Will CRA Make a Settlement to Reduce My Tax Debt?

When you are facing the harsh reality of a tax debt, you may be wondering whether the Canada Revenue Agency (CRA) will accept a settlement to reduce your tax debt. CRA does have programs where, if you qualify, CRA may cancel interest and penalties - but CRA does not have the same authority as the IRS in the USA and can never make a settlement on principal under the Income Tax Act. The only way to reduce your principal tax debt is under other Federal Legislation which has other implications and benefits. This other Federal Legislation is not the first choice and needs to be considered only when all of your other options are exhausted.

If you want to try to get the penalty and interest portion of your tax debt reduced, there are several key things to know:

1.      First - and as we have mentioned - CRA will not negotiate on principal. CRA will not reduce the principal portion of your tax debt even if it would be fair and make full business sense because they have no authority to do so under the Income Tax Act. Trying to get them to lower it is a fruitless endeavour.

2.      Reducing some or all of the interest and penalties associated with your tax debt can mean a significant amount of savings and make the remaining balance possible for you to repay (even if on terms)  - so it makes sense to consider Taxpayer Relief. To qualify for Taxpayer Relief you must be able to prove to CRA that an extraordinary circumstance led to the tax debt, penalties and interest or your inability to pay it.  These extraordinary circumstances include medical problems, disability, disaster, financial hardship, death, error on behalf of CRA, etc…  If you qualify, you may be able to have your interest and penalties reduced, or eliminated fully. This program can help significantly, especially since interest and penalties can get so large that they actually end up being more than the initial tax debt. However, being approved under this program is at CRA’s discretion. Relief submissions must outline not only your grounds for relief but must contain evidence to substantiate your claim. The more complete, robust and documented the submission is, the higher the likelihood is that it will be approved.

3.     Be careful not to say too much in your submission. We have seen people who were rejected for relief when they had grounds because they included unnecessary information that actually caused the application to be rejected.

4.      If you have a medical problem and have not sought treatment – get it. Better late than never and as mentioned you must be able to substantiate your grounds for relief; seeking treatment if your grounds are medical is a good start. Depression, addiction and anxiety are three medical problems that many people struggle with and that often go untreated.

5.      If there is no realistic way that you can pay the tax debt, even if the penalties were cancelled, then you may want to consult your tax professional about the process of making a consumer proposal. A consumer proposal can stop collection action, allow you to make an affordable monthly payment, freeze the interest accumulating on your tax debt and in some cases even reduce your tax debt. A tax professional that specializes in helping people with tax problems should have experience with licensed trustees and should be able to help you start the process to see if a consumer proposal is the right answer for you. It is not the right answer for everyone, but for some it provides immediate, much needed relief.

As noted above, for all of these scenarios, the best way to deal with a tax debt is to seek professional tax help. Negotiating directly with CRA can be dangerous, and the best way to keep yourself protected is by working with an organization that has experience negotiating with CRA and navigating through various CRA programs.

When you are dealing with a tax debt the worst thing that you can do is ignore it – it will not go away on its own and CRA will get more and more aggressive in their attempts to get what they believe is owed to them.  Although CRA will not accept a settlement to reduce your tax debt, there are various financial options available to individuals facing tax debts, and so exploring them is crucial. The best way (and really the only way) to reduce your tax debt is to pay it – terms can be available if the appropriate requests are made.

For more information about dealing with a tax debt, whether through a payment plan, Taxpayer Relief, or the Voluntary Disclosure Program, please contact Tax Solutions Canada by calling 1-888-868-1400.

How to Make a CRA Payment Plan

Most people don’t set out to not pay their taxes. Disputes with CRA, financial problems, issues with businesses, etc. are all reasons why people end up with a tax debt that they have not and cannot pay in full immediately.  

