When you owe the government money, it can be overwhelmingly stressful. It doesn’t matter if it is for taxes, student loans or even Medical Service premiums. Most consumers assume that the government has an endless means available to them to collect the debt.
The Government of Canada, through its various departments of the Canada Revenue Agency (CRA), are responsible for the issuance of income tax refunds, pension and old age security, GST/HST and provincial credits and other government issued income sources. When you owe the CRA money, there is concern that any collection action will result in loss of income and will leave an individual without sufficient resources to meet their basic living expenses let alone any other debt payments.
What Can They Do to Me?
CRA has the right to proceed with collection action without a Court Order. It can be as simple as issuing a Requirement to Pay to your employer (garnishee) or a Set Off Notice to the department that issues CPP benefits. In essence the government can:
- Garnishee your wages up to 50 percent of gross earnings of employment income (usually it’s at least 30%);
- Garnishee up to 100 percent of self-employed income (especially if you owe GST or payroll deductions);
- Put a freeze on your bank account and seize the funds on deposit and continue to seize subsequent deposits;
- Withhold certain tax credits such as GST/HST refund cheques and set those credits off against the debt;
- Arbitrarily assess any unfiled income tax returns and apply penalties and interest to the debt owing; and
- If you are a homeowner, file a lien on your property that would ensure the debt is paid if the property is sold.
Why would this occur?
These actions will usually be taken by CRA when the following occurs:
- The tax debtor has ignored their obligation to pay the taxes owing;
- The tax debtor has ignored all phone calls and letters from CRA requesting contact;
- The tax debtor is non-compliant in their tax filings leading to arbitrary assessments;
To avoid collection by CRA, you need to file any outstanding tax documents and continue to file your income tax returns on time each year. CRA is big on tax compliance. It’s not illegal to owe them money but it is illegal not to file your returns.
This will help you improve your situation by complying with the tax laws. It also helps you determine how much debt you owe them.
Once the amount is determined, you can figure out how you’re going to pay them and also know how much you should be sending them each month for next year’s tax debt so you do not continue to have debt owing year after year. Sending them the money monthly avoids the temptation to spend it and will help stop the cycle of owing taxes every year.
After your returns have been filed, start making some meaningful payments towards the debt. The CRA may ask you to provide various documents to help them determine a suitable monthly payment. This may include an income and expense statement that outlines your other financial obligations.
Expect to sacrifice some of the niceties of life, such as recreation or vacations, to get this debt under control. This applies not to just CRA debt but also to other debt.
And finally, make sure you stick to the payment plan that was agreed. CRA wants to see a concentrated effort and compliance with the income tax obligations. Whatever you do, don’t enter into a payment arrangement that you can’t keep. You will miss payments and CRA will start collections once again.
They Want More Than I Can Reasonably Afford
Despite your best intentions to pay the debt, sometimes it is not enough when you owe a lot of money to CRA. It may be the amount of the debt is just too high or perhaps the budget does not allow for a monthly payment. If that is the case, it is recommended you speak to a Licensed Insolvency Trustee (“LIT”) to discuss your options.
LITs are debt professionals and can assess your financial situation to determine if a bankruptcy or proposal is the best choice to allow you to make a fresh start. In most cases, debt owing to CRA can be included in a bankruptcy and proposal. With a few exceptions, CRA is treated like any other creditor in insolvency proceedings and must stop their collection activity once a bankruptcy or a proposal is filed.
An LIT can also provide continued support to make sure that you are not at risk for incurring future tax debt through the two mandatory counselling sessions.
Beware of Scams
Scammers posing as Canada Revenue Agency (CRA) employees continue to contact Canadians, misleading them into paying false debt. These persistent scammers have created fear among people who now automatically assume that any communication from someone representing the CRA is not genuine. To be sure that it is not a scam, review this website as to what CRA will and won’t do.
Contact one of the Licensed Insolvency Trustees at Boale, Wood & Company Ltd. for a free consultation. We will be able to advise you on what solutions are available to help you address the problem.
Call us. It’s not too late. (604) 605-3335.