If you owe back taxes, it can feel impossible to get ahead of them. Fortunately, there are ways to work with the CRA to settle your back taxes. The CRA offers three programs to make your taxes more affordable.

Here’s everything you must know about the programs to help you decide. If you can’t get a program to work for you, there’s always the option to work with a credit counsellor that can provide debt solutions, such as a consumer proposal to handle all unsecured including your CRA tax debt.

Get a Payment Arrangement

The easiest way to settle your tax debt with the CRA is to negotiate a payment arrangement with them. This may seem intimidating, but this can be done with a simple phone call and understanding what you can afford to pay back on a term and amount agreed on, as this will be expected.

Each taxpayer works out a different plan with the CRA. Typically, you arrange to pay the full amount over a specific term. For example, if you owe $2,000, you may pay it over 24 months, paying $83.33 a month.

Of course, the CRA must agree to the terms, which may seem intimidating to some. To get a payment arrangement, you must contact the CRA office and explain why you need the payment arrangement. You must be up-to-date on filing your tax returns, and you may have to prove that you can’t pay the full amount owing in a lump payment, can’t qualify or afford a loan to cover the debt.

Apply for Taxpayer Relief

A limited number of taxpayers may qualify for taxpayer relief. This provides you with an exception to paying interest and penalties that the CRA normally charges to taxpayers with an outstanding balance, even if they pay the debt on a payment arrangement.

The taxpayers that qualify are experiencing extreme financial hardship and are unable to pay any portion of their tax debt. Typically, taxpayers with severe medical issues, mental health issues, or who suffered from a natural disaster qualify.

Approval is on a case-by-case basis and you have up to 10 years to apply for tax relief from previous tax years.

Consider Debt Consolidation

If you have a large amount of debt in addition to your tax debt, consider debt consolidation. A credit counsellor can help you with debt solutions that consolidate all your debt into one. This way you settle your debts, and have one payment to manage.

Before you use this option, talk with a debt expert to make sure it’s the best affordable option that fits your budget. You’ll likely have a higher interest rate than you would on any personal loans, which means a higher payment, but if it consolidated everything into one loan, it may be more manageable for you.

File a Consumer Proposal

Another option that many taxpayers end up using is the consumer proposal. This is the only option available that allows you to avoid filing bankruptcy and gets you a debt settlement on your government tax debt.

When you file a consumer proposal in Ontario, you also make an arrangement for all other unsecured debts, such as credit card debt and/or unsecured personal loans. The total amount of your unsecured debt will be added with the tax debt. A legal agreement will be filed between you and your creditors. You will make affordable monthly payments in a maximum term of 5 years or less and your debt is considered satisfied once you complete the proposal agreement.

File Bankruptcy

As a last resort, you can consider filing bankruptcy to eliminate your tax debt. This works best if you have a lot of other personal debt that you are behind on and can’t commit to payments.

If you qualify to file Bankruptcy, you can write off your debts including your CRA tax debt. Bankruptcy has the harshest consequences on your credit, so choose this as a last resort and only after talking with a debt expert.

What you Must Know Before Trying to Eliminate Tax Debt

No matter which option you choose from above, you must know the following factors to make your attempt at eliminating tax debt successful.

Always File your Tax Returns

Even if you are in the middle of working out a payment arrangement or consumer proposal, always file your tax returns. You’ll have a much higher chance of approval if you file your tax returns on time, even if you can’t afford the payments.

Have an Explanation of your Situation

You must have great reasons for asking for tax debt forgiveness, a payment arrangement, or a consumer proposal. Don’t hold back details about why you are suffering financially. The more details you provide, the more likely your request is to be accepted.

The CRA can Withhold your Tax Credits or Worse

If you don’t try to satisfy your debt or work with the CRA on some level of forgiveness, they could come after you for the debt. Don’t delay if you don’t think you can afford the debt. If you wait too long, the CRA can withhold your GST, child tax credits, garnish your wages, or even freeze or withdraw funds from your bank account.

Final Thoughts

Facing tax debt, especially tax debt from previous years can feel overwhelming and it may feel better to ignore it, but don’t.

The CRA takes past due tax debt seriously. If you address the issue and try to resolve it, you’ll be in a much better position, even if it means spreading your payments out over a period of time with them, filing for a consumer proposal or bankruptcy.

The worst thing to do is ignore your tax debt. If you need help with your tax debt, contact our office at EmpireOne Credit. Our professionals are experienced in helping consumers figure out the best solution for their tax debt.

Call 416-900-2324 and talk to our credit counsellors today to see how we can help. Don’t fight tax debt alone – we are here to help you!