Getting an income tax refund can be a happy bonus for your household budget, but an unexpected tax bill can be an unpleasant surprise, especially if you don’t have the cash on hand to pay it.
But, experts say, the Canada Revenue Agency is willing to work with taxpayers to arrange payment plans and may even be able to offer a break on the interest you might otherwise have to pay.
Aaron Gillespie, an enterprise tax partner at KPMG in Hamilton, said if you don’t have the cash to pay your bill, the first thing to consider is can you borrow money at a lower interest rate than the current nine per cent that the Canada Revenue Agency will charge you on overdue taxes.
“Usually, financing with the CRA is not a good option,” he said. “Usually you would want to look for financing elsewhere at a lower interest rate.”
However, if that isn’t an option, Gillespie recommends contacting the CRA as soon as possible and explaining your situation.
If you have a balance owing, your payment is due on April 30. However, because that’s a Sunday this year, CRA will consider your payment on time if it receives it, or a Canadian financial institution processes it, on or before May 1.
If you can’t pay the full amount, you can pay part of it, which would reduce the amount of interest you will owe. You could also try to arrange a payment plan with the CRA that would allow you to pay your bill over time.
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“What I’ve found is generally they’ll agree to a payment plan provided that you’re co-operative and that you’re fully candid and that you come forth with all your facts and your situation,” Gillespie said.
The tax agency also offers help under certain circumstances that could see the government cancel or waive penalties or the interest charged on your outstanding bill.
Fred O’Riordan, national leader for tax policy at EY Canada, said financial hardship is among the reasons why the CRA would be willing to grant someone some relief.
“They don’t have discretion over tax amounts, but they do over penalties and interest” he said.
“You can make an initial application, they will respond, and if you’re not happy with the decision, you can also send it back for a second look by the agency and they will reconsider it.”
If you don’t have the cash or can’t borrow the money to pay your tax bill, both Gillespie and O’Riordan said you should still file your return on time so at least you won’t face the late-filing penalty.
Most Canadians have until Monday to file their return this year, while the filing deadline for those who are self-employed is June 15. And while the ongoing strike by more than 100,000 federal government this week includes staff at CRA, the tax agency has not budged on the filing deadline for this year so far.
O’Riordan added that ignoring the problem and not filing a return at all will only make things worse.
“Sooner or later, you’re going to get caught,” he said. “And the longer you avoid getting caught, the more dire the consequences, because your penalties and interests charges are mounting all the time.” Gillespie said do not ignore the CRA.
“The CRA has a lot of power and can undertake significant legal action against you, including garnishing wages, seizing assets,” he said.
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