How Should You Manage CRA Tax Debt?

If you owe money to the CRA, but you can’t pay, what is the best course of action? For example, if you or your clients use Paypal for business and were not previously reporting this income on your tax returns, the new CRA requirements may leave you in a position where you have to pay taxes you weren’t anticipating.

Last week a federal court ordered PayPal to disclose all transactions made between January 1, 2014, and November 10, 2017, to the CRA. If you or your clients haven’t been reporting income on business transactions received through PayPal, you have to act fast or risk facing serious penalties. However, there is another consequence: reporting this income before year-end as required means you will be the recipient of an unanticipated tax bill.

If you find yourself unable to pay the taxes you owe and acquire debt with the CRA, the interest penalties are substantial. The CRA charges compound daily interest on overdue balances, as well as interest on penalties beginning the day after the return is due. Canadians with unpaid balances may also be subjected to wage garnishment. To avoid harsh financial penalties, acting proactively is essential.

Marcia Elaschuk, Knowledge Bureau faculty member and DFA- Bookkeeping Services Specialist, has the following advice for Canadians burdened by CRA debt: “Make arrangements with CRA to pay any balance owing as quickly as possible to avoid as much in interest and penalties as you can. If you are unable to pay the total amount in one payment, make arrangements for instalment payments with CRA, use a line of credit or acquire a bank loan to pay off the balance. The interest on these options should certainly be lower than the compound interest charged by CRA. As a tax/financial advisor to clients who may be in this position, discuss their options with them to see how they can pay off CRA with the least amount of cost and disruption to their business or personal finances.”

Tax debt can’t be ignored, and things like PayPal’s disclosure obligations make it an even more urgent matter. Dealing with online transactions adds even more complexity to the bookkeeping and tax filing processes, but these are modern functions that must be understood and addressed by all financial and tax professionals, as well as small business owners.

Knowledge Bureau’s Debt and Cash Flow Management course provides financial and tax advisors with the education necessary to provide effective advice to their clients when issues like this arise. Small business owners interested in managing their own books can gain a better understanding of tax preparation and get ahead of these issues with the T2 Tax Preparation for Small Business course.

Additional educational resource: CE Summits Toronto – Year End Planning for Investors and Small Businesses (registration ends Friday!)

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