Trying to Negotiate a CRA Payment Plan with CRA Could Lead to Burns on Your Bank Account

You file your taxes, but cash is tight, so you don’t remit payment.  Time goes by and you still don’t manage to pay. You may occasionally receive a statement of account from the CRA, reminding you of your outstanding balance and indicating the amount of interest that continues to increase your taxes owing. More time passes – maybe as little as 90 days from the date your tax return was assessed, or maybe several months or even years.

And then one day you open a letter from CRA Collections, notifying you that you only have 14 days to pay your debt in full, and to contact CRA Collections. The letter warns you that failure to do so will result in legal action. Receiving this letter means that CRA is no longer willing to wait for you to pay your taxes in your own timeframe, and has assigned a collector to your account whose mandate is to get your account paid NOW. So, what do you do?

If you choose not to respond to this letter, you can expect increasingly unpleasant correspondence from the CRA to follow in due course. You will likely receive a form which confirms that the CRA has certified your tax debt in federal court, which is the official pre-cursor to the CRA proceeding with formal legal action against you. Failure to respond to the CRA at this point will most certainly result in legal action being taken. CRA may issue a Requirement to Pay – to your employer (garnishment of wages), to your bank (to freeze and drain your bank accounts), or even to your customers (forcing your accounts receivable to be paid directly to the CRA). The CRA may also register a lien on your home, or on other property you own.

CRA’s authority to impose collection action on taxpayers is vast. Add to this the fact that while some collectors will treat a taxpayer fairly and respectfully, there are many collections agents who will intimidate, threaten or pressure a taxpayer into a payment arrangement which they actually cannot afford, leaving them in even worse circumstance than before.

The CRA’s own Taxpayer Bill of Rights (found at http://www.cra-arc.gc.ca/E/pub/tg/rc4417/rc4417-13e.html) clearly spells out how taxpayers are entitled to be treated.  However, collectors aren’t actually required to inform you of those rights - it’s up to you or your authorized representative to know the boundaries that CRA must respect, even while trying to collect money from you.  Being uninformed puts you in an extremely vulnerable position when negotiating with the CRA - know your rights!

Call Tax Solutions Canada before you call CRA. We can help inform you about your rights as a taxpayer and protect you through the negotiation process. 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.