One type of situation that we see at Hoyes, Michalos & Associates Inc., is when an individual has not filed his/her income tax returns in the past few years as the returns will likely result in a tax debt that the individual could not handle along with his/her other debts.
Tax return debts occur for various reasons, including self-employed income with no tax withholdings, cashing out RRSP’s, working more than one job, receiving pension income, and other situations.
If there is a tax balance owing on an outstanding income tax return and it is filed late, Canada Revenue Agency (CRA) will automatically charge a 5% late filing penalty and then accrue interest & penalties on the unpaid balance.
We always recommend that you have your outstanding tax returns prepared and filed so that the debt is known and a plan to deal with debt can be arranged. If the tax debt and your other personal debts become unmanageable, there may be a formal option available for you to get a fresh financial start.