Tax debt owed to Revenue Canada can quickly become overwhelming, particularly if you’re already facing financial struggles. For homeowners with bad credit or income challenges, managing both CRA debt and mortgage payments can feel impossible. Fortunately, there are options available to help you resolve your Canada Revenue Agency (CRA) debt while keeping your home. This blog will guide you through understanding CRA debt, options available for relief, and how mortgage solutions can help you regain control of your finances.
Understanding CRA Debt and Its Impact
CRA (Canada Revenue Agency) debt refers to any unpaid amounts owed to the government, including taxes, penalties, and interest. This can result from unpaid income taxes, failure to file tax returns, or discrepancies in reported earnings. Unlike typical personal or consumer debt, CRA debt carries unique consequences due to the agency’s extensive enforcement powers.
Types of CRA Debt:
Unpaid Income Taxes: Taxes owed from your annual tax return that haven’t been paid in full.
GST/HST Debt: If you operate a business and fail to remit GST/HST, it can become a CRA debt.
Payroll Deductions: Employers who don’t remit employee payroll deductions, such as CPP or EI, to the CRA can accumulate significant debt.
Penalties and Interest: Failure to file taxes or discrepancies in your tax filings can result in additional penalties and compound interest, increasing the total debt owed.
What Happens If You Don’t Pay Your CRA Debt?
If CRA debt is left unpaid, the Canada Revenue Agency will take steps to recover the debt. This may include charging interest and penalties on the unpaid balance, escalating collection efforts, or filing a legal hold on your property.
Severe Consequences of Unpaid CRA Debt:
If you fail to pay your CRA debt, the consequences can be extremely severe and far-reaching. Here’s a breakdown of the most serious actions the CRA can take against you:
- Interest and Penalties: The CRA will begin charging compound daily interest on your unpaid tax balance from the due date of your tax return. Additional late penalties may also be applied, which can increase your overall debt significantly over time.
- Garnishment of Wages: The CRA can garnish your wages or other income sources without needing a court order. This means a portion of your salary will be automatically deducted and sent to the CRA until the debt is paid.
- Bank Account Freezing: The CRA can issue a “Requirement to Pay” notice to your bank, which allows them to freeze your bank accounts. This restricts access to your funds, which can cause serious financial disruptions.
- Tax Lien on Property: If you own a home or other property, the CRA can place a lien on your assets. A lien prevents you from refinancing, selling, or borrowing against the property. The CRA may eventually move to seize the property to cover the debt.
- Seizing Assets: The CRA has the authority to seize and sell your assets, such as your car, home, or investments, to recover the money owed. This is usually a last resort after other collection methods have been exhausted.
- Impact on Business: If you are self-employed or own a business, the CRA can garnish income from your clients or freeze your business accounts, making it difficult to operate.
How to Deal with CRA Debt While Keeping Your Home
If you’re a homeowner struggling with CRA tax debt, there are ways to manage this financial burden. Here are some of the most effective strategies:
- Contact the CRA to Set Up a Repayment Plan
One of the first steps you should take is to contact the CRA and request a repayment plan. The CRA may be willing to work with you to create a schedule that allows you to pay off your tax debt in installments, which could help you avoid more aggressive collection actions like earnings withholding or property liens.
- Debt Consolidation Loan
If you have sufficient equity in your home, you can explore a debt consolidation loan to pay off your CRA debt. This allows you to combine multiple debts (including CRA debt) into one manageable payment, often at a lower interest rate. By tapping into your home’s equity, you can secure a larger loan and use it to clear your CRA debt, thus avoiding penalties or liens.
At Turnedaway.ca, we specialize in helping homeowners with bad credit or financial difficulties access home equity loans and refinancing solutions that can be used to pay off tax debts.
- Consider a Home Equity Loan or Refinancing
Accessing lump-sum amount through a home equity loan can help you to pay off your CRA debt in full, thus prevent the CRA from placing or enforcing a property lien. Even if you have bad credit, Turnedaway.ca can connect you with private lenders willing to work with homeowners in your situation.
You can also choose a refinancing option, if your credit has improved slightly or your income situation has stabilized. Refinancing can extend your loan term or lower your interest rate, making it easier to manage your payments while covering your CRA obligations.
- Seek CRA Tax Debt Relief Programs
The CRA offers tax debt relief programs for individuals facing significant financial hardship. You may be able to apply for taxpayer relief provisions, which can reduce the interest or penalties on your debt in cases of extreme hardship, medical issues, or other extenuating circumstances.
While the CRA rarely forgives the principal amount owed, these relief programs can make it easier to manage your debt over time. Consult a tax professional to help you navigate the application process.
- Negotiate with the CRA
In some cases, you may be able to negotiate with the CRA to reduce the penalties or interest charges on your tax debt. This could involve demonstrating financial hardship or proving that paying off the debt in full would leave you unable to meet other financial obligations, such as your mortgage.
Working with a tax specialist or financial advisor can help you prepare a strong case for negotiation, increasing the likelihood that the CRA will consider your proposal.
- Avoid Foreclosure Due to Tax Debt
If the CRA places a claim against your property, it could complicate your ability to refinance or sell your home. However, foreclosure is not the CRA’s first course of action. To avoid this outcome, it’s important to stay proactive and explore all available options for paying off or reducing your CRA debt.
At Turnedaway.ca, we offer flexible mortgage solutions that can help homeowners manage financial challenges, including tax debt. Our team can work with you to find a solution that fits your needs and helps you keep your home.
Steps to Take If You Have CRA Debt
If you’re facing CRA debt and want to protect your home, here are steps you can take:
- Review Your Debt: Understand the amount you owe, including interest and penalties.
- Contact the CRA: Set up a payment arrangement if possible. Keep communication lines open to avoid more severe enforcement actions.
- Explore Debt Relief Options: Consider a Consumer Proposal but weigh the long-term impact on your credit and financial future.
- Look Into Mortgage Solutions: Consult with a mortgage professional at Turnedaway.ca to explore home equity loans, second mortgages, or refinancing options.
Get Help Before It’s Too Late
Managing CRA debt while maintaining your home can be challenging, but you don’t have to do it alone. At turnedaway.ca, we specialize in helping homeowners find mortgage solutions that fit their financial situation. Whether you’re dealing with bad credit, income challenges, or CRA debt, we can connect you with lenders who understand your unique needs.
Don’t wait until the CRA takes further action against your home. Contact us today for a consultation and let us help you secure the financial relief you need to keep your home and get back on track.