If you have been contacted by the Canada Revenue Agency (CRA) regarding your tax debt, then you know that they always ask for payment in full. If they don’t have a lot of your information to take collection action against you, they may offer a temporary, short term payment plan in exchange for you completing a financial disclosure form. Once you step out onto that ledge, there is no turning back. Once CRA has the information they need to commence enforcement action, they will not leave you alone until the debt is paid or you end up bankrupt. Trying to negotiate a CRA payment plan directly is not just a bad idea - it can be dangerous.  CRA knows how to play “good cop, bad cop” and tax payers are often so surprised by how nice the CRA collector is (the taxpayer feels lucky!) caution is naively thrown to the wind and you fall into the trap.  Remember, the CRA collector’s job is to collect as fast as possible – he is your opponent and not your friend.

Maybe you think that you have nothing to hide and are serious about repaying your tax debt in installments so what harm could really come from showing CRA the state of your finances? Unfortunately that is not how it works. As far as CRA is concerned, the debt you owe to them should come before all others – personal loans, credit card payments, etc. Any surplus cash flow you have therefore should be included in your CRA payment plan – even if it means destroying your credit and putting you further in debt with your other creditors.  And how the CRA collector sees surplus cash flow will definitely not be fair to you. 

When you try to negotiate a CRA payment plan, what will CRA ask for? Full disclosure will include providing information about where you work, where you bank, what you own (including your home and any money you have saved for your children’s education) and all income sources, all payments, etc. This information is then used by CRA to develop a payment plan, which, if not followed, may lead to further enforcement action, including wage garnishments, property liens, frozen bank accounts, etc.

A voluntary CRA payment plan is possible.  However, these are not normal negotiations.  CRA collectors have very harsh collection tools and complex agendas to satisfy their managers.  If you really want a voluntary tax payment plan that is safe, one that CRA will accept and that you can live with, we do not recommend that you try and learn how to do this yourself.  The consequences of getting it wrong are severe and there can be no turning back.  Please speak with a professional experienced with negotiating binding CRA payment plans. This is a big buyer beware; your average tax accountant may not have the depth of experience in dealing with the enforcement arm of CRA and this can be tricky to navigate. Instead, opt for an organization that specializes in working with people who have tax problems, bringing to the table the expertise and know-how required to avoid further trouble.  

How will a tax professional help you navigate these waters? By correctly presenting CRA with the fair proposal that fits your budget and without giving CRA any further financial ammunition against you. A tax professional should also be able to discuss and evaluate your ability to qualify for various other programs that may help you get rid of your tax debt.

Often a CRA payment plan negotiated directly with CRA can become difficult, or even impossible, to pay, leaving you in severe financial trouble. Don’t fall into the trap of giving all of your information to CRA in the hopes that things will work out. Get the right help from an organization experienced with dealing with all different types of tax issues.

For more information about how to negotiate a CRA payment plan, please contact Tax Solutions Canada by calling 1-888-868-1400, or visit us at www.taxsolutionscanada.ca.

Does Tax Amnesty in Canada Really Exist?

When you file your taxes on time, accurately, every year, you likely don’t suffer from the stress that tax compliance issues can bring. However, if you are one of the many Canadians that fall behind filing or find expenses or donations disallowed resulting in large penalties and tax debt, that stress can become overwhelming. Even worse is the stress that can come with the knowledge that you have filed incorrectly, even if Canada Revenue Agency (CRA) hasn’t caught you yet - you worry every day that they will. The constant fear of a CRA notional assessment, re-assessment, audit or CRA enforcement action is frightening and sits in the back of your mind no matter how much you try to ignore it. If you have found yourself in this position, you might be thinking ‘does tax amnesty in Canada really exist,’ and if so, how can you access it?

Tax amnesty does exist in Canada. This does not mean however that if you fail to file returns year after year and then seek tax amnesty that you will necessarily qualify. Tax amnesty in Canada is covered by the Federal Government’s Voluntary Disclosure Program (VDP).

What is VDP? The Voluntary Disclosure Program exists to give taxpayers the chance to file late returns or correct any incorrect filings, incorrectly claimed expenses, unreported income, etc. voluntarily. By admitting the error and working to correct it, the government may grant some relief from interest and penalties.

