WHEN SHOULD I APPLY FOR AN INCOME TAX PAYMENT PLAN?

Tax season tends to come around very quickly every year, and for many, it can be a stressful time. If your employer deducts your taxes from your monthly paycheck, you still have to file your taxes by filling out a tax return, but you don’t have to worry about handing a large sum of money over to the CRA.

If you are an independent contractor or run your own business, you may choose not to pay your taxes every month. In this instance, you can set aside a portion of your monthly income and deposit it into a bank account specifically for your taxes. This way, when you file your taxes, you can fully manage your debt and pay your returns on time.

However, paying your taxes may be difficult if you haven’t saved up and you’ve had a tough year with finances. Let’s look at the three tax payment options the Canada Revenue Agency currently offers.

The 3 Main Options for Paying Your Taxes

Pay Your Taxes on Time

This is the ideal situation for paying your taxes – pay what you owe in full and on time. This way, you are not subject to any interest or penalties on the amount owed.

You can pay your taxes in person, online or by mail. If you choose to pay online, be aware that the payment may take up to three business days to reflect on your account. Mail is also subject to delays, so it may take time to process your payment.

Once you have paid your taxes, you can confirm your payment in your CRA account. Just wait at least three days for online payments and about ten days for a cheque or money order to reflect in your records.

Defer Your Taxes

If you cannot pay your taxes, you may consider deferring them to a later date. This will relieve the immediate burden but may put pressure on you in future years. Contact the CRA right away to discuss deferment as an option.

Set Up an Income Tax Payment Plan in Canada

If coming up with a lump sum payment seems impossible at the time, a payment plan might be a more convenient option for you. Consider your budget. Once you pay all your expenses, is there some money left over to pay a portion of your taxes every month? Arranging to pay your debt over time is likely a more suitable arrangement than deferring the full tax burden for another year.

Steps to Set up a Payment Arrangement

Calculate your monthly income and expenses to figure out how much you can afford to pay.
Contact the CRA to discuss your current financial situation. They will review your case to determine your eligibility for the Canada tax payment plan.
Discuss payment options with them. Based on how much you can afford to pay, they will set up a payment plan to cover your tax bill over a specified period of time.
Once the plan is set up, make your payments on time.

Interest Charges & Penalties for Missed Payments

If you set up a payment plan, you will be required to make your payments in full and on time. Missed or late payments will be subject to interest charges and penalties.

Additionally, not paying your debt may result in the CRA taking legal action to collect the tax debt. This may include garnishing your wages, registering a lien on assets like a home, and seizing personal assets like a car or boat.

What Should I Do If I Can’t Pay My CRA Debt?

The first thing you should do if you can’t pay your debt is to contact the CRA. Also, consider discussing possible debt solutions with an insolvency trustee, and they can discuss your financial situation and look for alternate ways to manage your tax debt. You might want to consider debt consolidation or a consumer proposal if there are also other outstanding debts. These solutions might help reduce your monthly costs so you can better manage your tax debt.

Your Insolvency Specialists in Edmonton

Fox Miles & Associates is committed to helping you navigate your debt with a personalized solution to meet your needs. Call us to book your free consultation with a licensed Insolvency Trustee today. We are always here to help!