Owe tax debt? Avoid these 5 common misconceptions 

GST cheques being withheld as part of CRA wage garnishment

Owe income tax debt, missed filing your tax return, or facing CRA wage garnishment

Managing income tax debt can be challenging, but there are solutions available and having the right information is key. We break down five tax debt myths and bust common misconceptions to keep you in the know and out of the red. 

Myth: “If I don’t have the money to repay CRA tax debt, there’s no point in filing my income tax return.” 

Fact: It’s always in your best interest to file your income tax return on time, whether you owe money to the Canada Revenue Agency (CRA) or not. Late filing penalties and daily compounding interest will only lead to a growing balance on your account. 

If you have tax debt and haven’t filed your returns in a while, getting up-to-date on filing will make communicating with the CRA much easier. Additionally, having unfiled income tax returns could lead to missing out on tax credits like GST credits, RRSP contribution room, and tuition credit transfers, which could give you more financial flexibility or help reduce the overall amount you owe. 

Myth: “Tax debt will eventually expire if I wait long enough.” 

Fact: Unlike unsecured debts, such as personal loans or credit card debt, tax debt has a collection limitation period of six to 10 years, depending on the type of tax debt. However, it’s a myth that your tax debt will disappear if you wait long enough. The CRA can extend or restart their collection limitation period as soon as certain collection activities, such as wage garnishment or asset seizure, occur. 

If you owe tax debt, though there may be a CRA collection limitation in place, it’s advised to pay the debt immediately, as you’ll accrue penalties and interest. It’s in your best interest to communicate with the CRA or contact a Licensed Insolvency Trustee to help manage your income tax debt. 

Myth: “CRA doesn’t forgive tax debt.” 

Fact: Overwhelming income tax debt can be managed or “forgiven” with help from a certified professional. Licensed Insolvency Trustees (LITs) can legally negotiate with CRA on your behalf and administer formal solutions that can resolve tax debt and other unsecured debts. 

For example, a consumer proposal is a legal repayment agreement negotiated with creditors to settle unsecured debt such as credit cards, income tax debt, payday loans, etc. Your LIT will work with you to offer creditors a percentage of what’s owed. Consumer Proposals are a type of payment negotiation the CRA will accept. 

Myth: “The CRA can garnish only wages.” 

Fact: The CRA has unique debt collection privileges and can take collection action beyond wage garnishments. Unlike other creditors, the CRA doesn’t need a court order to garnish your wages and can begin collection action very quickly.  If you owe money to the CRA but don’t make your payments, they can also keep tax returns or GST cheques, garnish your income or bank account, and obtain a judgement on your assets (like a house or car) for the amount owed. If you have property, CRA can also place a ‘memorial’ judgement against your home. It’s important that you speak to a LIT to understand your options and how to protect your assets. 

Myth: “Getting professional advice on tax debt is too expensive.”

Fact: It costs nothing to meet with one of our Licensed Insolvency Trustees to explore your debt relief options.  

We understand that talking about your financial situation can be stressful whether your debts are old, new, big, or small. At Grant Thornton Debt Solutions, our trustees come from a place of understanding, compassion, and authenticity. Our job is to advise you on your financial situation, not judge it. Book your free consultation today and start your journey to debt freedom.

Ask A Question
Comments

Comments are closed.