Make 2021 the year you take control of your debt
Published Friday, March 19, 2021 4:27PM ADT Last Updated Tuesday, March 30, 2021 11:50AM ADT
Courtesy: Grant Thorton Limited
Sponsored by: Grant Thorton Limited
Last year was a challenge for all of us, but some people had a harder time than others. If your income was impacted and you received support from CERB (or any of the other COVID-related income support programs), you might be worried about repaying your income tax for those payments.
Rob Hunt – a CPA, CA, and FCIRP Licensed Insolvency Trustee - is a Managing Partner at Grant Thornton Limited. He says, while it’s completely reasonable to be stressed about your tax debt, it’s important to know you aren’t alone and you have options to take control of your debt.
Here’s how to take control of your debt
If you can, save in advance
Think (or know) you’ll owe taxes? The best time to start saving to pay taxes was yesterday, but the second-best time to start saving is now.
If you’re self-employed or received income that wasn’t taxed when you got it (like CERB), you should make a habit of saving a certain percentage of your income every month, so you have enough to cover your tax bill when it’s time to file.
Understand the CERB ramifications
Data from the Federal Government shows CERB payments helped almost 420,000 Maritimers keep the lights on and ensure the cupboards were stocked, and saved many from losing their homes.
However, many were unaware those CERB payments didn’t deduct income taxes, and now, people need to pay those taxes back. For a lot of people, it’s the first time they’ve owed money when filing their taxes.
Fortunately, the Government of Canada announced the Targeted Interest Relief Program in February. The goal of the program was to help soften the blow of that tax debt by giving people more time to pay their owed taxes without accruing interest. Now, instead of owing taxes in April (or in June, for self-employed people), Canadians have until April 2022 to repay their tax debt.
To qualify for the program, you must have been eligible for and received CERB or other COVID-related income support benefits and owe taxes as a result, and your total taxable income must have been $75,000 or less in 2020.
To be clear, qualifying for the program doesn’t mean your taxes are forgiven – it means you have more time to pay your taxes.
Control your debt so it can’t control you
Debt can feel overwhelming. However, it’s better to take a proactive approach.
The first thing you should do is file your taxes now to see how much you owe. If you have savings you can use to pay off all or a portion of the taxes, that’s great! If you don’t have enough to pay your bill in full, speak to the CRA about setting up a payment plan. They’ll work with you to create a plan for paying back all your tax debt (plus interest).
If you still can’t resolve your debt, there are options
If you’ve tried everything and still can’t resolve your debt, you still have options: a consumer proposal or filing for bankruptcy.
A consumer proposal is a negotiated settlement between you and your unsecured creditors – including the CRA – to pay back a percentage of what you owe, which can greatly reduce your monthly payment obligations. If the majority of your creditors accept the consumer proposal, CRA interest and collection activity will stop.
Filing for bankruptcy will include your income tax debt. Once it is filed, a stay of proceeding will be issued, stopping all collection attempts and interest accruing on the debt owed.
Only a Licensed Insolvency Trustee can facilitate a consumer proposal or bankruptcy, so if you think you might need to pursue either of these options, you should find a local Trustee to discuss your debt relief options.
Managing debt can be difficult, but there are always options to help resolve it.
To learn more about relief options for your debt, including income tax debt, visit your tax debt options, visit www.gtdebtsolutions.com.