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.

Dealing with Debt Part 3 – Divorce Debt in Canada

Canada has the 8th highest divorce rate in the world. Human Resources Development Canada has reported that the proportion of marriages expected to end in divorce has fluctuated between 35% and 42% in recent years. In 2008, 40.7% of marriages were expected to end in divorce before the 30th wedding anniversary. In 2008, there were 70,226 divorces in Canada or 2.11 divorces per 1,000 people. 

Divorce debt in Canada is also very common. Human Resources Development Canada also reported that in 2008, 115,789 Canadians were unable to repay their debts. Serious financial difficulties brought them to file either a consumer proposal or a bankruptcy. Individuals who were divorced or separated were more likely to file a proposal or bankruptcy.

Why is divorce debt one of the leading causes on bankruptcy in Canada? The answer is fairly simple. First, two income households will often accumulate debt based on their “household ability to pay the debt”. The challenge with this is that debt is accumulated based on two people sharing living expenses and when people separate, living expenses will double because now each party has to pay for rent or a mortgage, and living expenses separately. When household debt is present this can make it challenging to pay it.

Second, some marriages will involve one person working and one person raising the family. When divorce occurs, the party who hasn’t worked will likely have little to no income but be faced with the immediate expense of having to hire a lawyer and also live. In many cases this forces the party who has been home raising the family back into the workforce. Individuals who have been out of the workforce for a long time often have to re-enter the workforce in junior or entry level positions.

Third, sometimes one party in a marriage may carry all of the debt in his or her name. Much of the debt may have been used by the other spouse. There is nothing worse than getting a divorce and then finding yourself having to pay your spouse's debt.

Legal protections may result in the party who has the weaker financial positioning receiving support payments, being awarded the house, having the other party take responsibility for the debt, but this can take years. Also, the legal fees that compound over the course of a divorce may end up being more than the debt you owed to begin with.

So how can someone in Canada who has divorce debt keep his or her head above water without filing for bankruptcy? Fortunately, if you are in this situation there is a solution and believe me you are not alone. There are financial programs for people dealing with debt and specifically dealing with divorce debt in Canada. These programs will often enable you to make a satisfactory arrangement with your creditors and will enable you to consolidate your debt payments into a single reduced monthly payment. These programs can be found through debt consultants who specialize in divorce debt in Canada.

It is important if you are dealing with divorce debt to make responsible decisions that protect yourself and your family and also consider both your short term circumstances and long term goals.

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

Dealing with Debt Part 2 – Gambling Debt in Canada

Gambling debt in Canada is an epidemic not unlike the Flu. If you have a gambling debt in Canada, don’t get down on yourself. Addiction is an illness and gambling is something that is highly addictive. Casinos are more accessible than ever in Canada and the euphoria that is felt when you win can cause what would seem like harmless entertainment to turn into a serious life altering addiction. 

Many people realize that they have a problem when gambling habits lead to disruption in major parts of their lives. Financially, problem gambling can lead to a loss of income, potential loss of assets, lowered standard of living, or even a loss of employment. Personally, problem gambling can cause conflict with loved ones, and can lead to alienation from family and friends.

Problem gambling can also impact your health. You can experience a number of health effects, including high blood pressure, digestive problems, stress and anxiety, depression and suicidal thoughts.

CTV News recently reported on a study from Statistics Canada that showed that wealthier people, on average, spend more money on wagering, but gamblers who have less money spend a larger percentage of their income on gaming activities.

According to the CTV report, Statistics Canada says that 6.3 percent of people are thought to be "at risk gamblers and problem gamblers." Problem gamblers make up 0.6 percent of the Canadian population which is roughly 180,000 people. The Statistics Canada definition of a problem gambler is someone who has experienced negative consequences of gaming and who gambles more than five times a year.

People who gamble responsibly:

·         Do so for entertainment rather than income.

·         Balance their participation with other activities.

·         Do not gamble alone.

·         Accept losses as the cost of the entertainment.

·         Set a realistic budget and stick to it.

·         Don't borrow money to gamble.

·         Set a time limit for gambling.

·         Take breaks from gambling.

If you have gone into debt in order to gamble you have a problem and you have to stand up against it. You are truly putting yourself in a position where you could lose everything, if it hasn’t happened already. There is a lot of support for people who have gambling debt in Canada. This support assists gamblers to deal with their addictions and the debt that they have accumulated as a result of the addiction.

Some steps that you can take are to join a support group like Gamblers Anonymous, consider excluding yourself from gambling using the Responsible Gaming Commissions self-exclusion tool and seek professional financial guidance immediately. Do not transfer assets in the names of loved ones or borrow more money on top of the money you may already owe. There are many financial programs available that help gamblers who are dealing with a gambling debt in Canada and you can access these programs though debt consultants who are skilled at dealing with situations like the one you may be in now.

If you are dealing with debt because of gambling you are not alone! Tens of thousands of Canadians are in your shoes and there is hope.

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

Dealing with Debt Part 1 – Collections Debt in Canada

Many people have collections debt in Canada. Collection agencies are routinely hired by private businesses to collect money from individuals who have defaulted. When a company assigns an account to a collection agency, the collection agency will add their fees and additional interest to the debt which will cause the debt to grow at a rapid pace. 

Some collection agencies will use tactics, like calling you several times daily at home and work to collect money from you, while others may have been authorized by your creditor to take Small Claims Court action against you. Collection agencies can also file a “collection item” on your credit report which will do considerable harm to your credit; however if you have defaulted on a loan or credit card, the damage to your credit may have already been done. Any way you look at it, dealing with collections debt in Canada is no fun. 

Conventional debts like loans and credit card balances are not the only types of debt that get assigned to collection agencies. If you default on a debt to a utility provider, default on a phone bill, gym membership, toll bill, traffic fines all of these are examples of debt that may be assigned to collection agencies to be collected. 

The good news is collection agencies in Canada are regulated in most Provinces. This means you have rights! In Ontario for example, the Ministry of Consumer Services regulates collection agencies through the administration of the “Collection Agencies Act”. You can view the Ontario Collection Agencies Act on the E-Laws website. If a collections debt in Canada has occurred and a collection agency is getting out of hand, you can complain to the Provincial Ministry that regulates it. Some Provinces will receive online complaints (as is the case in Ontario) while others will require that you mail them a letter and include evidence to support your complaint.

If you have a collections debt in Canada it is likely because you are dealing poorly with debt. Rather than facing collection action, it is better to come up with a solution to deal with your debt and there are solutions available. There are a number of programs available that help people to deal with their debt and stop collection action. Dealing with debt can cause stress and strain to relationships and many people think that the only way to get out of debt is through personal bankruptcy. This is not the case. There are other solutions to dealing with debt that involve freezing the interest accumulating on your debt and also reducing the principal amount of debt that you owe.

When you are dealing with debt the worst thing to do is ignore it. This will only prolong the length of time that your credit is damaged and the debt will not go away but will only continue to grow over time. The faster you deal with your debt, the faster you can work towards rebuilding your credit and finances and put the period in your life where your debt got out of control behind you.

For more information about dealing with debt and collections debt in Canada please visit www.debtcare.ca or call 416-907-2582.

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  

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.

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