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Can’t Pay Your CRA Back Taxes? What Are Your Options?

March 18, 2019

Owe Back Taxes to the CRA? Find out what you can do if you cant pay back your taxes. There are options including claiming financial hardship, setting up a payment plan etc. Its vital to get ahead on your back taxes to avoid costly interest and penalties. Farber Tax can help you sort it all out.

Can’t Pay Your CRA Back Taxes? What Are Your Options?

If you have Canada Revenue Agency (CRA) back taxes, it might help to know that you are not alone. Tens of thousands of Canadians have back taxes at some point in time, and many still have CRA tax owing. The good news is that it is not illegal to owe money to CRA as long as you have filed the returns properly – so you won’t have to worry about potentially facing criminal prosecution.

The bad news is, if you have back taxes and cannot pay CRA exactly the way they want to be paid, this can quickly become a huge problem that can get very stressful. Why? Because the CRA is very powerful and the agency will do whatever is within their means to collect the back taxes from you. This includes using all the tactics in their enforcement collection toolbox. These collections actions can throw you into financial turmoil.

What Can You Do if you Cannot Pay Your CRA back taxes?

If you have CRA tax owing, and you’re not able to pay it, your first instinct might be to avoid filing or to try to ignore the CRA, hoping that the issue will go away. The reality is that, if you owe taxes, the CRA will find you. As mentioned, not filing your taxes could be considered tax evasion, which is a crime, so you will certainly want to file even if you cannot pay.

What you should do is attempt to arrange a fair and affordable payment plan that CRA will accept and that you can live with. Take a realistic look at your budget and consider what you can pay. Expect the CRA to push you hard on what they consider fair.

However, it’s important to know that negotiating a payment plan with CRA yourself can be very risky. When contacting the CRA directly, you are opening yourself up to very well-trained collection agents who have significant power under the Income Tax Act and the Excise Tax Act. They know how to lead you into divulging more information about yourself than you are required to provide, and this leaves you in a potentially dangerous situation where they know the details of how to squeeze you.

With that said, doing nothing will leave you wide open to harsh collection efforts by CRA. Unless you can pay in full on a very short timetable, we never recommend that you contact CRA directly. It is generally better to work with an experienced professional to negotiate with CRA. A professional will know your rights and the consequences of certain disclosures. This will go a long way to ensuring you are treated fairly and receiving the full benefit of CRA repayment policies – not simply what the collector chooses to tell you.

 Putting your Property for Sale for Back Taxes

If you are thinking about borrowing against your home, putting your property for sale for back taxes, or obtaining other credit to repay CRA, you should do so before CRA puts a lien on your home as part of their collections action.

However, know that there is a risk to these strategies as well. Any sales or loans should be negotiated through a tax professional who specializes in this area. If you go directly to your existing bank or lender you can damage your relationship with them. Many lenders, especially banks, frown upon back taxes and view them the same as having bad credit. You may not only be declined for the increased financing, but the lender may also cancel existing loan arrangements they have with you.

If You Cannot Pay Your Back Taxes

If you are currently suffering from financial hardship, cannot pay your CRA back taxes and have no fair and practical solution to repay your debts, then a consumer proposal may also be an option. A good professional advisor will be skilled at looking at all your options and explaining them to you – from objecting, appealing, seeking reductions of the amounts of interest and penalties being charged to you, borrowing to pay, obtaining repayment terms, and if none of these are right for you the right of protection under Federal Law against all creditors (including CRA).

For most, the consumer proposal is a last option, but for some it is the best option. Why? Without bankruptcy, it provides immediate relief from CRA enforcement action, stops CRA interest, usually reduces the size of the tax debt, and allows for a single reduced monthly payment.

However, consumer proposals can be complex and your ability to qualify largely depends on your personal circumstances. Only a Licensed Insolvency Trustee can actually file a consumer proposal for you. Not all trustees are skilled in evaluating your options to solve your tax problems under the various CRA policies, so they will direct you towards a consumer proposal or even a bankruptcy.  A skilled tax professional will be entirely on your side of the table looking after your interests ahead of CRA and other creditors when advising you about all your options.

How to File Back Taxes Canada

If you believe that you owe money, and have not filed your taxes, you should work to resolve this situation as quickly as possible. Remember, it’s not a crime to owe the CRA money, but it could be a crime if you do not file.

Do not wait until CRA freezes your bank account, puts a lien on your home, garnishes your wages or takes some other action that can be embarrassing, damage relationships, and result in financial hardship. The ‘wait and see approach’ will most certainly catch up to you in the long run and you will be in a much worse situation than you are in today.

Our team can help you resolve your tax situation, become compliant with the CRA, file your back taxes, and negotiate a reasonable payment plan with the Canada Revenue Agency. Contact us today to find out how we can help. We have a proven track record of success and we know what it takes to get results.