Communication is the foundation of any relationship, whether in love, in life or at work. One relationship that's important to keep on an even keel is yours with the Canada Revenue Agency.
It's hard to admit, in any relationship, that you are wrong. With the CRA, the challenge comes when you've calculated your taxes due, and don't have the money to cover the outstanding balance. While employers are usually quite accurate at deducting the right amount at source as reflected on your T4 slip, many circumstances -- casual income, a raise, taxable benefits -- can affect your tax picture and leave you owing money.
While it's tempting to ignore the CRA until you can make it right, this is exactly the wrong thing to do. Communication is more important than ever now; it can save you a lot of legal hassle, and a lot of money.
Your first and most important form of communication with the CRA is your income tax return. Even if you can't pay the outstanding amount, it's important to get your T1 in on time. It can raise red flags at the CRA if you don't. And you're subject to a late filing fee of five per cent of what you owe. The more substantial your outstanding bill, the bigger the hole you're digging. Filing on time also helps ensure that any credits you're claiming for next year -- the HST/GST credit, Child Tax Benefit, Working Income Tax Benefit, etc. -- continue to arrive uninterrupted.
While you're filing your return, you might want to include a little note expressing your goodwill -- a cheque for a partial amount of the outstanding balance. Paying what you can before the deadline reduces the amount of interest you'll have to pay, since that is calculated at one per cent per month of the balance owing. If you owe $1,000 and pay $500 before the deadline, you'll be compounding half the interest, along with saving a $50 late filing fee and the interest on that.
In fact, that can lead to a different communication strategy altogether -- instead of waiting till the last minute, or filing late, file early. Let's take the example above. If you owe $1,000, and file your taxes in the middle of March with a partial payment of $500, there's a good chance you'll find between then and the April 30 deadline that you can make another partial payment of $250, further reducing the debt and interest. You might even find you can pay off the entire outstanding balance before it's too late.
If you've done all the above and find you still have a bill outstanding, you're going to be dealing with the CRA's collections department. Sounds ominous, doesn't it? But if you're proactive about the situation, you're better off than if you wait for CRA to come to you.
You'll receive a notice of assessment that specifies what you owe the CRA. When you receive it, call the collections department as soon as possible and ask to arrange a payment plan. CRA collection agents have a fair amount of leeway to negotiate a payment plan, depending on the amount owed. You'll be assigned a collection agent, and that person will be the primary manager of your relationship with the CRA.
(One exception to the general rule about negotiation: If you're self-employed and collect harmonized sales tax, provincial sales tax or the goods and services tax. This money belonged to the government in the first place; you were just the cashier who collected it.)
One thing that can't be stressed enough: If you agree to make payment commitments to the CRA, always -- always -- live up to them. If you commit to paying $150 a month for the next four months to cover your outstanding amount, establish specific days and always pay on time. If you submit post-dated cheques, make sure your balance will cover them. If you've arranged online payments, make them in time. The collections agent assigned to your account has the authority to freeze bank accounts without going to court, and they will if you miss a payment or bounce a post-dated cheque.
But, in general, collections agents for the CRA, unlike private collection agents, are co-operative and want to put you back on the right side of the ledger. It would be a very important -- though hopefully brief -- relationship, and like all relationships, communication is key.
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