Make 2021 the year you take control of your debt
Published Tuesday, March 23, 2021 12:02AM PDT Last Updated Wednesday, March 24, 2021 5:42PM PDT
Last year was a challenge for all of us, but there’s no doubt some people had a harder time than others. If your income was impacted, you may have had to take on some debt to cover your expenses, and if you received support from CERB (or any of the other COVID-related income support programs), you might be worried about repaying your income tax for those payments.
While it’s completely reasonable to be stressed about your debt - including income tax debt - it’s important to know you aren’t alone, and you have options to take control of your debt.
To help us better understand why we owe taxes, we spoke with Lisa Breault, CIRP, Licensed Insolvency Trustee from Grant Thornton Limited to discuss the options we have for repaying income tax debt.
Here’s how to take control of your debt
If you can, save in advance
Think (or know) you’ll owe taxes? The best time to start saving to pay taxes was yesterday, but the second-best time to start saving is now.
If you’re self-employed or received income that wasn’t taxed when you got it (like CERB), you should make a habit of saving a certain percentage of your income every month, so you have enough to cover your tax bill when it’s time to file.
Understand the CERB ramifications
CERB payments helped thousands of British Columbians keep the lights on, ensure the cupboards were stocked, and saved many from losing their homes.
Nearly 13 per cent of Vancouver residents received CERB, with an average of 67,207 receiving the payment each month it was available. In Victoria, 11 per cent of residents received CERB, with an average of 35,073 receiving it each month it was available.
However, many were unaware those CERB payments didn’t deduct income taxes, and now, people need to pay those taxes back. For a lot of people, it’s the first time they’ve owed money when filing their taxes.
Fortunately, the Government of Canada announced the Targeted Interest Relief Program in February. The goal of the program was to help soften the blow of that tax debt by giving people more time to pay their owed taxes without accruing interest. Now, instead of having to pay their taxes in April 2021 (or in June, for self-employed people), Canadians have until April 2022 to pay their tax debt.
To qualify for the program, you must have been eligible for and received CERB or other COVID-related income support benefits and owe taxes as a result, and your total taxable income must have been $75,000 or less in 2020.
To be clear, qualifying for the program doesn’t mean your taxes are forgiven – it means you have more time to pay your taxes.
Control your debt so it can’t control you
Debt can feel overwhelming. However, it’s better to be proactive.
If you currently have outstanding debt, whether it’s overdue bills or other credit/loans, you should start by creating a payment plan. Contact the company or lender, discuss your situation, and try to work out a plan or schedule to repay your balance over time. You should also take a look at your income and spending to see if there are any expenses you can cut back (or cut completely!) to free up some extra money in your budget that you can put towards debt payments.
If you expect to owe income taxes, the first thing you should do is file your taxes now to see how much you owe. If you have savings you can use to pay off all or a portion of the taxes, that’s great! If you don’t have enough to pay your bill in full, speak to the CRA about setting up a payment plan. They’ll work with you to create a plan for paying back all your tax debt (plus interest).
And if you still can’t resolve your debt, there are options
If you’ve tried everything and still can’t resolve your debt, you still have options: a consumer proposal or filing for bankruptcy.
A consumer proposal is a negotiated settlement between you and your unsecured creditors – including the CRA – to pay back a percentage of what you owe, which can greatly reduce your monthly payment obligations. If the majority of your creditors accept the consumer proposal, all of your creditors (including the CRA, whether they vote in favour or not) will be bound by it.
Filing a consumer proposal or a bankruptcy will include your income tax debt. Once either of these processes is filed, a legal stay of proceeding will be issued, stopping all collection attempts and interest accruing on the unsecured debt owed.
A bankruptcy might make sense for you as an alternative depending on your debt and income and what assets you own.
Only a Licensed Insolvency Trustee can facilitate a consumer proposal or bankruptcy, so if you think you might need to pursue either of these options, you should find a local Trustee to discuss your debt relief options.
Managing debt can be difficult, but there are always options to help resolve it.
To learn more about relief options for your debt, including income tax debt, visit www.gtdebtsolutions.com.