Owing money to the Canada Revenue Agency (CRA) differs from other financial obligations, like credit card debt or bank loans. However, failing to pay the CRA can still significantly affect your credit score. Here’s how tax debt can affect your credit rating and what you can do about it.
How Tax Debt Differs from Other Debt
The CRA has privacy rules and can’t share your tax information with Canadian credit bureaus. Filing tax returns, making late payments and incurring penalties generally won’t affect your credit score. This is especially true if you’re open and honest with the CRA about your ability to pay and show you’re making every effort to do so.
However, the CRA may take more severe action if you continually fail to pay a mounting tax debt. If you miss the payment deadline and don’t respond to CRA warnings and notices, the organization can issue a tax lien against you, hire a collection agency to go after you or take you to court. CRA privacy rules don’t protect against these actions and can negatively impact your credit score.
How To Deal with Mounting Tax Debt
To prevent mounting tax debt from having an adverse effect on your credit score, try to resolve any outstanding debt with the CRA as quickly as possible. If you can’t pay your taxes, don’t ignore the situation. Instead, notify the CRA, which can offer you some payment options, including payment plans and directing future tax credits and refunds to reduce your debt.
Additionally, make a partial payment if you can’t pay the total amount in one go. This can help reduce what you owe. However, your debt will continue to gain interest until you pay the entire balance.
The CRA also has a program that forgives penalties and interest on your tax debt if:
you’re a victim of a natural disaster or illness
you prove you can’t pay because of loss of income or other financial hardship
the late payment stems from a CRA processing error
Keep in mind that the CRA won’t forgive the underlying principle.
If you’re struggling to pay your tax debt, credit card debt and loan payments, consider working with a licensed insolvency trustee. They can also help get your finances in order with credit counselling services.
Tax Debt Help in Ottawa and Across Ontario
At D. & A. MacLeod Company Ltd., our licensed insolvency trustees have experience negotiating with the CRA. They’ve helped thousands of Canadians eliminate their tax debt. We’re committed to helping you find a new beginning™. We offer in-person service plus virtual appointments for clients across Canada. To schedule a free consultation at our Ottawa and eastern Ontario offices or request a virtual appointment, contact us today.