Tax Debts More Widespread Than One May Think

On Saturday July 29, 2006, Ted Michalos & myself were guests on the Ask the Expert Show on AM 570 News in Kitchener, Ontario. This one hour show was dedicated to talking about "Tax Debt: What Can You Do If You Owe Money to the Government" as part of Hoyes, Michalos & Associates' "Your Summer Survival Plan - A Radio Series on Dealing with Debt in Ontario". On the show we discussed the types of tax debt and the various plans to deal with tax debts.

As a result of the show, we have received various calls from individuals living in Kitchener, Waterloo, Guelph, Cambridge and other areas. Although each of their situations were different, they did have a common element - they all had tax debts and were having trouble dealing with them. Some examples of the calls are:

• self-employed individuals owing GST, Source Deductions, and personal tax;
• pensioners owing taxes for the first time in their lives as their pensions did not have enough taxes taken off resulting in tax debts too large to manage on a fixed income;
• individuals who have cashed out their RRSP's as an attempt to get their other debts under control, only to find that not enough taxes were taken off and now they have a large tax debt; and
• employees working more than one job just to make ends only to find out they have a tax debt at the end of the year due to working the multiple jobs.

Many individuals have the notion that tax debts are different from their other debts and have special rights - this is only partially true. Tax debt is governed by tax laws, there are special rules, and in addition, the Canada Revenue Agency (CRA - or formally Revenue Canada) has significant collection powers compared to other creditors. However, when it comes to a consumer proposal or personal bankruptcy, taxes are generally dischargeable debts (ie they go away upon completion of the procedure) just like your credit cards, bank loans, or other unsecured debts.

When it comes to tax related debts, your options for dealing with them remain the same. You can pay off the debts (through cash on hand, payment plan with CRA, sale of assets, borrowing, or other personal options available), file an notice of objection/appeal on the assessment, apply to the CRA's fairness program to reduce the penalties and interest, or file under the Bankruptcy and Insolvency Act for a consumer proposal or personal bankruptcy.

If you are experiencing financial difficulty with your tax related or other debts and would like to discuss your options in detail, please call Hoyes, Michalos & Associates at 310-PLAN or e-mail us a question. We have offices throughout Ontario that are available to work with you.