Every year, without fail, just like snow and temperatures will eventually fall in the winter, mosquitoes will pester us in the summer… every April, the tax man comes. With the deadline for Canadians to pay their personal taxes (by April 30) lets explore the issue of when you OWE money to CRA (Canada Revenue Agency).
Currently we (the trustees at Grant Thornton) are seeing about 50% of our clientele dealing with with some amount of tax debt that is owed to the CRA . While this may seem like a relatively high number, tax debt is not unusual.
One of the major trends we continue to see is people not filing their taxes for fear of owing money – this is not only a mistake, but failing to file your taxes does not get you out of paying the taxes for the year, if you owe, it can actually lead to larger amounts being owed through fines and penalties. We have seen tax debt to the extent where 50% of the amount owed is a build up of fines, interest and penalties over multiple years.
Here are the most common reasons people fall behind on paying (or filing) their taxes:
- High costs from relationship breakdown – separation or divorce has caused people to incur costs associated with legal bills and support payments, distracting them from focusing on tax filing and remittance requirements
- Lack of knowledge – this is more common among self-employed people that have been making good money in their respective trade. Often these people may fail to recognize the need to maintain compliance with CRA – they often put aside the matter until it’s too late, or underestimate the amount they need to set aside to pay tax which ends up causing them trouble. Some small business owners simply do not know what is required and have been soo busy working on the profit side of their business, they neglect to care for the compliance side.
- Procrastination – some people are born procrastinators and just put off dealing with their taxes until they have completely forgotten about them all together. Then one day they are forced to deal with many years of unfiled taxes.
“The biggest mistake we see people make is neglecting to file their taxes year after year, and letting costs build up to insurmountable amounts – frequently, the penalties and interest from either not filing or not paying becomes as much as the tax owing,” says Freida Richer. “People are eventually pushed to resolve their tax debt because of the following reasons:
- the CRA begins to garnish their wages to a point where they have no choice but to deal with their taxes,
- the CRA threaten to file writ on the property of their home,
- they get pressure from family or have a change in their life (birth or marriage) and want to get their finances in order.
- their is a freeze put on their bank account.
Whatever the motivation, people should know that only a Trustee can help negotiate tax debt with CRA.”
With tax season approaching, now is the time for people to be especially mindful of their taxes and keep in mind that filing them, even if you owe, is still better than neglecting them all together. CRA is more inclined to work with you if your taxes are filed and up to date than if they find out you have not filed your taxes in years.
On another note, keep your receipts and all tax related documentation for seven (7) years, you never know when/if you will be audited and its much easier to save the information than to try to hunt it down later.
If tax debt has become a challenge that you are ready to deal with, contact one of our trustees where we can review your options. Consumer Proposals allow people to make a fair and reasonable proposal to their creditors, including the CRA, for a revised repayment plan. Often times we are able to consolidate and reduce the overall debt owing and provide and interest-free repayment schedule for up to 60 months.
With multiple locations across Canada, there is sure to be an office near you.