Income Tax Debt And What It Means For YouFeb 27, 2015
For many Canadians including those right here in Woodstock, filing your taxes can mean receiving money back with a tax refund; or it can lead to additional debt. What happens if you have to pay taxes to the federal government?
The biggest piece of advice with filing your taxes is to do it early. The tax deadline date for most Canadian citizens to file their taxes is April 30th, 2015. By filing early it gives either the chance to receive your refund sooner, or if you owe taxes the opportunity to come up with the money before the due date.
If you do owe money to the government, you need to treat this with high importance as it is now additional debt you need to pay in addition to any other outstanding debts you might have elsewhere. Starting the day after the tax deadline the amount you owe will begin to accrue interest. That’s why it’s always good to file early so you can build a repayment plan and try to pay off the amount in full before May 1st to avoid paying even more money back to the government than you already have to.
If you are unable to pay back the amount you owe to the government you do have options but the interest will still continue to accrue at a predetermined interest rate. Take note however that this interest rate can change and is compounded on a daily basis.
The first step is to reach out to the Canada Revenue Agency and set up a prearranged payment schedule to pay off your tax debt. This is the same as other debts you may have where you make a monthly payment until the principal amount and any interest has been paid back in full.
If you are still unable to pay your taxes through the prearranged payment schedule you can apply for taxpayer relief, more details are outlined in the Globe and Mail. Essentially, you will need to provide reasons as to why you are unable to pay your taxes. If you are in this situation, you most likely are struggling with other personal debts and it might be time to seek help and advice from a licensed debt professional who can offer guidance on repayment plans, debt consolidation, consumer proposals, and bankruptcy.
The last thing you want to do if you owe money is to avoid the situation. The government will do its best to assist you but if you leave it hoping it will disappear on its own you could soon find yourself dealing with wage garnishments and potentially the seizure and selling of your assets to settle your tax bill. Be proactive in this situation and remember to file early, this gives you a better chance at paying off any income tax debt before you accrue any additional interest. If you need help managing your tax debt and personal debt, you should never be afraid to ask for help. There are options out there to help you get your finances back on track.