What Happens If I Don’t Pay My Taxes?
It’s somewhat ironic that the welcoming of spring, where we usher in daylight savings time, say goodbye to the cruel Canada winter – particularly this year; in the Greater Toronto Area, we experienced the coldest February since the 1930’s – and look forward to cottages, summer days, outdoor sports and patios, is also met with the beginning of tax season.
Sure, when we’re young tax season is nothing more than filing a few T4 slips (and by filing, I mean handing them over to our parents and they do the rest of the work), and in exchange, a few weeks later, stare joyously in the face of a check made out in our names. But as adults, tax season is an entirely other animal. It entails having to endure meticulous research, filing reports, paying accountants, and ultimately, paying tax debt (unless you’re still in the same tax bracket you were in as a teenager, which, let’s face it, is not a good thing).
But what if you decided this year to say the hell with taxes, and not file your tax report? What will the ‘what’s the worst that can happen?’ mentality do for you?
Not Paying Your Taxes This Year? How Very UnCanadian Of You
The Canada Revenue Agency’s collection of taxes is one of the reasons Canada is the beautiful, democratic, health care-providing nation that it is today. According to the CRA:
“It’s important that we all pay our share. Unpaid taxes mean fewer funds for important programs and services supported by the Federal Government including health care, childcare, employment insurance, and urban and rural infrastructure projects, to name a few. The quality of life that all Canadians enjoy is supported by the taxes we pay.”
Did you know that Canada actually has one of the highest rates of collections compliance in the entire world? Furthermore, if you can’t pay your taxes on time, which in this post we’ll explain is a huge financial mistake if it can be avoided, the CRA will work with you to make payment arrangements that are accommodating and also serve your personal and financial needs.
Of course, not paying your taxes won’t just label you an unpatriotic Canadian and that’s the end of it. There are obviously more severe repercussions, which, in some cases, can result in the CRA seizing your assets, bank accounts, garnishing your wages, or even registering a lien on your home. You’ll also be subjected to paying interest rates throughout the period of time you’re avoiding your taxes.
They can also send your file to a collection agency, which at this point, would begin to negatively affect your credit.
If I Ignore the CRA, Will They Forget About Me?
No. They won’t. If you can’t afford to pay what you owe in taxes, a CRA collections officer will be assigned to your case in order to ensure that you pay. In addition to garnishing your wages and seizing your assets, the CRA can seize your personal property and sell it in order to repay your tax debt. If your tax liability is simply too large for you to ever pay off, some experts suggest meeting with a bankruptcy trustee and filing for bankruptcy, or filing for a consumer proposal. While either of these routes could effectively eliminate your debt, they would also weaken your credit score, which would be simply unavoidable at this point.
There are ways, though, for you to ensure that you never find yourself in such a situation, as having CRA collection officers coming after you, and having a poor credit score, can cause you significant stress, and lower your quality of life.
Organization Goes A Long Way
1. Make Payment Arrangements. If you can’t pay your taxes right away, make payment arrangements with the CRA so you can make smaller payments over a period of time until your entire debt is paid off. The CRA will determine if you can’t pay your debt in full, and will, in that case, work with you to develop a repayment plan.
2. SAVE. It never hurts to put a little money aside for a rainy day, or for the taxman. Most financial experts recommend that you have money saved before tax season so that it doesn’t come directly out of your savings account, or is taken from money you usually use to pay off bills, auto loans, credit cards, groceries, etc. As tax season takes place every year, learn from your past mistakes, and start putting money aside now so that your credit doesn’t take a hit.
3. Taxpayer Relief Provisions. In certain cases, some Canadian consumers will be allowed to ask for relief from penalties and interest charges, and reduce the amount you owe to the CRA. To see if your situation qualifies, click here.
4. Financial Hardship Provisions. The CRA has hardships provisions in place to ensure that repaying your debt under a government program will not deprive yourself of any “necessities of life” such as food, clothing, living accommodations, or medical attention.
Needless to say, it’s important to file your taxes on time, and to pay what you owe in a timely manner. If not, and your credit score does take a hit, it will prove very difficult for you when it’s time to take out an auto loan, or a mortgage, as you’ll be subjected to higher interest rates and most banks/major lenders may not want work with you because you’d be deemed a “risk”.
If you are interested, at this point, in re-establishing your credit, taking out a loan with bad credit car loan specialists like Auto Loan Solutions is actually the first step towards financial freedom. Our specialists will coach you on the best practices in credit and financing, so that you take out a loan that allows you to improve your score. By paying your bills on time and utilizing the credit-building habits we’ve taught you (like saving in time for tax season), financial freedom will forever remain in your peripheral vision.