March 10, 2020

Do I have options if I cannot pay the income taxes I owe?

You have or expect to have a tax bill that you cannot pay in full prior to the payment deadline on April 30th. We listed several reasons in our prior blog Why Do I Owe Income Taxes that may have led to this situation or you may have received a notice of assessment or reassessment from Canada Revenue Agency (“CRA”) for errors or missed income. What steps should you consider?

  1. File your income taxes by the deadline. Failure to file your taxes to avoid paying will result in penalties, in addition to interest, that can significantly increase the total owing. The penalty rate starts at 5% of the taxes owing and increases 1% for each month late up to a maximum of 12 months. The rate of penalty increases if you also filed late in the previous year(s). Filing on time will avoid the penalties which may make your debt unmanageable.
  2. Apply for taxpayer relief. CRA is unable to compromise the principal portion of your debt but may be able to waive some or all of the interest and penalties in certain circumstances. The CRA Taxpayer Relief includes extraordinary circumstances such as serious illness or death, natural disasters, debt arising from CRA actions such as delays or errors and financial hardship such as loss of employment or low income. Form RC4288 is available online at canada.ca to apply for taxpayer relief or you can contact CRA directly to discuss the process.
  3. Payment arrangements. Where you can pay your taxes but require more time, you will incur interest at the current prescribed rate of 6% on the balance owing but may be able to make a payment arrangement within your budget. CRA has a convenient Payment Arrangement Calculation tool available on their website to explore if a suitable payment plan can be made without disclosure of your personal information. For example, using a $5,000 tax bill at the current 6% interest rate, it appeared that you could make payments up to 25 months based on their calculator. However, this tool is only a guide with final approval subject to CRA collections. The guide does not factor in your payment history, prior years taxes owing, or other factors which may impact approval. If you extend beyond a specified payment period, there is a message to contact CRA to propose your payment arrangement.Payment arrangements can be made online through My Account, by telephoning CRA collections at 1-888-863-8657 to speak to an agent or by TeleArrangement at 1-866-256-1147. You may have to submit a budget and provide additional information prior to obtaining an approved plan. CRA is still authorized to take refunds or benefits you are entitled to while on your payment plan.Payments may be made by most standard payment options including post-dated cheques, credit card, PayPal, e-transfer, in person at your bank or Canada Post, online through your bank, or My Payment for direct payments to CRA using your bank card. If you are unable to make a payment while on a payment plan, it is important that you contact CRA to discuss your options and avoid legal action.
  4. Unable to pay. If you are unable to pay or make a suitable payment arrangement, you should consider speaking to a Licensed Insolvency Trustee to review your options. CRA debt is included in a bankruptcy or proposal and this is the only way tax debt can be settled.Ignoring the tax debt can have serious consequences. CRA can take legal action to garnishee up to 100% of your wages or seize your bank account or other assets. To commence a garnishee, CRA will issue a Requirement to Pay to your bank, employer, customers, etc. for payment of monies that would ordinarily be paid to you.

If you are unfortunate and have tax debt which you are unable to pay, it is important that you not ignore the debt. Contact CRA and/or a licensed insolvency trustee to discuss your options to avoid or stop a garnishee in process.

Debora Kwasnicky

Debora has been actively practicing as a Licensed Insolvency Trustee since June 1997. She began her career with a national insolvency firm in 1984, attended university while working until her final year, returned to article to obtain her CA designation (now CPA, CA) and her trustee license before leaving in 2006 to open her own boutique firm. Her experience has been in various industries including construction, forestry, finance, retail and high tech. She currently focuses her practice on individuals and small businesses.

Covid-19 update: Due to the present uncertainty you do not have to deliver documents in person.