For this post, we’ve teamed up with our partners at Fairstone
You’ve prepared your tax documents, and as you’re entering your income details you’re hit with a growing realization: this year, not only are you not receiving the refund you’ve hoped for, but you actually owe taxes to the government. If the debt is larger than you were prepared for, don’t panic. Our friends at Fairstone have put together three steps you can take to manage a surprise tax bill.
First: How do I know if I owe money on my taxes? Your balance owing is found on line 48500 of your 2019 tax return. If that number’s in the positives, it means you owe this amount to the government. A negative number means a refund is headed your way.
If you owe money this year and you’re not sure if you can pay it right away, here’s what you can do:
File Your Taxes On Time As You Normally Would (This Year Only: By June 1, 2020)
A late tax return means a late-return penalty, and more debt to the CRA is probably the last thing you want. This year only, the tax deadline has been extended to June 1, 2020, due to the COVID-19 pandemic.
Generally, the first year you’re late to file taxes you’ll pay a penalty equal to 5% of your balance owing, plus 1% of your balance owing for each full month your return is late (to a maximum of 12 months). If you also filed your taxes late in 2016, 2017 or 2018, your late penalty may be 10% of your 2019 balance owing, plus 2% of the balance owing for each full month your return is late (to a maximum of 20 months).
Defer Payments Until September 1, 2020
This year only, the Government has extended the deadline to pay amounts owed to September 1, 2020. This change takes into consideration the challenges of our current context, with many people being off work due to COVID-19. Read more about COVID-19 related updates on the Government of Canada’s income tax page here.
Create A Manageable Repayment Schedule
If you can’t pay off your tax bill immediately, you are able to make small payments over time to repay your taxes. Calculate a payment amount that fits within your budget, and still allows you to meet your other financial obligations (housing, food, debt, etc.). You can work with the CRA to set up a payment plan by calling the CRA or through My Account for individuals.
Not sure how much you can afford to pay? If you need help identifying how much money you have available to pay your tax debt, read more about building a budget that works here.
Set Up Pre-Authorized Payments
Be sure to prioritize paying the CRA; interest on your tax debt is compounded daily, based on the government’s prescribed interest rate. Once you’ve created your repayment plan, you can set up pre-authorized payments from your debit account to ensure your payments are on time. You can also pay your balance owing via credit card, online or telephone banking, and through CRA’s My Account service.
Tip: when the CRA asks for your “account number”, they are asking for your Social Insurance Number.
What If My Income Tax Is Beyond My Ability To Repay?
If this is the case, there are a few other options available to you:
- If you don’t agree with your tax assessment or re-assessment? you can object to it by filing a formal objection with the CRA (form T400A).
- If your return looks correct and just not possible for you to pay your tax debt right now, read more about the CRA’s discretionary taxpayer relief provisions. While these provisions won’t erase your taxes owing, they can allow the Minister of National Revenue to cancel or waive penalties or interest on your debt. Taxpayer relief provisions exist to support Canadians experiencing extraordinary circumstances, inability to pay or financial hardship, and some other circumstances. Read more on the CRA website here.
While a tax bill is probably the last thing you wanted this April, filing your taxes and reviewing your income and investment statements creates an opportunity for you to consider how you’re spending and saving your money. Ask yourself: could you have reduced your taxes owing by putting money into a Registered Retirement Savings Plan (RRSP) in 2019? If so, is that something you want to plan to do in 2020? If you’re nodding your head, learn how you can maximize RRSP savings here.
Interested in a personal loan? Fairstone can help you consolidate debt into one simple payment, making budgeting easier, or help you cover unexpected expenses (like a surprise tax bill). Get an online quote to find out how much money you could qualify for and what your payments might be. No obligation, no impact to your credit score.