Agency directly. 

Why? Because CRA agents are hired by the government to collect the tax debt from you. Their primary objective is to close your file and that will only happen in one of two ways: pay the tax debt you owe, or file a consumer proposal or bankruptcy. 

The Canada Revenue Agency has many tools in its arsenal to collect your tax debt. These tools include garnishing your wages, freezing your bank account and placing a lien on your property. They cannot however take these enforcement actions against you unless they have done their homework. For example, they can't freeze your bank account unless they know where you bank, they can’t place a lien on your home unless they know you own a home, and they can't garnish your wages unless they know where you work.  

Of course, the Canada Revenue Agency does have its own ways to find this information, but sometimes you can be your own worst enemy in this regard. Many people want to make payment plans with the Canada Revenue Agency to pay their tax debt and will directly contact the Canada Revenue Agency to attempt to do so. The CRA always wants to be paid in full. Generally they won't accept a long term payment plan unless it involves paying off the tax debt within 24 month, which many people are unable to do when they have a large tax debt. This is where Canada Revenue Agency forms and requests come in. 

Say for example you owed $40,000. Over 24 months, your monthly payment would be $1,666 per/month but you can only afford to pay $500 per/month. When calling the Canada Revenue Agency they may indicate that they are willing to accept a temporary 3-6 month payment plan based on $500 per/month if you fill out a Canada Revenue Agency form providing financial disclosure. This form will ask you about your income, income sources, expenses, assets, liabilities, where you bank and more. Once they receive your financial disclosure, they may disallow payments for expenses that do not include shelter, food and transportation and then demand a much larger monthly payment. They may accept the lesser monthly payment for 3-6 months but the danger is that if they demand more, or when the short term payment plan you negotiated expires, the CRA will have all of your personal financial information that you provided in the Canada Revenue Agency form and can proceed to take enforcement action against you. Don’t get caught in this trap.

If you owe money to the Canada Revenue Agency there are solutions available to you. If the CRA has presented you with one of these Canada Revenue Agency forms for financial disclosure, seek professional help immediately. A seasoned financial consultant with experience dealing with the Canada Revenue Agency can help you negotiate a repayment arrangement that you can live with and help you protect your personal information.

For more information about Canada Revenue Agency forms and requests to beware of or if you need help with a tax problem, please contact DebtCare Canada at 416-907-2582 or visit www.debtcare.ca.

How to Make a Credit Card Debt Settlement

When credit card debt begins to build up it can become very difficult to pay off. Credit cards bear monthly compound interest so if you get into a routine of making minimum monthly payments, the interest can sometimes be as much as the payment that you make. The end result is that you make a minimum payment and then once the interest is applied to the balance, you end up owing the same amount as you did before the payment. 

If you start missing payments the balance increases and late fees may also be added to the balance, making the debt grow even larger. This can start a vicious cycle that can result in the credit card debt going to collections and destruction of your credit.

There is no magic bullet for dealing with credit card debt. Your options are really to come up with the money to pay it off, borrow the money to pay it off, make a credit card debt settlement, or file a consumer proposal or bankruptcy.

Before choosing an option to deal with your credit card debt you must look at many factors as you want to make sure that you select the option that will help you to achieve your long term financial goals. Why are you having a problem paying the credit card debt in the first place? Often times people stop being able to manage their credit card debt because of a lack of cash flow. If you are at the point where you cannot manage your credit card debt payments because of a lack of income then you may want to look at ways to reduce the credit card debt before you start trying to come up with a way to pay it off.

The state of your credit report is also an important consideration when trying to come up with a plan to pay off credit card debt. If you fully defaulted on the debt (have not made a payment in 6 months) or have made habitual late payments, your credit report is likely to be in bad shape. Once your credit report is compromised, (whether you pay off the credit card debt in full or make a credit card debt settlement) there will be no difference in how long it takes to rebuild your credit. There will however be a major difference in how much it costs you to pay off the credit card debt.

A credit card debt settlement can be achieved through a financial consultant who can make a credit card debt settlement directly with your creditor or through obtaining the assistance of a trustee to make the credit card debt settlement through a consumer proposal. The credit card debt settlement option will depend on many factors including your income, employment, financial goals, the amount of debt you have, the liquid cash available, and the number of creditors you have. If you want to make a credit card debt settlement, work with a financial consultant. He or she will be able to interpret your entire financial situation and come up with the best plan for you.

For more information about how to make a credit card debt settlement please contact Michael Goldenberg by calling DebtCare Canada at 416-907-2582 or visit www.debtcare.ca.

The Canada Revenue Agency Consequences of Missing the Income Tax Deadline

In Canada, this year’s Canada Revenue Agency (CRA) income tax deadline was April 30^th, 2012. The CRA’s income tax deadline is the last date that individual Canadian taxpayers can file their annual income tax returns with the CRA without incurring penalties and interest. Corporations are not subject to this deadline and have their own year-end filing dates. 

If you file your income tax return after the income tax deadline of April 30^th, 2012 and you owe tax, the amount that you owe will be subject to interest and penalties. Penalties and interest are calculated based on the length of time it took for you to file following the tax deadline.

The Canada Revenue Agency will apply a penalty equal to 5% of the balance owed. For the next 12 months, an additional 1% will be owed each month that passes that your tax return is late. Repeat offenders (those who filed their income tax returns after the income tax deadline in 2008, 2009 or 2010) could be subject to a penalty of up to 10% and for the next 20 months, an additional 2% of the balance owing for 2011 for each month that your income tax return is late.

Penalties and interest are calculated separately. If you miss the income tax deadline, the Canada Revenue Agency will charge you daily compound interest beginning May 1, 2012 on any amount owing for 2011 that is not paid. The CRA will also apply the same interest to any penalties they have assessed.

It doesn’t pay to ignore late income tax return filings. Eventually you will have to file and will be subject to the penalties and interest retroactively. Failing to file your income tax return is tax evasion and eventually the Canada Revenue Agency will catch up with you. Depending on how many years you haven’t filed they could prosecute you for tax evasion.

Notional assessments are more common. A notional assessment occurs when the Canada Revenue Agency estimates how much income that they believe you earned based on tax slips filed by others or on returns you filed in previous years. When this happens, the Canada Revenue Agency essentially prepares a return on your behalf and then calculates how much tax you owe and assesses interest and penalties based on their income estimate.

Most individuals who miss the income tax deadline do so because:

• They don’t think they owe taxes
• They are busy and it slips their mind
• They know that they will owe and don’t have the money to pay

If you fall into the third basket there are financial solutions that can assist you. Simply ignoring your income tax problem will not make it go away. Over time, the size of the tax debt, interest, and penalties will continue to grow and the Canada Revenue Agency will become more aggressive in their efforts to force you to file and collect your tax balance. The faster you face it the faster you can get back on track. If you are behind filing for many years, it is never too late to become tax compliant and deal with your tax debt.

For more information about the income tax deadline, interest and penalty calculation, or if you need help to deal with late income tax returns and income tax debt, please call DebtCare Canada 416-907-2582 or visit www.debtcare.ca