Tax debt can quickly become a major source of financial stress. Whether you are self‑employed or a salaried employee, owing money to the Canada Revenue Agency (CRA) or Revenu Québec can result in interest charges, penalties, and even collection actions.
The tax authorities have several tools at their disposal to recover amounts owed. Wage garnishment, bank account seizures, seizure of investments, and even the registration of a legal hypothec on a residence are among the most common—and often the most devastating.
Fortunately, several solutions exist to help you regain control of your financial situation.
In this article, we explain the main options available to individuals with tax debt and how a Licensed Insolvency Trustee can help you find a lasting solution.
Accumulation of Tax Debt: The Main Causes
Tax debt can arise for several reasons. For employees, it may be linked to insufficient tax deductions at source, additional income (such as rental income, investment income, or performance bonuses), or errors in tax returns. Holding multiple jobs at the same time is also one of the main causes.
For self‑employed individuals, the situation is often different. Since no taxes are withheld at source, it can be difficult to set aside the necessary funds to pay income taxes at the end of the year. Cash‑flow issues, insufficient instalment payments, or periods of irregular income can also contribute to the accumulation of tax debt.
For self‑employed individuals, since GST/QST/HST filings may be annual, it is easy to lose track and end up owing a significant amount in addition to income taxes.
Regardless of the situation, it is important to act quickly to prevent the debt from continuing to grow.
Option 1: Pay the Tax Debt as Quickly as Possible
When possible, paying the tax debt quickly remains the simplest solution. Tax authorities charge interest on unpaid balances, which means the debt can increase over time.
Some individuals choose to use their savings or obtain financing to settle the debt and avoid the accumulation of additional interest.
It is important to note that withdrawing funds from your Registered Retirement Savings Plan (RRSP) to pay tax debt may create new tax liabilities on the amount withdrawn.
Option 2: Negotiate a Payment Arrangement with the CRA or Revenu Québec
If you cannot pay the full amount owed immediately, it is often possible to negotiate a payment arrangement. This solution allows you to repay the debt over time according to your financial capacity.
Typically, arrangements may be spread over 12 months, but the agreement may automatically end if new tax debts arise.
However, interest generally continues to apply until the debt is fully repaid.
Option 3: Correct a Previous Tax Return
In some cases, tax debt may be linked to an error or omission in a tax return. It is sometimes possible to amend a previous return to correct certain information, which may reduce the amount owed.
Option 4: Schedule an Appointment with Us
When tax debts become too large or difficult to manage, scheduling an appointment with us can be a decisive step.
We will analyze your financial situation and propose solutions to help you regain control and prevent or stop seizures:
- A consumer proposal, which allows you to reduce and consolidate your debts while keeping your assets;
- Personal bankruptcy, which may eliminate certain debts when the financial situation has become unsustainable.
One of the most common myths is that tax debts cannot be included in a bankruptcy or consumer proposal. This is FALSE. They are provable claims.
If you are experiencing difficulties paying your tax debts, it is important not to wait until the situation worsens. We can help you understand your options and find a solution adapted to your financial reality.
If you are still experiencing difficulties despite changes in your financial habits, know that we are here to help you regain control of your finances.
If you feel that you no longer have control over your financial situation, there is absolutely no shame in consulting a Licensed Insolvency Trustee who can guide you and help you see your future beyond debt.
Several ways to contact the Ginsberg Gingras team:
- By phone (800)567-1905
- Website ginsberg-gingras.com