What Happens if You Don’t Pay Your Taxes
Actions Taken by CRA Collections
Sometimes a taxpayer does not pay Canada Revenue Agency (CRA) the taxes owed when due. An individual may have significant income tax owing where tax deductions are not made at source, such as in the case of self-employment income and spousal support. Or, a small business may have run into difficulties paying GST/HST by failing to separate HST funds from revenues and not making GST/HST remittances more frequently than the minimum annual requirement.
If the taxpayer cannot pay in full, it is his or her duty to contact CRA’s Debt Management Call Centre to seek a payment arrangement or repayment plan. CRA will respond more favourably if the taxpayer cooperates and shows an effort to pay within his or her ability. CRA may cancel a payment arrangement at any time and take legal action to recover any outstanding amounts owed, however, if the agreed payments are missed or the account is not kept up to date. If a taxpayer does not seek to enter a payment arrangement or repayment plan voluntary and continues to ignore CRA, CRA will pursue tax collection.
CRA Tax Notices
Normally CRA will communicate by mail when a tax return has not been filed or tax payments are owing. CRA will eventually send a formal demand to file. CRA will send tax notice of assessments, balance due statements and reminders for unpaid monies due. The assessment notice outlines that penalties and interest may apply. If CRA has been unsuccessful in obtaining a reply from the taxpayer, CRA collections may begin making phone calls and a field visit to obtain compliance.
CRA has the authority to collect amounts owing by garnishing monies payable to the taxpayer by a third party, such as wages or other forms of income. A Notice of Garnishment may be sent to one’s employer to withhold the amount specified in the order from the debtor’s wages. Another form of garnishment is a Requirement to Pay (RTP), which instructs the third party to send a fixed amount or percentage from each payment or a fixed amount from all amounts paid in a set time period to CRA instead of to the taxpayer until the debt owing is settled. The terms are in the notice, including the effective period, which is usually 90 days or one year, after which a new RTP is sent if the debt has not been settled. Generally, the garnishment continues until the taxpayer’s tax debt is paid in full or the taxpayer proves that the garnishment causes undue financial hardship. A copy of all CRA documentation is sent to the taxpayer, including any cancellation notices issued when the tax obligations have been met.
Other Legal Actions When Taxes are Owed and Not Paid
CRA collections may take other legal actions, such as filing a tax lien against property, seizing and selling a taxpayer’s property, goods and chattels, or using other means under any applicable statutes or laws to collect an amount owing. CRA can even have a debtor’s credit cards cancelled. Individuals can be jailed for tax offences, though the prison sentences are usually given for only the most egregious cases. Directors can be made personally liable for certain activities of their corporations, including the failure to remit GST/HST monies owed.
Once CRA begins legal proceedings, they will not usually withdraw from them until the account is paid in full or it can be shown that the action is causing undue hardship. The individual or business can become responsible to pay all reasonable costs and charges incurred to collect any amounts certified in addition to being liable for the taxes, interest and penalties owed.
What Should You Do if You Can’t Pay Your Taxes
Voluntary Disclosure Program
Penalties and prosecution may be circumvented under the Voluntary Disclosure Program (VDP). The taxpayer would need to come forward voluntarily and completely disclose information or correct inaccurate or incomplete information that is subject to a penalty and at least one year overdue (using form RC 199) before CRA starts any enforcement action or investigation. The information may be less than one year overdue if it is to correct a previously filed return or where the disclosure contains information at least one year overdue.
How to Deal with CRA Collections
Hiring a tax lawyer to represent you is recommended as CRA collections agents can be quite aggressive in obtaining tax monies owed. At Gittens & Associates in St. John’s, our tax lawyers have a history in dealing with CRA. We will explain to you why you owe the CRA, if the amount is legitimate, and we can create a custom plan for you to pay your debt without having to declare bankruptcy. If you cannot afford to pay the full amount of your debt, we may be able to negotiate a settlement with CRA to reduce your liability, outlining any special circumstances that may exist. We may also negotiate a stay of collections to stop CRA from taking further legal action. We provide services related to unfiled or late tax returns, undeclared income and taxes, tax settlements, tax pardons, incorrect tax liability from a notice of assessment, releasing wage attachments, bank seizures, etc. If you are searching for a highly qualified representative to negotiate on your behalf, we provide services with the highest level of quality and professionalism. Call Gittens & Associates today and speak to our tax lawyers today.