How to Deal with CRA Tax Debt
Do you owe money to the CRA? Tax debt isn’t exactly the same as having consumer debt. You may have more stringent rules to follow, higher interest rates, and harsher consequences to not paying down your CRA debts in a timely manner. So, what do you do? Keep reading to find out more about how to deal with CRA tax debt. How applying for a personal loan can help you solve your government tax problems. Get yourself on the road to financial freedom.
What is CRA Tax Debt?
Canada Revenue Agency (CRA) tax debt is debt due to unpaid income taxes. Each year, when you file your annual income taxes, the government will assess if you have underpaid or overpaid taxes. If you have underpaid, the government will demand you pay back the taxes throughout the following fiscal year. This amount will be based on your annual salary of the previous year. The amount of money you put into an RRSP, and the amount of taxes you did pay. Tax credits will be applied , as well.
Once all is say and done, the government will either credit you or charge you. If you must repay taxes, the CRA will normally provide you with a few different payment options to make it simple and easy for you. However, in many cases, individuals are still not capable of making the payments. If you cannot pay your tax bill, you will then go into debt with the CRA.
What Happens if You Owe Money to the CRA?
The CRA will provide you with a deadline date for payment at the end of the taxation season. They will often include the option to pay your taxes in installments. If you cannot make your payments, it is crucial you seek financial aid, and let the government know of the issue in an effort to work out a payment plan. Assuming that you don’t pay your income tax debts, the CRA can and will come after you to reclaim the missing funds.
If you owe money to the CRA, you will receive ample notice from them. You and the accountant who files taxes on your behalf will receive written notice of the amount you owe and the timeline for payment. If the timeline doesn’t work for you, you may try contacting the CRA to see if you can work out a better repayment plan. But don’t get your hopes up – the CRA is not known for their flexibility in this department.
Can You Negotiate Your CRA Tax Debt?
Historically, the CRA is not open to negotiation when it comes to collecting back taxes. Tax money is your fair share of the pie, which all citizens are expected to pay. Taxes help pay for things like healthcare, education, infrastructure and many other services we use every single day. The amount you have to pay is pretty much set in stone. Getting around it or having the amount lowered is not an option.
You may appeal your tax bill if you feel that a mistake was made and the CRA has wrongfully filed for your payment. However, if they are right and you do owe that money back, there will be no way to negotiate the amount down.
Will the CRA Forgive Tax Debt?
Not only does the CRA not negotiate CRA tax debt, but they definitely do not forgive it either. In Canada, by law, CRA tax debt is not something that can be forgiven. There is very little wiggle room with the CRA as they are a federal entity. Paying your CRA tax debt is the only way you can get yourself out of hot water with the CRA.
What Happens if I Don’t Pay My CRA Tax Debt?
What happens next isn’t pretty. If you do not pay your CRA tax debt, they will initially start piling interest on immediately after your payment due date. They will send you paper copies of your bills and reminders in the mail. If you still continue to ignore this debt, the government will move on to docking your pay directly from your employer. In Canada, if the CRA demands repayment from a paycheque, an employer must make the deductions and send payments to them on behalf of the employee who is not paying their debt.
If you don’t have a job, they can and will seize your assets and sell them off to help repay the outstanding debt you owe them. They do not waste time in collecting their missing funds. In addition to the extreme measures the CRA will take to recuperate their funds, your credit score will take a hit, as well. An unpaid CRA tax debt will not have a good impact on your credit rating. Once your credit begins to suffer, you may find yourself paying higher interest rates on loans, and missing out on new job opportunities or affordable housing. Bad credit can make your financial life much more difficult.
It is recommend to pay off your CRA tax debts before your situation gets this dire. Once you are in this boat, you will have very few options left for repaying your debt. Plus, future employers will also be make aware of your tax troubles and that will definitely prevent you from securing a better job.
What Happens if I Simply Can’t Pay My CRA Tax Debt?
This is the real problem. It isn’t that you don’t want to pay your debt, but you simply can’t. A little bad accounting advice or a few miscalculations and just like that, anyone can end up owing way more money than they thought or than they are capable of paying back. If you cannot pay your debt, you should contact the CRA as quickly as possible to explain your situation. While they will not change or reduce your amount, they may be open to discussing a more flexible repayment plan.
Be sure to contact the CRA before your payment due date to avoid incurring extra interest charges. However, even if they are make aware and they make arrangements with you, paying interest will likely be inevitable at this point.
What Can the CRA Seize?
If you have unpaid taxes and the CRA doesn’t see any other way to get their money back, you can be sure that they can and will take whatever they can from you and sell it to settle the debt. This could mean you may lose your house, car, or personal valuables. You will have no say in what the CRA seizes or how much they sell it for. At this point in the CRA tax debt cycle, you are fresh out of luck.
How Can I Get Rid of CRA Tax Debt?
The best thing to do if you are slapped with an unexpected tax bill is to borrow the money in the form of a personal loan or a second mortgage and pay off your debt to the CRA as required. A personal loan will keep the CRA off your back while you try to regain control of your financial situation. The only way to successfully rid yourself of CRA tax debt is to pay it off and get rid of it the appropriate way.
Can Bankruptcy Save Me from CRA Tax Debt?
