Owing money to the CRA can be stressful and overwhelming. Canadian taxpayers who are in this situation may begin to feel hopeless. But rest assured, there are several ways to pay off your CRA debt. This blog post will outline some of the best strategies to pay off your CRA debt and get back on track:
Negotiate a Payment Plan
If your debt is more than you can afford to pay in full, there is the possibility to negotiate a payment plan with the Canadian Revenue Agency. This will allow you to make monthly payments over a set period of time, making the debt feel more manageable. To apply for a payment plan online, you will need to go through the CRA’s My Account portal, or call the CRA directly.
Stay Informed on Interest Rates and File on Time
The interest rate that the CRA can charge you on your debts is subject to change every three months. Make sure you are checking for the most current rates. It is also important that you always file tax returns on time, even if you do not have the money to pay your owing amount.
Missing the deadline for filing your tax return, with a balance owing will incur a late-filing penalty, which includes an initial 5% charge on the owed amount for the year along with an additional 1% for each full month of delay in filing, for up to 12 months. If you’ve incurred a late-filing penalty for 2019, 2020, or 2021 and you have received a formal request for a return from the CRA, your late-filing penalty for 2022 will be 10% of the balance you owe, with an additional 2% added on top of that for each full month of delay, up to a maximum of 20 months.
It is also important to note that late-filing penalties still apply even if you have received COVID-19 benefits, or if you have been granted interest relief. Additionally, the CRA also has a late or insufficient tax installment penalty. This penalty only applies if your installment interest charges exceed $1,000. Stay informed about these rates can help you to plan and stay on top of your CRA debt, and avoid incurring any additional debts or end up paying more than you have to.
Use a Low-Interest Credit Card or Line of Credit
If you have a low-interest credit card or line of credit, you can use it to pay off your CRA debt if your payment is due. This can be a good option to transfer the debt from the CRA to a lower interest rate account if you are not able to pay off your debt right away. Always be vigilant on the interest rate for any credit card or line of credit, and ensure you are making minimum payments on time to avoid any damage to your credit score.
Take Out a Loan
If you have a good credit score, you should be able to take out a personal loan to pay off your CRA debt. Personal loans are generally a better option than credit cards as interest rates tend to be lower. Always be sure to evaluate your ability to pay off the loan in the future if this is the route you choose to take.
Set Up a Direct Deposit
If you have the funds to make payments towards your debt, but you have trouble remembering to make these payments, you can set up an automatic monthly direct deposit with the CRA. This option is best if you have a regular and dependable source of income.
Investigate Tax Relief Program
Under special circumstances, the CRA has relief programs. This allows the taxpayer to have penalties and interest on their tax debt waived. It’s important to keep in mind that this program doesn’t eliminate the entirety of the debt.
To be eligible for this relief program, you must be able to demonstrate your inability to pay because of extraordinary circumstances, such as personal illness, severe emotional or mental stress, or natural disasters. After application the CRA will assess your case, taking into consideration the taxpayer’s financial situation and other assets.
File for Bankruptcy
Bankruptcy can be considered as a last resort option for taxpayers who are unable to repay their tax debt. Filing for bankruptcy may discharge you of all debts, including tax debt. Though this can provide you with a fresh start, it will also have significant impacts on your credit scores and your future ability to take out any loans or lines of credit. It’s important to seek the advice of a financial or legal professional before considering bankruptcy as an option.
Seek Professional Help
If you’re struggling to pay off your CRA debt, seeking professional help from a financial advisor or debt counselor can be a wise decision. These experts can help you develop a debt repayment plan and provide guidance on how to manage your finances to avoid similar financial troubles in the future.
At LedgerOnline, our team of expert bookkeepers is ready to help you get your finances back on track. We can work with you to develop a personalized plan that takes into account your specific financial situation and helps you tackle your CRA debt in a structured and sustainable way. Contact us today to learn more about our services and how we can assist you in overcoming your CRA debt.
