You owe back taxes and can’t afford to pay them in full. Is it possible to make a deal to obtain some form of debt forgiveness from the CRA for taxes you owe?
The answer is yes, but how much reduction you can achieve depends on the program you use. We look at three programs for tax forgiveness in Canada:
- Negotiating extended payment terms
- Asking for taxpayer relief of penalties and interest
- Filing a consumer proposal to settle tax debt for less than the full amount.
Negotiating Payment Terms
The CRA will work with you to resolve your tax obligation. You can negotiate a payment arrangement which will see you pay your back taxes over time. For example, if you owe $1,000, you may offer to pay CRA $100 per month for the next ten months.
To do this you need to contact your nearest Revenue Canada office.
- You will be required to explain your circumstances and show why you need an extension to pay off your taxes.
- You will be required to file all outstanding tax returns.
- You will likely be required to show income and expense projections and explain why you cannot get a loan to pay off your tax debt.
It will be up to Revenue Canada to decide if they will accept your offer or take further action against you to collect the taxes owing.
Two points to remember about extended payment arrangements:
- Whatever deal Canada Revenue Agency agrees to, you will continue to be charged penalties and interest until your debt is paid in full.
- If you cannot reach an agreement with CRA, they have the power to withhold child tax credits and GST credits until your debt is paid. They also have the power to garnish wages and take funds from your bank account, so treat this debt seriously.
Taxpayer relief programs
In very limited circumstances, CRA may grant you relief from penalties and interest charges.
The rules governing this Canada tax relief program can be found on the CRA website however generally you must show extraordinary circumstances and an inability to pay due to financial hardship. For example, you may have filed late or been unable to pay your taxes due to personal illness, natural disaster or serious emotional or mental stress. Or you could show that the additional costs arose due to CRA errors and processing delays.
There is a limitation period of 10-years to apply for taxpayer relief and you must provide all forms and information requested.
It is important to understand that this program will only provide forgiveness of penalties and interest.
Tax Debt Forgiveness or Settlement
As a general rule, CRA will not accept less than the full amount owed when dealing with an individual taxpayer. Their logic is simple. If they allow you to pay less than the full amount owed, they may be forced to make the same deal with everyone else.
There is a way to settle tax debt and obtain CRA debt forgiveness for tax debts:
Income tax and other tax debts are unsecured debts and can be discharged by filing a consumer proposal with a Licensed Insolvency Trustee. It is possible to settle your tax debt for much less than the full assessment amount, both principle and interest. The reduction CRA will accept depends on your individual circumstances, your income and what assets you may own.
At Hoyes, Michalos we have the experience to negotiate successful terms with CRA that will allow you to
- Eliminate penalties & interest
- Deal with tax garnishment or frozen bank account
- Pay what you can afford
- Protect your assets
Almost half of our clients owe some form of money to CRA when they file with us. Tax debts can be settled through both a personal bankruptcy and a consumer proposal. Talk to us about how.