Tax Tip Thursday

So if you find yourself in a hole with no visible means to get out, what do you do?

If you get to a point in the process where you are not communicating with the CRA and have not made or honoured the payment arrangement, they WILL take action. Three things are common to see:

1. They usually start by freezing your bank account.
   1. If they do this, whatever goes into your account will come straight back out until you figure out the situation.
2. They will garnishee your wages
   1. I believe they only take up to 30%
3. They will take legal action
   1. They will look at seizing assets depending on the severity of the situation and how you are dealing with it

What can you do?

You have a few options:

1. You can change your banking
   1. The CRA has a bank on file for you. Don’t use it for anything else
2. Communicate with the CRA! Respond to letters and calls, or better yet, initiate a phone call or payment to them
3. Apply for penalty or interest relief
4. File a consumer proposal or bankruptcy

COVID Automatic Interest Relief

As I mentioned last week, there is an automatic interest relief for some people. To recap, you are eligible if you:

• Had taxes payable,
• had less than $75,000 in taxable income,
• received some sort of COVID benefit, AND
• filed your 2020 tax return.

If you meet ALL of these criteria you will receive automatic interest relief until April 30, 2022!

If you don’t meet these criteria, there are other opportunities. It’s possible, but please note that there is no chance of reducing the amount of tax you owe — ONLY the interest and penalties.

To dispel the myth that you can negotiate… The reality is that the CRA does not negotiate. In fact, CRA agents do not even have the authority to reduce tax debt under the Income Tax Act. If you cannot pay what you owe and do not cooperate, rather than negotiating the CRA will use its considerable powers to collect the debt.

Interest and Relief

This is an interesting opportunity to appeal to the CRA to reduce or remove the penalties and/or interest on any tax liability. It will NOT provide relief from the actual taxes owing — only the penalties and interest.

There are three situations that warrant taxpayer relief:

1. Extraordinary circumstances (e.g., natural disaster, postal strike, serious illness, death in the immediate family),
2. Actions of the CRA (e.g., processing delays or errors in the CRA’s published material), and
3. Inability to pay or financial hardship (e.g., when payment of the accumulated interest would cause a prolonged inability to provide basic necessities)

These three situations are not exhaustive — there may be other situations that can get you taxpayer relief.

Note that success with taxpayer relief (TPR) does not come easy. The CRA is notoriously stingy when it comes to granting these fairness applications! Simple pleas for tax relief rarely succeed. A successful TPR application requires both a carefully crafted narrative and legal tax savvy.

In a sticky situation?

We are happy to help you explore your options. Please give us a call or book an appointment to get started.

Disclaimer:

This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal or tax advice nor can it or should it be relied upon. All tax situations are specific to each individual. If you have specific tax questions you should book an appointment for a 1 on 1 consultation.