Feel Like Youre Trapped Between A Rock And Your Tax Debt
A lot of people believe that personal income tax debt will never go away – that if you’re unable to pay, the debt will haunt you to the end of your days. After all, the government always gets paid right?
Some people struggle from one cheque to the next to pay large tax debts, assuming there is no relief available. Some even have to try to live while their income is being garnisheed. The good news? There IS relief! For those folks that are truly unable to pay their personal tax debts, there are actually a number of options available.
First, it’s always worth approaching the Canada Revenue Agency (CRA) to see if they would be willing to waive penalties or interest on your debt, particularly if a significant life-event has impacted your ability to pay your taxes on time or in full. You would be required to make a ‘taxpayer relief request’ in writing and should offer a payment plan that will pay off the tax portion of the debt, while still allowing you to keep up with your monthly expenses. If the CRA approves you for relief, they will typically hold off actually cancelling the penalties and interest until you have paid off the tax portion of the debt. It’s important to remember that in order for the CRA to agree to give you a break, you will be expected to have filed all of your tax returns up-to-date. You must also show that you have taken steps to avoid owing additional tax in the future - like making tax installment payments.
If you are unable to get relief (or sufficient relief) through a taxpayer relief request to the CRA, you may be eligible to file a formal proposal under the Bankruptcy and Insolvency Act. What’s this you ask? The government wrote a law that allows them to accept less than full payment on my taxes? Yes, surprisingly enough, it’s true. You might be able to make a formal offer to the CRA (and all of your other unsecured creditors for that matter) to pay less than the total debt owing, or to extend the payments over a longer period of time. And the interest stops too, so you can just focus on paying down the actual debt. A Licenced Insolvency Trustee will help you determine if a proposal is right for you and help you to file it. If the majority of your creditors vote ‘yes’ for your proposal, even the dissenting creditors have to accept it. That’s right folks, even the CRA.
If your financial situation is particularly dire, then a bankruptcy might be the best route for you. Again, a Licenced Insolvency Trustee is the professional able to help you with this. Generally speaking, when it comes to income tax debt, the CRA is considered a regular creditor in a bankruptcy and will receive no special treatment. All income tax you owe, right up to the day before the bankruptcy, will be included in the bankruptcy and you are therefore not required to pay it. Because bankruptcy law is federal, it is the same whether you are filing for bankruptcy in Ontario or any other province. Both a proposal and bankruptcy stop any CRA garnishments or other legal action against you, which is a huge relief.
The proposal and bankruptcy options can give people the fresh start they need to get back on their feet and working towards their short and long-term financial goals. Naturally, the CRA may watch you a bit closer afterward to make sure you don’t fall behind again. However, having escaped the squeeze of tax debt, hopefully you will be back on the path toward financial success.
If you’re struggling with unmanageable tax debt, contact your local MNP Licensed Insolvency Trustee for a free, no-obligation consultation. We will be able to provide you with all of the options available to you, so you can decide what route is best for you to achieve true financial freedom!
