If you have outstanding income tax debt with the Canada Revenue Agency (CRA), you should take action to deal with it sooner than later. The government can hit you with penalties and high rates of interest on taxes owed. Luckily, there are options available to help you deal with this debt.
Negotiate payment terms
You may be able to explain your financial situation to CRA and try to negotiate a payment plan. For example, if you owe $1,000, you may offer to pay $100 per month for the next ten months. But, even if the CRA accepts your offer, you will continue to be charged penalties and interest until your debt is paid in full. If you’re unable to successfully negotiate terms, the CRA may withhold tax refunds and GST credits, garnish your wages or accounts receivables, take funds from your bank account, and even place a lien on your home or other real property.
More formal options
Filing a consumer proposal will stop both collection action and interest and penalties. Normally a proposal is for less that 100% of the debt you owe, however, CRA has specific criteria regarding proposals. Another option is declaring bankruptcy. It’s a common misconception that personal income tax debt is not discharged by bankruptcy. In fact, personal income taxes are covered by bankruptcy.
If you are struggling with income tax debt and aren’t sure about the best way to proceed, meet with a Grant Thornton debt professional for a free, confidential consultation to learn more about your options.