In short, the answer is not necessarily. If the CRA has filed a lien on your home, then even bankruptcy will not remove the lien. It will only remove the taxes owed. However, the lien will remain. It is extremely difficult to get rid of a CRA tax debt without paying it off in full. In addition, filing for bankruptcy comes with a lot of complications. It will affect your ability to secure a credit card or loan for seven years. In some cases, it may leave lasting effects on your credit that will not disappear in the standard seven-year term.
Bankruptcy should always be considered a last – absolutely final – resort and even then, it may not solve all of your financial problems, particularly with federal entities like the CRA. The only other option you may have is to submit a Consumer Proposal through a licensed trustee, but this also has some negative effects on your credit score and long-term financial future.
How Can I Apply for a Personal Loan with Bad Credit?
If you are hesitant to apply got a loan because you have bad credit, you can reach out to BHM Financial to apply for a bad credit personal loan. As a lender, we do not deal with third parties. Instead, we make the loans ourselves so that means we can approve you even quicker. In fact, you can apply for a same-day loan and get the cash you need in your hands the very same business day.
If you owe money to the CRA, the best thing you can do is get a personal loan to pay it back. You definitely don’t want the CRA docking your pay or seizing your assets. It is best to borrow the funds, pay the debt, and work with our knowledgeable financial experts to develop a repayment plan that works for you. Our goal is to help you pay off your debts while still being able to live your life.
What Other Loans Can I Get?
If you own your home or your car, you may apply for a Home Equity Loan or a Car Loan. These loans will be based on the value of the asset you are borrowing against. If your home is paid off, or a substantial portion of it is, then you can use that to secure a loan and pay off your CRA tax debt immediately.
If you already have other debts that also need to be taken care of, you may want to consider a Consolidation Loan, as well. There are loads of choices at BHM Financial to help you get out of debt including Trailer Loan, Payday Loan, Loan on Land and more. Understanding each loan and its benefits can be overwhelming, we know! That’s why we recommend booking an appointment with our financial experts. They can help you better understand each loan and its benefits so you can choose the product that is best for your individual needs.
Whichever loan you choose, they will be a much better option for you than not paying the CRA back. The consequences of not paying your income tax or not filing your income taxes at all (which is a crime known as tax fraud), are not pretty. The best thing you can do is secure yourself a loan and get that debt paid off sooner rather than later.
How Can I Avoid Getting into CRA Tax Debt?
Avoiding getting into debt with the CRA again is crucial to your financial future. First, you should educate yourself about Canadian tax laws and provincial laws where you live. If you can correctly calculate what you will owe at the end of the year before you spend all of your disposable income, this can go a long way to prevent you from winding up with a huge bill and no funds to pay for it.
You can seek out financial education on the CRA’s website or from finance experts like the staff at BHM Financial. Financial literacy is an important skill that you will need to avoid these kinds of situations and stay on the path to success. Once you fall into the debt trap, it can be very difficult to get out on your own. If you are drowning in debt and don’t see the light at the end of the tunnel, reach out to us for help. We can help you understand our various loan products, choose the product that is best for you, pay off your debts, and give the financial knowledge you need to build a debt-free future.
If you have an accountant, you can also ask them for resources for financial information. It will serve you well to calculate your estimated earnings at the beginning of the year and estimated taxes to see if you will have paid enough in your regular deductions. If not, you can start budgeting for the lump sum you’ll owe next April in January of the previous year. This will give you ample time to save and avoid being catch with a lack of very necessary funds.
How Can I Keep Better Track of My Finances and Avoid Future Debts?
Avoiding debt is the best course of action, but sometimes it is unavoidable – especially when a global pandemic hits and job losses hit you at every turn. But there are things you can start doing to help minimize your risk of falling into debt. For example, you can save up a contingency fund in case of emergencies, cut down on non-essential costs, lower your cost of living, and spend more of your money on appreciating assets (like homes, and investments) instead of depreciating assets (like cars and consumer goods).
Making a spreadsheet to help you keep track of your expenses is another great way to control your spending and evaluate your spending habits. You will be surprise how many bad habits you have that are easily correct when you lay everything out on paper. It allows you to see where you have overspent. Plus, it’s an excellent tool for setting financial goals and following your savings account growth. The goal is to create realistic plans that you can stick to so you can manage your finances well and prevent getting catch up in a debt situation.
Why Should I Call BHM Financial?
At BHM Financial, we understand that life sometimes happens and even though you are normally ahead of the game, a few unforeseen issues can derail your entire future. We know that bad credit doesn’t always mean you can’t pay, but instead, means you need help making manageable payments. Our financial experts understand all of our products and your financial needs very well. They can help you understand the differences between all of our loan products so you can pick the one that best suits your needs.
What really sets us apart, however, is that we don’t just want to help you get out of debt. We want you to stay out of debt! When a lender makes a repayment plan that consumers can’t live with, they tend to end up getting into even more debt. Instead, we are flexible and work with you to develop a plan that works so you actually can pay it back. Paying back your personal loan to BHM Financial will actually help you get your credit rating back up because you’ll be making your payments on time.
BHM Financial wants you to avoid incurring more debt, help you get out of your current debt situation, and give you the tools and the knowledge you need to stay out of debt for the rest of your life. Just ask the thousands of Canadians we have helped climb out of insurmountable debt. Financial freedom is only a phone call away with BHM Financial.