Overcoming tax debt is challenging. The Canada Revenue Agency (CRA) offers no debt forgiveness and can garnish your wages, withhold social assistance payments and seize your assets if you fail to pay what you owe. However, you can reduce your tax debt with the help of a licensed insolvency trustee. Here’s how.
Request Tax Relief Provisions
If you’re swimming in tax debt, including penalties and interest rates, you can ask the CRA for a tax relief provision. The CRA may relieve you from interest charges and penalties if you meet any of these qualifications:
You’re a victim of a natural disaster, civil disturbance or severe health condition
Your late payments are the result of an error by the CRA
You can prove significant financial hardship
Also, you can arrange to pay your taxes over time. For example, if you owe $1000, you may be eligible to pay $100 per month for the next 10 months.
These options won’t reduce the principal amount you owe the CRA. A way to reduce your real tax debt is to use the services of a licensed insolvency trustee.
Filing A Consumer Proposal
A consumer proposal is an agreement between you and your creditors whereby you pay what you can afford, not what you owe. When you file a consumer proposal, the CRA doesn’t take priority over other debts for unpaid personal taxes. Filing initiates a stay of proceedings, whereby creditors — including the CRA — aren’t allowed to garnish your wages or freeze your bank accounts.
If a majority of creditors vote to accept the proposal, then the CRA and other creditors are held to the terms of the agreement. A consumer proposal is an excellent way to avoid filing for bankruptcy and protect your assets while reducing your debt. Under Canadian law, you must file a consumer proposal through a licensed insolvency trustee.
Consumer Proposals and Your Credit Score
A consumer proposal has implications for your credit score. After your final payment, you’ll be assigned an R7 rating for three years, which may impact your ability to get a low-interest loan. However, failing to pay your tax debt or filing for bankruptcy can lead to an R9 rating for six years or more, which is the worst credit score you can get.
Consumer Proposals & Tax Debt Help In Ottawa & Virtual Locations Across Canada!
At D. & A. MacLeod Company Ltd., our licensed insolvency trustees can help manage your debt by filing a consumer proposal or bankruptcy. We’re located in Ottawa and have offices throughout Eastern Ontario, offering both in-person and virtual consultations to help you find a new beginning™. Contact us today to schedule a confidential consultation.