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Navigating Unforeseen Tax Liabilities: A Comprehensive Guide

Senga Bailey
June 26, 2023

Unraveling the Mystery of Unexpected Tax Bills

Tax season can often bring a mixed bag of surprises. One moment, you’re looking forward to a potential refund, and the next, you’re faced with a disconcerting tax bill. It’s a situation many Canadians find themselves in, particularly when financial circumstances change unexpectedly. However, it’s crucial to remember that even in these challenging situations, you are not alone. The Canada Revenue Agency (CRA) has mechanisms in place to assist taxpayers through these financial hiccups.

Evaluating Your Financial Options

Before panic sets in, it’s essential to consider all available options. Aaron Gillespie, an experienced tax partner at KPMG in Hamilton, advises taxpayers to explore borrowing options that offer an interest rate lower than the CRA’s nine per cent for overdue taxes. He shares, “In most scenarios, securing financing with the CRA is not the most cost-effective choice. It’s prudent to first explore other financing avenues that may offer a more favourable interest rate.”

What if External Financing Isn’t Viable?

Despite best efforts, finding alternative financial resources may not always be feasible. In such instances, Gillespie advocates for open communication with the CRA. By reaching out promptly and explaining your financial predicament, you can potentially negotiate a more manageable repayment plan.

Mitigating Interest Through Partial Payments and Payment Plans

The CRA offers some flexibility for taxpayers unable to settle their outstanding balances in full. You have the option to make a partial payment, which can help mitigate the amount of accruing interest. Additionally, the CRA is generally open to formulating a structured payment plan, allowing you to settle your tax bill over an extended period. Gillespie notes, “The CRA is typically amenable to formulating a payment plan, provided you demonstrate a cooperative attitude and disclose all relevant details of your financial situation.”

Seeking Relief from Penalties and Interest

Apart from flexible payment plans, the CRA also extends support in the form of relief from penalties or interest under certain circumstances. According to Fred O’Riordan, EY Canada’s national leader for tax policy, the CRA can exercise discretion in granting relief, particularly in cases of financial hardship.

The Importance of Timely Filing

While dealing with an unexpected tax bill can be stressful, experts stress the importance of filing your return promptly, irrespective of your ability to pay the outstanding amount immediately. By doing so, you can at least avoid the additional burden of a late-filing penalty. The majority of Canadians are required to file their returns by April 30th, while self-employed individuals have until June 15 to complete their filings.

The Perils of Ignoring Your Tax Obligations

Both Gillespie and O’Riordan caution against disregarding your tax liabilities or delaying filing your return. Such inaction can lead to escalating penalties and interest charges, intensifying your financial hardship over time. “The longer you defer addressing your tax obligations, the more severe the consequences become, due to the ongoing accumulation of penalties and interest,” warns O’Riordan.

The Authority of the CRA

Ignoring communications from the CRA can prove detrimental. Gillespie underscores the agency’s reach, stating, “The CRA has considerable power to enforce tax laws, including garnishing wages and seizing assets. It’s critical not to underestimate the potential repercussions.”

That’s Where We Come In: Expert Guidance through Your Financial Hurdles

Navigating unexpected tax liabilities can be a daunting task. That’s where we comes in. Our seasoned team of financial experts stands ready to help you understand the intricacies of your tax situation, provide strategic advice, and guide you towards effective financial management.