Tax debt can be a burden, and dealing with the Canada Revenue Agency is not a funfair either. Fortunately, if you find yourself struggling to pay your taxes, the CRA offers debt relief options that could help you manage or even reduce your tax obligations. The aim of this assistance is to reduce financial struggles while ensuring compliance with tax laws.

If you default in paying your taxes, the CRA could go after you with wage garnishments, additional fees or interest, and other legal actions. In order to avoid these penalties, you can explore CRA’s debt relief options. With this, taxpayers can find manageable ways to address their tax debts and reduce the stress that comes with it.

Installment Payments

If you are unable to beat the deadline to file your taxes, you can make an arrangement with the CRA to pay off your debt through installments.

This payment arrangement may not go beyond 12 months, which could seem like a short time, depending on how much you owe. However, this is a good option since the CRA will delay pursuing serious collection actions against you. 

While this plan facilitates easier payment of tax debts, you should know that interest will continue to pile up on the outstanding balance until the debt is fully paid. However, the interest rate charged by the CRA for installment payments is generally lower compared to what you will get with other types of debt, like credit cards or payday loans.

To establish an installment payment plan, contact the CRA as soon as you realise you won’t be able to pay your taxes in full. Keep an open line of communication with the CRA and adhere strictly to the terms of the installment agreement.

Payment Arrangement 

While installment payments are a type of payment agreement, there are other types as well. Payment agreements can be tailored to your specific financial issue and may involve different terms, such as varying payment amounts, flexible payment schedules, or a lump-sum settlement.

To set up a Payment Arrangement, you should communicate your financial situation to the CRA. Provide detailed information about your income, expenses, assets, and debts. Based on this information, the CRA will assess your ability to pay and determine a reasonable payment schedule. 

The Payment Arrangement is designed to be flexible. Taxpayers can propose the terms of the plan and it is left to the CRA to approve. The agency may also require periodic reviews of the taxpayer’s financial situation to adjust the payment terms if necessary. 

Regular and timely payments are important to keep the agreement intact. Furthermore, you can maintain consistent communication with the CRA during the duration of the payment plan. This can help you manage any potential issue that may arise.

Taxpayer Relief Program

Another tax debt relief provided by the CRA is the Taxpayer Relief Program. This program offers relief from penalties and interests when a taxpayer faces circumstances that are beyond his control , which then hinders him from meeting his tax obligations.

Examples of situations that may qualify for relief under this program includes natural disasters, serious illness or accident, severe emotional or mental distress, and postal strikes or errors within the CRA (such as processing delays or incorrect information provided to the taxpayer). The Taxpayer Relief Program is designed to help Canadians get some assistance with their obligation when compliance with tax law is not possible due to exceptional and serious circumstances.

If you want to apply for this relief, submit a formal request to the CRA with details of the specific reasons why you were unable to comply with the tax laws, along with any supporting documentation, like medical records or any relevant evidence. The CRA will review each case individually and may grant relief by waiving penalties and interest that have accrued due to the circumstances outlined in the application.

But you need to know that you only get assistance with the interests or penalties, the principal amount has to be paid.

Consumer Proposal

A consumer proposal is a legal debt-relief program whereby you consolidate your unsecured debts and propose a payment plan with your creditors to pay less than what you owe. If your creditors accept your proposal, you will pay your debts in installments, and it can extend to a period of five years. During the consumer proposal, no interest or penalties will accrue on your balance.

The good news is that you can include your unpaid taxes in a consumer proposal, as they count as an unsecured debt. In a consumer proposal, you can reduce your unsecured debts by up to 80%.

A Consumer Proposal is designed for individuals who cannot pay their full debt due to their financial circumstances. This option is better than declaring bankruptcy, which is often a last resort. In a consumer proposal, you will be able to keep your assets.

Bottom Line

Tax debts and any other form of debts can cause stress to individuals. This is why there are debt relief options designed to help you make the burden feel lighter. If you have overwhelming debt, you should not do it all alone. You can speak with one of our debt experts at EmpireOne Credit. Your debt can be reduced by up to 80%, and interest will stop immediately. Call us at (416) 900-2324 to schedule a free consultation. Being debt-free feels good!