For self-employed individuals, dealing with tax debt can pose a significant challenge, especially when there are no tax deductions from regular paychecks or provisions made to cover the amount owed at year-end.
Recognizing the seriousness of tax debt, it is crucial to address the issue promptly. The Canada Revenue Agency (CRA) possesses extensive powers to collect outstanding taxes, charging penalties and interest. Let’s shed some light on the implications of tax debt and offer potential solutions to alleviate the burden.
Consequences of unpaid taxes
When you owe money to the CRA, they possess the authority to take action to recover the debt. They can impose penalties and interest on overdue taxes, as well as withhold your Child Tax Credit and GST rebate. If left unresolved, they can seize funds from your bank account or garnish your wages. Moreover, if you own real estate, the CRA can register a lien against your property, hindering refinancing or property sale until the outstanding debt is settled.
Impact on mortgage financing
It is essential to recognize that if you are self-employed and have unresolved income tax issues, obtaining mortgage financing for purchasing a home, vacation property, mortgage transfer, or accessing equity in your property can become challenging. Even alternative and private lenders require full payment of any CRA tax arrears before advancing a mortgage. Banks and credit unions typically do not provide unsecured loans for tax debt payments and are generally unable to refinance existing mortgages to cover the outstanding amount.
Dealing with tax debt
When facing difficulties in paying your tax debt in full, it is crucial to proactively contact the CRA immediately. While negotiating a payment schedule might be possible, the agency typically expects the debt to be settled within a few months. It's important to note that interest and penalties will continue to accrue on the past due amount. It's also worth highlighting that filing for bankruptcy or a consumer proposal does not discharge a lien against your property. In fact, the lien remains and continues to accrue interest, remaining even after discharge from bankruptcy until the eventual sale of your home.
Solutions with a mortgage broker
If you are a homeowner struggling to repay your tax debt to the CRA, consulting an experienced mortgage broker can prove invaluable in saving both time and money. Refinancing your mortgage and utilizing the equity in your home or considering a consolidation loan that includes tax arrears and other debts could offer a viable solution. Mortgage Brokers have access to lenders willing to refinance existing mortgages or explore second mortgage options to settle outstanding CRA debt.
Managing tax debt as a self-employed individual requires swift action and careful consideration of available options. By promptly addressing the issue and exploring solutions such as refinancing or consolidation loans, homeowners can take steps towards resolving their tax debt and regaining financial stability.
If you are experiencing challenges in paying off your CRA debt this year and are a homeowner, I would be happy to discuss potential solutions tailored to your specific situation.
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.