If you owe money to the Canada Revenue Agency (CRA) and are concerned about losing your home, you are not the only one facing this issue. The good news is that there are many legal and practical means to Settle CRA Debt Without Risking Your Home.
Knowing your options and taking steps to plan ahead can help you to protect your home all while being able to resolve your tax debt.
This guide will outline the safest strategies for settling CRA debt through, establishing a payment plan, consolidating your debts, making a consumer proposal, as well as hiring a professional to help. It will also cover how to avoid the most common mistakes that can put your home risk.
Understanding CRA Debt
The CRA debt refers to accounts that are currently owed to the Canada Revenue Agency (CRA). These debts will often be as a result of unpaid taxes, unremitted withholdings, or overpayment of benefits. CRA debt is not just a single “income tax bill” in that more often than not, if left unresolved, it can quickly escalate into a large financial challenge as well as a legal challenge.
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What is included as CRA Debt
Common types of CRA‑related debt include:
- Personal Income tax owed upon either filing or reassessing.
- Corporate Income tax and GST/HST that remains unpaid.
- Payroll deductions including, but not limited to CPP, EI, and Income tax (which the employer has failed to remit).
- Overpaid benefits such as the Canada Child Benefit (CCB), GST/HST Credit or COVID-19 Benefits/CEBA loans that require repayment.
After the CRA assesses you (or has assessed you again), you will receive a Notice of Assessment or Reassessment which will outline the balance owed to the CRA. If the amount is not paid, the CRA will treat this balance as an active debt and will begin collection actions.
What are the Risks
Owing CRA debt carries several real financial and legal risks, especially if you ignore it or wait too long to act. Here are the main risks Canadians should know.
- Interest is applied and accrued on unpaid balances, and this can result in you quickly accumulating large amounts of debt over time.
- If you file late or make a payment late, the total amount you owe will be increased by the penalties the CRA imposes for these actions.
- The CRA may freeze the funds in your bank account and seize those funds without the need to obtain a court order.
- If the CRA takes action, your wages, pension, and/or other income may be garnished. If so, part of your pay will be sent directly to the CRA.
- The CRA may place a lien on your home, which could prevent you from selling (or refinancing) that property.
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- In extreme situations the CRA may require the sale of your principal residence, or other property, to satisfy the debt you owe.
- The CRA can seize, and sell, other assets you own like your vehicles, investments, and rental properties.
- A court judgment or lien on your property can negatively affect your credit and create issues when you apply for financing in the future.
- The CRA may sometimes reach through to a spouse or another third party who has received assets from you.
- Failing to address the problem could result in your being subjected to legal action, an investigation, and long-term financial problems.
Settle CRA Debt Without Risking Your Home with below Smart Options
- Contact CRA immediately if there is a balance and do not ignore CRA letters or notices and do not avoid any phone calls.
- Get your CRA account statement, this will provide you with all taxes owed, plus interest and any applicable tax penalties. Knowing the total amount will help you to set up a payment‐size based on how much you earn each month.
- Set up a payment plan with CRA as this is also based on how much you are now earning.
- Make your payments on time, or you could be subject to liens, wage garnishments, or additional tax penalties.
- If your tax debt has been caused by hardship, ask for Taxpayer Relief from CRA to forgive or reduce your penalties and interest.
- This is where you may want to work with a Licensed Insolvency Trustee to prepare a Consumer Proposal if you cannot pay your CRA balance in full.
- You can propose to pay most but not all of your separate unsecured debt and CRA over a 3‐5 year period, and the remaining balance will be legally eliminated.
- If you continue making your agreed repayment, you will be able to keep your home, vehicle, RRSP’S, and other assets.
- After your Consumer Proposal is accepted, collection efforts such as wage garnishments and most other efforts will cease.
- When borrowing against equity in your home, use of the home as a security against CRA debt places your home at risk if you can not make the monthly payments to the lender.
- Settle with or refinance CRA tax debt using a Consumer Proposal or repayment plan before securing additional financial assistance through refinance or borrowing.
- If you have a lien, you may be able to establish a good payment plan or propose a Consumer Proposal to encourage the CRA to cancel your lien or not to enforce it.
- Do not believe any half payment or settlement of your penalty sales pitch that tells you that you can be relieved from CRA tax outside of official processes.
- Stick to CRA-approved alternative options, Payment Plan, Taxpayer Relief, Consumer Proposal, and Bankruptcy.
- Talk to a Licensed Insolvency Trustee or tax expert to compare options for paying off CRA debts safely while not losing your home.
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When should you seek help?
You should seek help for CRA debt if:
- You receive a CRA notice stating that you owe them money or have a balance which is impossible for you to pay at this time and are anxious about accruing interest or penalties on top of any current outstanding balance.
- You have already missed a payment because because of recent financial constraints you find yourself unable to provide full payments.
- You notice the word ‘collection’ in CRA correspondence as it relates to possible ‘liens’, ‘garnishments’ or ‘setoffs’ and are thinking about borrowing a significant amount of money such as via a second mortgage or home equity line of credit or personal loan to avail yourself of funds necessary to meet these obligations.
- You have receiving legal warning either verbally or through writing that the collection process has begun.
- You are considering whether you can file for a proposal to your creditors under the provisions of the Bankruptcy and Insolvency Act or apply for relief under Taxpayer Relief legislation or simply establish a Payment Plan with them.
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Wrap-Up
Having CRA debt can be stressful, but it does not mean that you will lose your home. The best way to tackle CRA debt is to act early, maintain a dialogue with the CRA, and select the most effective options based on your personal circumstances.
There are several solutions available such as arranging a payment agreement, applying for Taxpayer Relief, or making a proposal to creditors that could either eliminate or significantly reduce your overall debt while keeping your home and other property safe.
Via Settle CRA Debt Without Risking Your Home with Smart Strategies mentioned above, Canadians can take steps towards responsibly resolving their CRA debts.
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Sources
This article is based on official Canada Revenue Agency (CRA) guidelines and verified financial resources to ensure accurate and reliable information about settling tax debt in Canada.
