Canada Revenue Agency: Tax Debt Bankruptcy
How Can I Deal With CRA Tax Debt in Bankruptcy?
One of the largest debts that many individuals have is unpaid tax debt that is owed to the CRA (Canada Revenue Agency).
Due to many different myths and misunderstandings, most of these people are not aware that they can eliminate their tax debt through bankruptcy.
The first step in dealing with tax debt you owe to CRA is to understand the powers that CRA has to collect your unpaid taxes and understand that you should take your tax debt seriously.
CRA will not accept less than full payment as they do not want to get into a situation where they have to agree to settlement offers with many tax payers.
However, it is possible to negotiate with the CRA about tax debt that you owe. You may contact the CRA office in your area to negotiate over debts you owe, but it is up to the CRA office to decide whether to accept your offer or not.
For example, if you owe $2,000 in back taxes that you are unable to repay in full you may offer to pay $200 a month for 10 months, plus any penalties or interest charges that you will also owe to the CRA.
There is no guarantee the CRA will accept your offer, but if you explain your financial situation you might be able to convince the CRA to accept your offer.
The CRA has significant powers in collecting taxes owed to them; the CRA can charge high penalties and a large interest rate that compounds on the tax debt you have, the CRA can withhold any GST or child tax credits that you are owed, and they are able to garnish your wages or take funds from your bank account; having tax debt is a serious issue and should be treated as such.
How Can I Verify How Much I Owe to the CRA in Tax Debt?
Before you can start thinking of a solution to your tax debt problem, you should verify how much back tax debt that you really owe to the Canada Revenue Agency. Finding the right solution to your tax debt problem is the first step in getting your tax debt paid off.
To verify your tax debt you need to submit all of your tax returns to the CRA, which is required anyway. To determine how much you really owe you need to examine all past tax returns to make sure there are no errors and that you are taking advantage of all possibilities to lower your tax debts.
You might want to consider investing in the services of an accountant or tax preparation service to assist you with reviewing your tax returns. The accountant or preparation service can help you find any errors, and write-offs that you could have taken advantage of to lower the tax debt that you owe.
These professionals can also point out if you can take advantage of the Fair Practices Commission of the CRA, which can eliminate any penalties and interests that were charged by the CRA for your non-payment; you will still have to pay the taxes you owe but you will receive relief from high interest rates and penalties charged by the CRA.
Certain causes of missed payments that the CRA may accept include serious illness, loss of your job, natural disasters or CRA actions or errors.
What if I Still Cannot Repay All of My Tax Debt
Even With These Tips?
If the tax debt you owe is simply too high, and you cannot reach an agreement with the CRA (to repay all of the debt you owe, but perhaps spread out over time) then you should consider seeking the advice of a government licensed insolvency trustee.
An insolvency trustee will provide you with a free and confidential initial consultation to help you understand how bankruptcy or a consumer proposal can help you eliminate your tax debt.
By going bankrupt you can eliminate all of your tax debt and receive a fresh financial start so you can begin rebuilding your credit and financial stability.
Bankruptcy will help you deal with your tax debt, and most other unsecured debts.
By making a consumer proposal, you can make an agreement to repay a portion of your debt, including tax debt, over a period of time. If your creditors accept your consumer proposal, the CRA must abide by the terms of your proposal as well.
If you would like to learn more about how bankruptcy or a consumer proposal can help you get out of debt and eliminate tax debt owed to the Canada Revenue Agency please set up a free evaluation with one of our licensed trustees.