There are 4 conditions that you MUST meet in order to qualify:

1.      The tax year in question must be at least 1 year old.

2.      The voluntary disclosure must involve a penalty. This means that if you know that you will not incur a penalty after late filing, there is no ground to file (since it is unnecessary).

3.      The disclosure must be voluntary. This means that you cannot have been contacted by CRA with respect to the tax year in question.

4.      The disclosure must be complete. You have to ensure that your application contains ALL of the information, tax slips, claims, etc.

If you know that you have made a mistake on a return in the past, or if you have failed to file and are constantly worrying about it, it might be time to consider making an application for tax amnesty before it is too late and CRA notionally assesses you.

Accessing the VDP has to be done correctly the first time – there are no second chances.  That is why it is always a smart choice to consult a tax professional and engage their services first. They can help steer you successfully through the VDP process, assess whether or not you qualify, and assist in filling out the application properly.   As we said above – there is no opportunity to redo the filing.  One strike and you are out!

For more information about tax amnesty through the Voluntary Disclosure Program, please contact Tax Solutions Canada today by calling 1-888-868-1400.

What is a Notional Assessment or a CRA Tax Assessment?

With the Canadian income tax deadline behind us, those who, for whatever reason, chose not to file this year (or any past year) may be thinking that it is too late and that there is no real urgency to file now. Many people don’t file their annual tax returns because they know that they will owe money that they do not have (so why tell on yourself?) or because they made income that they don’t want to report. Regardless of your situation, if you have failed to file your 2012 income tax return beware - Canada Revenue Agency (CRA) simply completes a notional assessment (CRA tax assessment) on those individuals who have not filed their returns. 

What is a notional assessment, commonly known as an involuntary CRA tax assessment? This is when you have not filed your tax returns and CRA arbitrarily completes a tax assessment on your behalf. This means that they will estimate (guess) your income and file your tax return for you. The CRA does not prepare the return in your best interests.  If you are notionally assessed as owing, your tax debt, along with interest and penalties, will be applied retroactively, and CRA will attempt, through all their various means, to collect the money from you.

If you are late filing your tax returns, how does CRA conduct an arbitrary or notional tax assessment? A prime example is your client being audited. Any payment to you will be found during the audit, and CRA may assess you as a result. If you work as a subcontractor, the contractor who pays you will file a tax slip indicating the income they paid you for the year (if you are not being paid in the name of a business). If a builder or homeowner pays you for a side job by cheque, and you don’t report that payment, the homeowner may claim it on their tax return. If CRA asks them for the receipt or invoice to support their expense the dots will then connect back to you.  CRA auditors are experts at looking for and connecting these dots.

Tax slips may have been filed by someone else or calls may have been made to the CRA Snitch Line, meaning the government often becomes aware of your unreported income and that leads to involuntary CRA tax assessments. It does not matter why you failed to report all of your income, whether because you were unaware that you were required to or because you were trying to buy time because you didn’t have the money to pay. The CRA Snitch Line is often used as a revenge or spite site for unreported income, a very common occurrence, especially with ex-spouses or ex-business partners. In both of these scenarios a CRA tax assessment could ensue, or worse, an audit or investigation could begin.

Once you have been notionally assessed, you need to (re-)file your returns voluntarily and right away. This may result in less debt owing. If you operate a business you may not be eligible to claim input tax credits for HST on tax years older than 4 years, so time is of the essence.  It is also a good idea to retain professional representation, especially if you feel that the CRA tax assessment is incorrect. It is never a good idea to try to negotiate with CRA directly, as they will attempt to obtain information from you which can be used against you in the future. 

If you have been sent a notional assessment it is important to act quickly rather than ignoring the involuntary CRA tax assessment. A tax professional that can negotiate on your behalf and help you navigate the entire process is a great way to keep yourself protected.

If you are dealing with a notional assessment (involuntary CRA tax assessment) and need help, please contact Tax Solutions Canada by calling 1-888-868-1400 or visit us online at www.taxsolutionscanada.com.