Your Guide To Tax Loans In Canada
The Canada Revenue Agency, CRA for short, is the governing body responsible for overlooking the collection of taxes in Canada. Owing money is never fun, especially in the form of taxes that you owe the government. In fact, the CRA is known for their strict tax debt collection requirements. Interest rates and fees often apply when you’re late to pay the CRA. These additional costs on top of a tax bill can be hefty; hefty enough that you may need financing in the form of a personal loan to cover the total cost. If you owe the CRA taxes and are having trouble covering the cost, you’ve come to the right place.
Does being in debt to the CRA affect your credit score? Find out here.
Consequences of Not Paying Personal Taxes on Time
In Canada, the deadline to file your personal tax return and pay your taxes is April 30th of every year. If you fail to meet this deadline, the following penalties will apply to you:
- Late filing penalty of 5% of the balance owing
- 1% of the balance owing for every full month you don’t file (applicable for 12 months)
- Additional interest charged on top of the above penalties
- Daily interest compounded on the balance owing, rates vary depending on the CRA’s guidelines and decisions
- Held back tax refund until you file your tax return, even if you don’t owe taxes on the return in question
As you can see, these penalties are quite harsh. In extremely rare cases, these penalties can be waived. Usually the CRA will only waive penalties if the return was filed late for reasons beyond your control. If this applies to you, you will need to complete and submit a Request for Taxpayer Relief (RC4288). Note that completion and submission of this form does not automatically waive the fees, the CRA must consider your case and approve your request.
Do you know what receipts you should be keeping for your taxes? Check this out.
Is Paying Off Tax Debt with a Loan the Right Choice?
As with all personal finance decisions, the right choice depends entirely on your unique situation. To determine if using a personal loan to pay off your tax debt is right for you, consider the pros and cons below.
- Affordable Payments. With a personal loan, you’ll be able pay off the CRA right away and then make affordable payments to your lender each month. No added stress about owing money to the government.
- Flexible Loan Terms. Personal loans tend to have terms anywhere between one and several years, depending on the lender.
- Variable Loan Amounts. As with the loan terms, the loan amounts are very flexible. You should be able to get the amount you need to cover your tax bill.
- Hidden Fees. The terms and conditions of a loan can have a lot of hidden fees. Make sure to read the agreement in its entirety before accepting it, otherwise you could end up paying more than you budgeted for.
- Be Realistic. If you can’t afford the cost of a loan right now, do not take out a loan. Taking out debt that you can’t afford could result in a nasty cycle of debt.
- Potentially High Interest Rates. High interest rates are always a possibility, especially when credit scores are involved. Be sure to compare multiple options to ensure you get the lowest interest rate possible.
Want to learn how to create a debt repayment plan? Check out this infographic.
Finding the Right Tax Loan
Many lenders offer personal loans meaning it won’t be challenging to find what you need. Below is a list of lenders to consider when finding the right tax loan.
- Credit Union
- Online alternative lender
Remember, finding the right loan involves a consideration and understanding of your current financial situation and future goals. Whatever financial product you pick and whichever lender you proceed with should align with your budget and goals.
Can you still buy a house if you owe taxes? Read this to find out.
What if a Tax Loan is Not an Option?
Sometimes a tax loan is not an option due to inability to get approved, poor credit or simply because a loan is not the right option. Fortunately, there are other solutions to handling your tax debt as described below.
- Payment Plan with CRA. A payment plan can be negotiated with the CRA so long as the plan results in complete, full repayment of your tax debt. Under this option you will still be required to pay applicable penalties and interest.
- CRA Fairness Application. This program provides relief from interest and penalties, but not the principal part of your taxes. In order to qualify, you must prove extraordinary circumstances and financial struggle that further supports your inability to repay your entire tax owing. You may need a tax lawyer to assist you with this option.
- Consumer Proposal or Bankruptcy. If you file a consumer proposal or bankruptcy, the CRA will relieve you from your tax debt. Note that with a consumer proposal, you will be required to make an offer to the CRA as you would with all your other creditors.
Interested In a Tax Loan To Pay Off The CRA?
Using a personal loan to cover the cost of taxes is a feasible option for many. The CRA is one of the most notorious creditors out there, it’s best not to get on their bad side by paying your taxes on time and in full. If using a tax loan sounds right for you, Loans Canada can help you obtain the financing you need today.