Making a payment arrangement with the CRA

Virtually no one looks forward to dealing with the need to file a tax return each spring, and while some of that reluctance is undoubtedly due to the complexity of our tax system, there’s another factor at work.

Many (even most) taxpayers don’t know, until they have actually completed their return for the year, whether additional taxes will be owed. And, no matter what the taxpayer’s financial circumstances, finding out that money is owed to the tax authorities is bad news.

For many taxpayers that bad news can create a real cash flow crunch.  Statistics show that a substantial number of Canadians and Canadian families live paycheque to paycheque, and so would not be in a financial position to manage an unexpected tax bill, especially where that bill is due in the next few weeks. For a number of reasons, the better approach for such taxpayers is to try to obtain the necessary funds from private sources.  For those who don’t have the means to pay a tax bill out of existing resources, that likely means borrowing the needed funds. While that means paying interest on the borrowing, the interest cost incurred will likely be less than that which would be levied by the Canada Revenue Agency (CRA). 

If a tax bill can’t be paid in full out of either current resources or available credit, the CRA is open to making a payment arrangement with the taxpayer. While the CRA would rather get paid on time and in full, its ultimate goal is to collect the full amount of taxes owed. Consequently, the CRA provides taxpayers who simply can’t pay their bill for the year on time and in full with the option of paying an amount owed over time, through a payment arrangement.

There are two avenues available to taxpayers who want to propose such a payment arrangement. The first is a call to the CRA’s TeleArrangement service at 1-866-256-1147. When making such a call, it is necessary for the taxpayer to provide his or her social insurance number, date of birth, and the amount entered on line 150 of the last tax return for which the taxpayer received a Notice of Assessment. (For taxpayers who are up to date on their tax filings, that will be the Notice of Assessment for the return for the 2016 tax year). The TeleArrangement Service is available Monday to Friday, from 7 a.m. to 10 p.m. EST.

Taxpayers who would rather speak directly to a CRA employee can call the Agency’s debt management call centre at 1-888-863-8657. That centre is open Monday to Friday from 7 a.m. to 11 p.m. EST.

No matter what payment arrangement is made, the CRA will levy interest charges on any amount of tax owed for the 2017 tax year which is not paid on or before April 30, 2018. Interest charges levied by the CRA tend to add up quickly, for two reasons. First, the interest charged by the CRA on outstanding tax amounts is, by law, higher than current commercial rates. For the second quarter of 2018 (April 1 to June 30), that rate is 6%. Second, interest charges levied by the CRA are compounded daily, meaning that each day interest is levied on the previous day’s interest charges. It is for these reasons that a taxpayer is, where at all possible, likely better off arranging private borrowing in order to pay any taxes owing by the April 30 deadline.

Finally, there is one strategy which is, in all circumstances, a bad one. Taxpayers who can’t pay their tax bill by the deadline sometimes conclude that there is no point in filing if payment can’t be made. Those taxpayers are wrong. Where an amount of tax is owed and the return isn’t filed on time, there is an immediate tax penalty imposed of 5% of the outstanding tax amount – and interest charges start accruing on that penalty amount (as well as on the outstanding tax balance) immediately. For each month that the return isn’t filed, a further penalty of 1% of the outstanding tax amount is charged, to a maximum of 12 months. Higher penalty amounts are charged, for a longer period, where the taxpayer has incurred a late-filing penalty within the past three years. In a worst-case scenario, the total penalty charges can be 50% of the tax amount owed – and that doesn’t count the compound interest which is levied on all penalty amounts. In all cases, no matter what the circumstances, the right answer is to file one’s tax return on time. This year, for most taxpayers, that means filing on or before Monday April 30, 2018. For self-employed taxpayers (and their spouses) the filing deadline is Friday June 15, 2018. However for all taxpayers, the payment deadline for all 2017 income tax owed is Monday, April 30, 2018.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.
 

Posted: Monday, April 30th, 2018 | Categories: Tax Alerts.

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