I owe personal taxes! I don’t have the money to pay them and my other debts. What do I do?
The starting point is to understand why you owe taxes. The next step is to fix it so you don’t owe in future years.
Generally, the main cause of why you owe personal taxes are:
- You are self-employed and didn’t remit your tax installment That means you are spending the money you should be saving for taxes.
- When you have multiple jobs, typically the taxes deducted by your employer don’t often equal the taxes based on your annual It would be wise to have more taxes taken off your paycheque to avoid this issue in the future.
- You receive several different sources of income with inadequate deductions, such as employment income, pension income, CPP and OAS. Or you may have cashed in an RRSP. All of these sources of income are taxable.
What not to do
Don’t avoid it. Don’t ignore it. If you fail to file a tax return and owe taxes, Canada Revenue Agency (“CRA”) will charge you a late filing penalty and interest on the balance owing. The penalty is 5% of the balance owing, plus 1% of your balance owing for each full month your return is late, to a maximum of 12 months.
If CRA charged a late-filing penalty on a prior income tax return, the late-filing penalty for 2016 may be 10% of your 2016 balance owing, plus 2% of your 2016 balance owing for each full month your return is late, to a maximum of 20 months. That could possibly end up being a 50% penalty plus interest! A tax debt can grow very fast once interest and penalties are added.
Knowing that you might have a large tax debt once you’ve filed can be stressful, but if you’re considering not filing to avoid it, this is the worst thing you can do. The debt is not going away, you’re just delaying the inevitable
Even if you cannot pay your full balance owing on or before April 30, 2017, you can avoid the late-filing penalty by filing your return on time.
You need to have a plan to deal with all your debts, not just CRA.
Your plan should consider your total assets, income (after tax) and debts. You will need to prepare a budget of your living expenses. And don’t forget you need to solve future tax debts as well. And if you own a house, you need to act fast before CRA registers a lein on it.
In our experience, you will need the assistance of a Licensed Insolvency Trustee. Our professionals will meet with you and go through all your financial options, such as restructuring your debt by way of a proposal, budgetary matters and the last choice if nothing else works would be bankruptcy. Yes, taxes are included in any of the options available.
Ignoring your debts will only lead to more stress and does not make them go away. In fact, waiting may make any financial or legal consequences more serious. Lastly, you don’t want your paycheque to be garnisheed by CRA.
You need to set up a free consultation with one of our experienced professionals.
Call us. It’s not too late. (604) 605-3335.