Tax Debt Relief in Ontario
If you owe tax debts to Canada Revenue Agency we can help
Is tax debt causing you financial pain? If so, we can help you get rid of it for good
Tax debt relief options available in Ontario
While some look forward to a generous tax refund from the Canada Revenue Agency (CRA) during tax season, others wind up owing money to the government agency instead.
If this describes you, you’re not alone – many Canadians find themselves looking for tax deb relief. Canada’s tax laws are complex and numerous, so it’s easy to get caught off-guard and discover you owe more tax to the CRA than you previously thought.
Suppose you’re already heavily in debt and struggling to make your payment on time. If so, the added weight of a tax bill can be your breaking point, leading to severe financial and emotional distress.
Luckily, there are tax debt relief options available in Canada. Our knowledgeable and personable team of Licensed Insolvency Trustees can help you find the right solution to lighten your debt load. They’ll explore options to arrange with the CRA a tax debt settlement. And depending on your circumstances, assist you in eliminating your tax debt entirely.
What happens if you don’t pay your tax debt to the CRA?
The CRA holds vast and powerful collections powers – and can exercise them at will should you fail to pay the taxes you owe.
In the first place, the CRA will levy a 5% late-filing fee (10% if you filed late in previous years) and a 1% interest charge per month on your balance owing for up to 12 months. Interest will accrue daily.
If enough time passes by and you haven’t paid your tax debt, the CRA can also
- Garnish your wages
- Seize your investment accounts
- Freeze your bank account
- Place liens on your assets
- Withhold federal benefits you receive, such as the GST rebate, Canada child benefit, and Canada Pension Plan (CPP)
Dealing with tax debt in Ontario – what are your options?
Here are the top ways to achieve tax debt relief in Canada:
- Negotiate new payment terms with the CRA directly
- Repay your tax debt using a debt consolidation loan
- File for a consumer proposal
- File for personal bankruptcy
Before we explore each option, it’s important to note that only a consumer proposal and bankruptcy provide you with legal protection from the CRA’s collection powers. Both debt relief programs will immediately stop collection calls and grant you protection from lawsuits, wage garnishment, and asset seizure.
Negotiate a new payment plan with the CRA directly
The CRA offers two tax debt relief programs for Canadians. If you’re unable to pay your balance by the due date, you can:
- Arrange to repay your debt through installments or
- Submit a request for taxpayer relief
Pay your debt in installments
Unable to pay off your tax debt with a lump sum payment by the due date? If so, you can enter into an installment payment plan with the CRA.
The flexibility of a monthly payment plan can relieve considerable financial pressure. You can spread your payment over a set time period based on what you can afford to pay each month.
It’s crucial to remember that you’re required to repay your debt in full under an installment plan. The CRA won’t agree to any form of debt forgiveness. For this reason, hiring a debt settlement company to help you negotiate a reduced balance won’t do you any good.
Apply for taxpayer debt relief
If you’re in dire straits financially, you can contact the CRA and request to have your interest charges and penalties waived. To secure approval, you must demonstrate that you lack the means to pay off your tax debt due to extreme personal or financial circumstances.
You can ask the CRA to forgive interest and penalties for tax years going back up to 10 years from the date you file your request. To kickstart the process, complete and submit form RC4288.
Repay your tax debt using a debt consolidation loan
A debt consolidation loan is another option for paying off your tax debt. This loan enables you to combine multiple debts you owe under a single monthly payment plan. It also offers a low-interest rate, netting you savings on interest costs and making your payments more manageable.
However, let’s say you cannot secure a favourable rate. In that case, you won’t realize any benefit by transferring your tax debt to this kind of loan, aside from getting the tax authorities off your back. You’ll still be responsible for repaying your entire balance through your new loan. And any assets your own that secure the loan are up for grabs by your lender should you default.
Reduce your balance with a consumer proposal
By filing a consumer proposal, you can significantly reduce the tax debt you owe to the CRA. A consumer proposal is a debt-relief program offered by the federal government through the Bankruptcy and Insolvency Act (BIA). It allows you to negotiate a new payment plan with your creditors for any unsecured debt you owe, like credit cards and lines of credit. Tax debt also qualifies as unsecured debt.
This unique program will allow you to reduce your outstanding tax debt by up to 80%. As a result, you’ll have much more room in your budget to repay your remaining balance. Provided that half of your creditors agree to the terms of the revised payment plan, you can make monthly payments to settle your debt over five years.
A consumer proposal offers numerous advantages:
- Payments are based only on what you can afford
- No interest charges or penalties accrue
- No requirement to surrender your assets
In Canada, the only individual who can administer a consumer proposal on your behalf is a Licensed Insolvency Trustee.
Eliminate your tax debt by filing for personal bankruptcy
Is it possible to clear your tax debt through bankruptcy? Absolutely! Since 1992, the CRA’s status under the BIA has been that of an unsecured creditor, which means you can legally discharge your tax debt through bankruptcy (unless the agency has already secured the debt through a lien on your assets).
Like a consumer proposal, bankruptcy is a legal proceeding governed by the BIA. As such, you must enlist the help of a Licensed Insolvency Trustee to carry it out on your behalf.
Bankruptcy will eliminate your tax debt and most, if not all, of the other unsecured debt you choose to include when filing. Once the legal process is complete, the tax debt you owe to the CRA will disappear, enabling you to rebuild your finances from the ground up.
However, taking the bankruptcy route should never be taken lightly – there are serious negative consequences to consider.
First, the impact on your credit standing will be severe and prolonged (bankruptcy can remain on your credit report for seven years). Second, you must surrender your assets (with some exceptions) to resolve your debts.
Our professional recommendation
Appealing to the CRA to negotiate new payment terms or eliminate the interest and penalties is a viable solution to obtain tax debt relief. Similarly, a debt consolidation loan will enable you to immediately pay off your tax debt and make monthly payments through a new, low-interest loan.
However, in both cases, you’ll still be under obligation to pay 100% of your balance. Depending on your tax bill’s size, these options may prove insufficient in providing the debt relief you need to resume a quality life. This is especially true if you’re already having difficulty servicing other debt obligations like credit cards.
If you need to take drastic action to get your tax debt under control, filing a consumer proposal is a superior alternative. You can legally discharge a large chunk of your debt – and you won’t have to pay a dime in interest charges or penalties on the remaining balance.
Bankruptcy is another option to consider. But only as a last resort, given the repercussions we mentioned.
Unsure of which path to take? If so, book a free consultation with one of our Licensed Insolvency Trustees. They’ll discuss your debt relief options in detail to see if a consumer proposal or bankruptcy is the ideal way to slash your tax bill.
Either way, you’ll gain the opportunity to settle your CRA tax debt safely and effectively.
See how much you can save through a consumer proposal using our handy debt calculator. Or, if you’re ready to chat, feel free to contact us – we’re happy to help you every step of the way!
Advice on Income Tax Debt
Getting into debt is easy. Getting out is a different story.
But it's still possible!
Did you know there is a Debt Program federally regulated by the Canadian Government, designed to help citizens avoid claiming bankruptcy? This amazing program can only be administered by a Licensed Insolvency Trustee (LIT).
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