Tax Debt? Here’s what to do

Having tax debts can be very stressful. Many people find themselves in this situation and feel overwhelmed. The good news is that there are solutions to help you regain control.

In short

There are 3 main solutions available to you for settling your tax debts:

  1. Payment agreement: by contacting Revenu Québec and Revenue Canada, you can spread your repayment over several months.
  2. Consumer proposal: once accepted by your creditors, this allows you to repay your debts over a period of up to five years.
  3. Bankruptcy: you can start fresh by wiping out all your debts.

And don’t forget: filing a tax return has its advantages. You may be eligible for significant credits, allowances, and refunds.

First, it is important to understand what can happen if you do not pay your tax debts or if you pay them late.

Consequences of tax debts

Revenu Québec and the Canada Revenue Agency (CRA) take tax debts very seriously. If you do not pay your balance, you will first receive a notice of assessment. If you still do not pay, you will be considered in default.

From there, both agencies can use several measures to recover the money owed.

  1. Wage garnishment

    This is often their first course of action. A portion of your wages will be automatically deducted by the government, sometimes up to 30%. If you are self-employed, payments from your clients may be redirected directly to the CRA or Revenu Québec.

  2. Freezing of bank accounts

    Your accounts may be frozen without warning. You will no longer have access to your money until the debt is paid or an agreement is reached. This can affect your mortgage and car payments and your essential expenses.

  3. Seizure and sale of property

    Your personal property may be seized: car, computers, investments, RRSPs, TFSAs, etc. The government does not need court authorization to take action.

  4. Legal mortgage of the State

    To protect their claims, the CRA and Revenu Québec can register a legal mortgage of the State on your property without your consent.

  5. Risk of fines or, in rare cases, imprisonment

    Although rare, certain tax offenses can lead to imprisonment.

  6. Accruing interest and penalties

    The longer you wait to pay off your debts, the more interest and penalties will accumulate. The last thing you should do is ignore the problem. If you have tax debts, take action as soon as possible!

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What solutions are available to settle your tax debts?

Even if the situation seems serious, there are several solutions for paying off your tax debts.

  1. Payment agreement

    This is often the first option. Call Revenu Québec and the CRA as soon as possible. They will be able to offer you a payment plan based on your ability to pay. However, you will have to pay interest until the balance is paid off.

    If you are experiencing circumstances beyond your control (job loss, serious illness, disaster), your interest and penalties may be waived. This is called “cancellation due to exceptional circumstances.”

  1. Consumer proposal

    Many people are unaware that tax debts can be included in a consumer proposal.

    This solution allows you to:

    • Negotiate with your creditors
    • Reduce the total amount to be repaid
    • Pay a single monthly amount
    • Spread payments over a maximum of five years
    • Avoid bankruptcy

    It also puts an end to most seizures, interest, and collection calls. This is often a very advantageous option for those who want to get back on their feet without losing everything.

  1. Bankruptcy

    Personal bankruptcy is considered when no other solution is possible. It erases most of your debts, including tax debts.

    It also allows you to:

    • stop wage garnishments
    • prevent account seizures
    • end collection actions

    Contrary to popular belief, declaring bankruptcy does not mean losing everything. In many cases, your home, car, and everyday necessities are protected

Solutions to avoid

In general, avoid paying your tax debt using:

  • A credit card advance
  • A personal loan

You will pay much higher interest rates than the CRA and Revenu Québec. Instead, try to contact both authorities to negotiate a payment arrangement.

Advantages of filing an income tax return

Filing your taxes doesn’t mean there aren’t upsides. You can:

  • Get a refund for taxes withheld at source
  • Receive the Canada Workers Benefit
  • Receive the Canada Child Benefit
  • Receive the Goods and Services Tax (GST) Credit
  • Receive the Guaranteed Income Supplement
  • Get a refund for contributions to the QPP/CPP, QPIP, and Employment Insurance
  • Split your pension income with your spouse

Depending on your situation, you may also be eligible for the Solidarity Tax Credit or other types of benefits. In short, by failing to file your tax return (even if you have no income to report), you could be missing out on additional income.

Do you have tax debt? No matter how much you owe, don’t hesitate to contact one of our financial recovery counsellors. They will guide you in finding solutions.

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