Tax Tip Thursday

This week’s show is applicable to individuals, small businesses, and corporations for both income tax and HST.

Remittances

Once your return has been filed (HST, T1 Personal or T2 Corporate) and it has been established that you have taxes payable, you are required to pay that amount in full by the due date. That is to say that when we prepare your taxes in the next few months, if there is tax payable, it is due immediately. This is a REMITTANCE.

The day after your taxes are payable is the day that the interest starts and it is currently at 9% and it compounds daily!

For more information, check out this page: Interest and penalties – Personal income tax – Canada.ca

So, my advice to people that do not have the funds set aside already and if you have access to a line of credit or loan at less than 9%, give strong consideration to using it to pay your tax balance owing. You will be paying less interest, it will not be in compounded daily and in my experience, you are more likely to pay off a bank loan of your own than to pay off the CRA.

If you cannot remit the full amount, you should set up monthly payments and establish a 6-month program for yourself with the 1st payment being April 30. CRA will likely not even contact you if you make the 6 monthly payments. If you do not, they will contact you but do not depend on it. Hiding your head in the sand is NOT a good strategy. Do not think that since you did not get contacted by the CRA, it will go away. It will not!

Instalments

And, if all that was not enough, if you owed more than $3k, then you are required to make instalments towards the CURRENT year taxes (in this case 2024 taxes).

If you filed your taxes for April 30 for this year and you owed $6k, then you will be required to not only pay the $6k immediately or make payment arrangements as noted above, but they will also want you to make $6k in instalments for the 2023 tax year.

People often think a couple of things relative to these instalment notices:

1. These are the REMITTANCE payments for the taxes just filed
2. They are suggested payments that you should make throughout the year

Neither is correct.

AND

If you are required to make instalments and you do not, you will be charged interest from whenever the instalments were to have been made

AND

If the interest amount is more than $1000, then you will have to ALSO pay penalties from the date the instalments were to have been made.

So to wrap – do NOT put your head in the sand, pay your tax bill or make arrangements and be sure to pay your instalments!

Collections

For reference, check out this page: Collection of overpayments – Canada.ca

If you do not make the remittance in full or do not voluntarily send in 6 monthly payments, the next thing that will happen is the CRA collections department will contact you.

1st level collections will be fairly cordial and will be willing to set up a payment program of up to 6 months. This does not usually start for about 6 months after the payment is due.

2nd level collection will be fairly pushy. They MAY be willing to stretch out your payments to 12 months, but will require, bank statements, cash flow analysis, pay stubs, etc…

If you hit 2nd level collections, you will start getting warnings about them taking legal action – and they will! So if you have not had a reason to deal with it before this point, you might want to consider it.

Once you are in collections, if you arrange payments, I strongly suggest you keep to the arrangement, as they will move quickly with legal action if you do not.

The problem with reaching this point is it becomes EXTREMELY difficult to dig yourself out of this hole.

Financial hardship provision

You may apply for help under the financial hardship provision if your debt repayment makes it difficult for you to pay for basic needs such as housing, food, and utilities.

Consequences of not Paying

If you do not pay your debt or refuse to cooperate, the CRA may take legal action which could result in serious financial or legal consequences for you.
Before starting legal action, the CRA must do the following:

• make 3 attempts to give verbal legal warning by phone

• send 1 written legal warning letter

For more information, go to Legal warning about collection of debt.

Once the CRA has started any of the following legal actions, the CRA will not usually withdraw them.

To avoid legal action, go to Debt payment or Unable to pay.

Demand on third party (redirect money owed to you by a third party)

The CRA can issue a demand on third party (DTP) to take funds that a third party owes you or holds for you. A third party could include a person or organization such as your employer, your bank or other sources of income.

The DTP is typically sent at 30% of your take home pay and 100% of funds held in your financial institution. The CRA will apply the funds to your debt.

For more information on DTP, go to Understanding a demand on third party.

Set-off (redirecting money owed to you by the federal government)

If you are owed money by any federal government department or agency, the CRA can issue a set-off to redirect the funds, and apply these amounts to your debt.

The CRA can use your federal income, goods and services tax/harmonized sales tax (GST/HST) credits or any future income tax refunds to reduce your debt.

Set-offs can be done even if you have a payment arrangement and are making payments.

In addition, the CRA is authorized to take amounts from any benefits you receive when you have a debt.

Employment insurance (EI)

If you have an EI debt, the CRA is authorized to take 50% of your EI benefits. This is done even if you have a payment arrangement. If this is causing you hardship you may contact a CRA agent to review your situation.

Canada Pension Plan (CPP)

If you have a CPP debt, the Employment and Social Development (ESDC) may take amounts from your CPP benefits or from a death benefit payable to a deceased’s estate.

Contact ESDC at 1-800-277-9914 regarding the recovery of your CPP benefit.

Old Age Security (OAS)

If you have an OAS debt, the ESDC and the CRA are authorized to take amounts from your OAS benefits or from a death benefit payable to a deceased’s estate.

Contact the CRA regarding your OAS debt.

Asset Liens and Seizures

The CRA can get a provincial judgement or a certificate from the Federal Court confirming the amount you owe. This will make your debt a matter of public record and allow the CRA to proceed with asset liens and seizures. The CRA will usually send you a letter to advise you that if you do not resolve your account, the CRA may take further legal action to pay the debt.

Registering a lien on assets

Once the debt is certified, the CRA can register a lien against your assets and property, including your personal residence. Registering a lien will secure the amount of debt owing, by establishing creditor priority in the event of a sale. This means, if you sell your asset, your CRA debt is automatically paid from the proceeds of the sale, before you receive any remaining proceeds.

Seizing and selling your assets

If your debt remains outstanding, the CRA may get a writ or memorial to seize and sell your assets and property. This could include your car, boat, artwork, cottage, rental property, or personal residence.
If the CRA sells your assets, the CRA will use the proceeds to pay:

• your CRA debt

• any costs charged by the bailiff hired to sell the assets on behalf of the CRA

You will still have to pay any remaining debt.

Need Help Navigating All This?

Book an appointment with us today and we will help you sort it all out. It can be very complicated, especially if you owe a substantial amount!

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.