The Canadian Tax Filing deadlines for regular filers and for filers with self-employment income are rapidly approaching.
Due to the COVID-19 pandemic, the Canada Revenue Agency (CRA) has pushed out the tax filing deadline for regular tax filers from April 30th, 2020, to June 1st, 2020. Canadians with self-employment income were due to file by June 15th, 2020, and that date has remained the same.
Any payments for the current tax year are due by September 1st, 2020, which applies to balances and instalments under Part 1 of the Income Tax Act due on or after March 18th and before September 1st, 2020.
If you earned significant self-employment income, for the first time, you might be in for an unexpected surprise when you file your tax return, because there will likely be a balance owing to the CRA. This balance owing is a result of having to pay the amounts that an employer would have normally deducted from your pay, including both portions of the Canada Pension Plan (CPP).
If you haven’t made other provisions to cover your tax debt at the end of the year, you could have a problem.
If this were not a pandemic year and the CRA was fully operational, I would warn that tax debt is serious and should be dealt with immediately.
As we are all aware, the collections staff at the CRA have considerable “power” to find and collect money that are owing to the Crown.
With the amount of government benefits being offered up this year, Canadians have been providing their banking information to the CRA in record numbers, and it is that banking information which the CRA can, and will, use to recover the taxes owing to them, likely in record time.
In effort to deter Canadians from not paying the CRA, they charge penalties and interest (which compounds daily) on your overdue taxes.
They can withhold payment of your Child Tax Credit and GST rebate. They can take money from your bank account or garnishee your wages.
If those methods do not result in full payment of taxes, the CRA will then check to see if you own real estate, as they can register a lien against your property.
When a lien is registered against your property it can prohibit you from refinancing or selling your property until the outstanding debt is paid in full.
You may also find that if you are non-compliant (not filed up to date with the CRA), you may not be able to secure mortgage financing to purchase a home, buy a cottage, get a loan, or access equity in your property.
Many Canadian banks and credit unions will not provide an unsecured loan for the payment of income tax debt and they generally cannot refinance an existing mortgage to cover the debt either. When they learn of a lien, they deem you a credit risk and are more comfortable walking away from you as a customer then take a risk lending you funds that you either cannot pay or that the CRA will end up taking.
What Can You Do
Normally, you would contact the CRA immediately – but these are COVID times – and the CRAès collections division is presently not taking collection actions or weighing in on payment arrangements.
Pay what you can, as much as you can. Because paying anything less than the balance owing is going to result in interest accumulating.
There is no need to pay more to the CRA, unless you absolutely have to.
If these were normal times, you might be able to negotiate a re-payment arrangement covering 3-6 months, but the interest continues to accrue.
What NOT to do
This is important to note – filing for bankruptcy, or filing a consumer proposal, does not discharge a lien against your property. If you go bankrupt on your CRA debt, the lien remains and – even worse – accrues interest over time. Even after your discharge from bankruptcy, the lien remains in force, until you eventually sell your home. Transferring a tax problem for a credit problem is not always the best option.
Do not transfer any assets, or your property, to another person. That will not solve your problems, but rather cause other ones.
Removing assets from the reach of the CRA will result in the raising of a Section 160 (325), non-armsè length assessment, which takes your tax debt and makes it jointly and severally liable with the person who now owns your property.
Do not ignore it. Far too often, Canadians ignore the requirement to file and pay their taxes. This means a balance owing to the CRA continues to grow and grow. When the balance gets to be too high, people feel they have very few options, and consider bankruptcy or insolvency to be one of them. Worse that this scenario, is when one of the parties with a large tax debt falls ill, passes away, or becomes separated from the other, and now the ability to resolve the tax matter becomes that much more difficult.
A Better Solution
If you are a homeowner then having an experienced mortgage broker working for you can save you both time and money when seeking a solution to your CRA problem. If you simply can’t pay the full amount of your back taxes, consider refinancing your mortgage and using the equity in your home to consolidate all of your debts, including credit card debts, at a rate which might even be better than the rate you are currently paying.
Mortgage brokers have access to lenders that will allow a refinance of your existing mortgage or second mortgage options to pay off outstanding CRA debt.
If you have tax debt, or are going to be facing some tax arrears, do not worry. Contact inTAXicating and let us provide you with the truth around your tax options and help you find the best solution for you.