Not our parents’ generation when it comes to personal debt

It’s been said before:  In a number of ways, we are not like our parents’ generation. Things will always change. Bottom line, we often think and act differently from our parents.

Perhaps new technology and the digital revolution spring to mind first?  It’s true. From the fax and laptop to smart phones and wearable technology, the world looks and works in many new, and evolving, ways.

What’s also true is our change in attitude and actions when it comes to personal debt. In 2012, the Globe and Mail reported on a poll conducted by a firm of bankruptcy trustees. The results show that most Canadians are quite comfortable with using debt as a financial strategy. Yet, this was a time when debt loads had risen to alarming new highs. The survey found that nine out of 10 respondents would consider borrowing money to cover an unexpected expense that was not an emergency.

By contrast, in the 1960s, families frequently lived a ‘middle class’ lifestyle and managed to own a home on one income (usually the Dad’s). The mindset was typically to save for needed things—rather than to borrow. And, this lifestyle rarely included the additional luxuries we see fairly common in our lives today: second cars, cable TV, eating out, vacations and plane travel, smart phones and tablets, pricey gym or golf memberships, designer duds etc.

The downside to our view of what constitutes the appropriate lifestyle of the 21st century is that to acquire and maintain this level of consumerism we may spend more than we earn (a concept that would rarely be considered acceptable in the 1960s)! In our work at Grant Thornton, we often see where this can lead:  Consistently living beyond ones means, borrowing, excessive purchasing and maximizing high-interest credit cards can put individuals and families into highly stressful situations with increasing debt loads (whether we believe we can afford it or not).

Our role is to help people address their debt problems and find ways to rebuild a solid financial future. We can help with tips and reminders so that you may not need our assistance again in the future, including: disaster proof your life (get your life insurance and an emergency fund in place), spend less than you earn, aggressively pay down high interest debt, read the fine print on any purchase agreements (you may be liable for significant interest payments if you miss the eventual payment due date) and delay consumption (save for that vacation rather than charge it).
If you are facing financial struggles or would like some help with managing your debt—one of our professionals is available to discuss your situation. There are many options available, ask us about a consumer proposal.  Contact us for a confidential, no-obligation, complimentary consultation. Call us toll free at 310 8888.



Forget any potential tax refund, what if you owe money to Canada Revenue Agency?

Are you dreaming of a tax refund? Many of us are ever-optimistic and complete our tax returns (maybe with professional help) hoping a refund might be coming our way—to fund a vacation or, likely the better choice: to pay down credit card debt.

However, you may be one of thousands of Canadians who has not yet paid any personal income tax for the 2012 tax year, and/or owes for previous years (and hopefully has a formalized payment plan in process) or, is an outlier nervously avoiding the reality of several years of unfiled tax returns.

Paying personal income tax regularly – and fully – is often the bane of the self-employed. For entrepreneurs there may be no one tasked with diligently deducting (and remitting) tax, before income or a draw from revenues is taken.

Tax debt cannot be taken lightly. CRA has unique powers to make sure they collect what people owe. Knowing that none of us like to pay taxes they charge penalties and interest on all overdue taxes. It’s a policy designed to keep us on the straight and narrow. If you do get into arrears, CRA can withhold child tax credits and GST credits until the debt is paid. They can take money from your bank account or garnishee your wages without getting a judgment against you. CRA has millions of taxpayers and they are almost always unwilling to accept less than full payment.

I say ‘almost’ because there are situations where some relief from tax debt is available.

If you owe personal income tax and cannot pay the balance in full, you can explain your financial situation to CRA and negotiate a payment plan. For example, if you owe $1,000, you may offer to pay $100 per month for the next ten months. However, even if CRA accepts your offer, you will continue to be charged interest until your debt is paid.

Another option is to make a formal Proposal to CRA. Developed with the help of a professional Bankruptcy Trustee, a Proposal isn’t bankruptcy but rather a means to explore other ways to address a variety of debt problems. Making a Proposal to creditors (banks, stores) is quite common and can be a way to negotiate lower debt amounts and/or expanded repayment schedules.

When making a Proposal to CRA it is not a ‘for-sure’ opportunity to obtain a reduction of your tax debt (and extended payment terms). You must show that your filings are up to date, not fraudulent in your representation and, that prior to your Proposal you have been a taxpayer in good standing. You have to be able to make a case for extreme circumstances hindering your ability to pay the full amount as due—and demonstrate you are truly an honest and unfortunate debtor.

The Proposal will only include taxes owing prior to the Proposal date. Tax returns due during the Proposal period must be filed as required and any tax owing paid as it becomes due. Depending on your situation, payments could be made for up to five years.

The other option to addressing tax debt is bankruptcy. It’s a common misconception that personal income tax debt is not discharged by bankruptcy. This is not true; personal income taxes are covered by bankruptcy and this solution should be discussed fully with a Bankruptcy Trustee to ensure it might be the most viable solution to an individual’s distinct situation.

And, if you haven’t filed your personal tax return for several years, get the tax package and forms for the missing tax years from the CRA. Fill them out and send them in. If there is a balance owing you will have to pay a late filing penalty of a percentage of the tax you owe plus a percentage for every month you are late. You will also be charged interest on the outstanding amount. Check the CRA website for current percentage rates and other implications. There is no escape from CRA and addressing your tax situation will bring you some relief—eventually. Make sure you file regularly in the future and maybe, one day in the not too distant future . . . a tax refund will come your way.