Owing the government money can be very intimidating as it's assumed the government has a limitless ability to collect the debt through any means necessary. Owing debt to the Canada Revenue Agency (CRA), can create fear and uncertainty as they are in control of issuing income tax credits and other government issued income sources. People worry this debt will result in loss of income and an inability to meet daily household expenses if the government cuts off their income or benefits.
What Can They Do to Me?
The CRA does have the ability to take collection measures without having to go through the court system. The government can:
- Garnishee your wages up to 50 percent of gross earnings of employment income;
- Garnishee your wages up to 100 percent of subcontractor income;
- Put a freeze on your bank account and seize the funds on deposit;
- Withhold certain tax credits such as GST refund cheques or the Trillium benefit to pay down the debt owing;
- Arbitrarily assess any income tax returns not yet filed and apply penalties and interest to the debt owing, and
- File a lien on your property that would ensure the debt is paid if the property is sold.
How Can I Avoid These Actions?
The CRA will usually take these measures when they are unable to come to an agreement with an individual tax filer or the tax filer disregards their statutory obligations under the Income Tax Act. This may mean failure to file income tax returns or other tax documents such as GST / HST returns.
The first thing you want to do is file any outstanding tax documents and continue to file your income tax returns on time each year. This will show CRA that you are trying to improve your situation by complying with the tax laws. It also helps you determine the amount of debt owing in total.
This knowledge is important for two reasons. First, you can't plan how to get out of debt if you don't know how much you owe in total. Second, you need to figure out how much you should be setting aside each month for next year's income tax debt so you do not continue to have debt owing year after year. Setting aside the money for future income tax debt will help stop the cycle of debt.
After your returns have been filed, be proactive and contact the CRA to make payment arrangements. The CRA may ask you to provide various documents to help them determine a suitable monthly payment. This may include an income and expense statement that outlines your other financial obligations.
Cooperation with this process will usually result in a reasonable arrangement. Expect to sacrifice the extra things in life, such as recreation or vacations, to get this debt under control.
And finally, make sure you stick to the payment plan that was agreed. If you can't make a payment make sure you contact CRA to discuss the missed payment and any changes to your circ*mstances. The CRA wants to see a concentrated effort and compliance with the income tax obligations.
They Want More Than I Can Pay
Sometimes your best efforts are not enough when you owe a lot of money to CRA. It may be the amount of the debt is just too high or perhaps the budget does not allow for a monthly payment. If that is the case, it is recommended you speak to a Licensed Insolvency Trustee to discuss your options.
A Licensed Insolvency Trustee can help you determine if a bankruptcy or consumer proposal are the best choice to allow you to get a fresh start. In most cases, debt owing to CRA can be included in a bankruptcy and consumer proposal. With a few exceptions, CRA is treated like any other creditor in bankruptcy and will stop their collection activity once a bankruptcy is filed.
A Licensed Insolvency Trustee can also provide continued support to make sure that you are not at risk for incurring future income tax debt. Even if bankruptcy is not the right choice for you, they can provide with a financial assessment and the expert advice you need to deal with CRA debt.Contact a Licensed Insolvency Trustee with MNP Ltd for a free consultation. We will be able to advise you on what solutions are available to help you address the problem.
FAQs
In that case, you could face harsh financial penalties, steep interest charges, and even legal action by the CRA, which boasts more power to collect unpaid tax debt than your typical creditor. Dealing with the CRA can be intimidating and exhausting.
Can you leave the country if you owe taxes? ›
If owe taxes to the U.S. but live abroad, you might not be able to return to the U.S. until you settle your debt with the IRS. In fact, your U.S. passport might be revoked, preventing you from being able to travel anywhere.
What to do if you owe a lot of taxes? ›
You can apply for a payment plan using the Online Payment Agreement (OPA) Application or you may complete Form 9465, Installment Agreement Request and mail it in with your bill. You may also request an installment agreement over the phone by calling the phone number listed on your balance due notice.
Does tax debt ever go away? ›
In general, the Internal Revenue Service (IRS) has 10 years to collect unpaid tax debt. After that, the debt is wiped clean from its books and the IRS writes it off. This is called the 10 Year Statute of Limitations. It is not in the financial interest of the IRS to make this statute widely known.
