If you owe tax for 2014 but can't afford to pay, always contact the tax office before it contacts you.
And file your return by the April 30 deadline to avoid the late filing penalty - even if you don't have the money to pay the tax you owe. People who can't afford to repay debts sometimes have the unfortunate tendency to ignore the problem and hope it will go away. .. even if only temporarily. But that makes an eventual solution even more difficult to achieve. Just imagine if somebody owed you money but had repayment problems. Wouldn't you feel more inclined to work out a Plan B if the borrower approached you than if you had to chase after him/her?
The tax office considers itself a preferred creditor and isn't likely to wait while you pay off other (possibly more expensive) debts first.
It also has significant collection powers (to "intercept" wages and other income, seize and sell assets, hold a spouse or business partner jointly responsible) so it is most likely to be helpful if you propose a repayment plan at the same time as you explain why you can't pay by the April 30 due date.
Post-dated cheques or other automatic prearranged payments are high on its "like" list. You might be asked to disclose your income and expenses, assets and liabilities before the tax office approves a repayment plan.
Whatever happens, you will be charged the prescribed daily compounding interest rate - five per cent in the first quarter of this year, and adjusted every quarter - on the outstanding balance unless you have a successful hardship claim. See the Request for Taxpayer Relief form, searchable at cra-arc.gc.ca.
Reasons to support a claim could typically include a tax office delay or error, natural or other disaster, death in the family, accident, serious illness, civil disturbance or other factor causing financial hardship or inability to pay.
You will be asked to "describe all the circumstances and facts supporting your request for relief from penalties or interest. Provide a history of events including any steps that you have taken to correct or avoid this tax situation" - and supporting documentation.
Mike Grenby is a columnist and independent personal financial advisor. Email [email protected]
