Unpaid taxes represent a considerable amount of Canadian household debt. If you’re one of those finding themselves in this situation, there are steps you can take before the CRA tax deadline for the 2017-2018 year.
If you have or will have a tax debt, you will need a financial plan. It’s best to be proactive. If you ignore the situation, CRA can come after you for the money. They could freeze your bank account, garnish your wages, withhold HST and child tax credits, and more. They can also continue to charge large penalties and interest on the money you owe, digging you deeper into debt.
So, what can you do? While it may seem like an impossible situation, there are options.
If you have outstanding tax returns, the first step is to take stock. Complete and submit all outstanding tax returns before the CRA tax deadline so you know exactly how much you owe. This is one case where burying your head in the sand definitely isn’t the right choice.
Look at the reason you couldn’t pay your outstanding tax debt — was it because of an event beyond your control, such as a serious illness, natural disaster, or job loss? If so, you might be eligible for tax relief provisions. You also may be able to avoid penalties and fees through the CRA’s voluntary disclosure program.
But what if you already know you won’t be able to pay your tax debt for the 2017-2018 year?
First, file on time for the 2017-2018 tax year. The CRA late filing penalty can cause your initial amount owed to go way up and increase even more each day you delay. It’s better to file before the CRA tax deadline so you know where you stand and avoid even more debt.
Second, take a look at your assets. If you own a home or a car, you can leverage those assets. Companies such as Prudent Financial Services offer loans based on home equity and paid-off cars. You could use that money to pay your tax debt.
While leveraging your assets might not seem ideal, it’s better to leverage assets to make an arrangement you can live with, then have the CRA put a lien on your assets. If it’s a choice between you setting the terms or the terms being set for you, then leveraging your assets is by far the better option.
But what if you don’t have any assets?
If that’s the case, it may be time to talk to a licensed insolvency trustee about alternative options that don’t involve borrowing more money. If you can’t pay the CRA, then a licensed insolvency trustee is one of the only professionals powerful enough to fend them off.
Prudent Financial Services can help you decide the best path to take — whether that’s leveraging your assets or looking into alternative options. Contact us before the CRA tax deadline for a free consultation: 416-223-9300 or www.prudentfinancial.net.