Does Canada have a debt relief program? ›
There are no official government-backed debt forgiveness programmes in Canada. The closest most people can come are by using one of two debt solutions for debt forgiveness that can become legally binding on your creditors. The first one is bankruptcy, which is the most drastic debt relief option in Canada.
What if I owe more than 50000 in taxes? ›
If you owe more than $50,000 to the IRS, the agency may place a lien on your assets, revoke your passport, or pursue other collection actions.
What is considered seriously delinquent tax debt? ›
Seriously delinquent tax debts are legally enforceable, unpaid federal tax debt (including assessed penalties and interest) totaling more than $62,000 (adjusted yearly for inflation).
What happens if you owe the IRS more than $20,000? ›
When you owe over $20,000 in taxes, the IRS will take your outstanding debt very seriously. In order to collect back taxes, the IRS may employ a number of aggressive collection strategies. If you do nothing, you could be subject to asset seizures, liens, levies, and other consequences.
What to do if you owe $10,000 in taxes? ›
What to do if you owe the IRS
- Set up an installment agreement with the IRS. Taxpayers can set up IRS payment plans, called installment agreements. ...
- Request a short-term extension to pay the full balance. ...
- Apply for a hardship extension to pay taxes. ...
- Get a personal loan. ...
- Borrow from your 401(k). ...
- Use a debit/credit card.
You ignore the bill and all of the IRS's collection notices. At this point, the IRS may obtain a civil judgment against you for the $10,000. This gives the IRS the right to issue a federal tax lien, seize your assets, garnish your wages, or take other collection actions. The IRS cannot put you in jail.
6 years - If you don't report income that you should have reported, and it's more than 25% of the gross income shown on the return, or it's attributable to foreign financial assets and is more than $5,000, the time to assess tax is 6 years from the date you filed the return.
Does the IRS really forgive tax debt? ›
In some cases, it is possible to get IRS debt forgiven, but it is not a common occurrence, which is why the IRS may forgive a taxpayer's debt if they meet specific eligibility criteria.
Can the IRS come after you after 10 years? ›
The IRS generally has 10 years from the assessment date to collect unpaid taxes. The IRS can't extend this 10-year period unless the taxpayer agrees to extend the period as part of an installment agreement to pay tax debt or a court judgment allows the IRS to collect unpaid tax after the 10-year period.
Does Canadian debt follow you to the US? ›
Your credit report and credit score don't follow you when you move to another country. But it is important to know that some debts you owe will remain active. Lenders may find it harder to pursue legal action against you when you are in a different country.
How long until debt is forgiven in Canada? ›
6 years, except when: provincial legislation (a judgement) overrides the original limitation (may vary from 10 years to unlimited) the loan was established or expired before August 1, 2003 (no limitation period)
Can you write off debt Canada? ›
In Canada, many creditors will agree to write off your debt if you are unable to make your debt payments.
What happens if you owe money and leave the country? ›
Being in another country will certainly make it harder for a debt collection agency to contact you about your debt, but it's unlikely to fully deter them. The debt collection agency will be hired under a contract for a set period, to send demand letters and call you to pay off your debt.
Can I leave the country if I haven't paid taxes? ›
Failing to pay overdue taxes can lead to passport revocation and expensive fines for expats. You might lose out on your tax refund as well. To get assistance paying your back taxes while living overseas, call the tax accountants for American expatriates at US Tax Help today at (541) 362-9127.
Can the IRS go after you in another country? ›
Yes, if you are a U.S. citizen or a resident alien living outside the United States, your worldwide income is subject to U.S. income tax, regardless of where you live. However, you may qualify for certain foreign earned income exclusions and/or foreign income tax credits.
What happens if you live outside the US and don't pay taxes? ›
The IRS charges penalties for both late filing and late payments. If your lack of filing is willful—meaning you knowingly avoided your US tax requirements while living abroad—then more serious legal consequences may apply. Failure to File Penalty: 5% of the unpaid taxes for each month the tax return is late, up to 25%.
