income tax debt – Consumer Proposal & Bankruptcy – Powell Associates Ltd.

COVID-19 Economic Response Plan – Income Tax Deadlines Have Been Extended

admin — Thu, 26 Mar 2020 19:00:00 +0000

“To receive your refund in a timely manner you should file your return on or before the deadline and sign up for direct deposit.”

As part of Canada’s COVID-19 Economic Response Plan, the Canadian government has extended the deadline for filing individual tax returns to June 1, 2020. Taxpayers will have until September 1, 2020, to pay any 2019 income tax amounts owed.

The deadline, if you or your spouse or common-law partner carried on a business in 2019 (other than a business whose expenditures are primarily in connection with a tax shelter), is June 15. However, if you have a balance owing for 2019, you have to pay it on or before September 1, 2020.

To receive your refund in a timely manner you should file your return on or before the deadline and sign up for direct deposit. If you are not comfortable giving your bank account info to CRA then you can choose to receive your refund by check, however, this may take longer.

If you owe them

If you owe income taxes it must be paid on or before September 1, 2020, to avoid getting charged interest.

If you have an amount owing and cannot pay it in full by the deadline, you will be charged compound daily interest. Generally, You can make arrangements for monthly payments as long as the debt is paid before the next income tax deadline. Contrary to popular belief, the interest you pay CAN NOT be claimed as a deduction on the following year’s income tax return.

What happens if you’re late?

“You have until June 1, 2020, to file your 2019 income tax return, you can avoid the late-filing penalty by filing your return on time.”

If you owe tax for 2019 and you file your return for 2019 after the due date, you we will be charged a late-filing penalty. The penalty is 5% of your 2019 balance owing, plus 1% of your balance owing for each full month your return is late, to a maximum of 12 months.

If you were charged a late-filing penalty on your return for 2016, 2017, or 2018 your late-filing penalty for 2019 could be 10% of your 2019 balance owing, plus 2% of your 2019 balance owing for each full month your return is late, to a maximum of 20 months. “ Yikes! “

A large income tax debt is one of the first signs of financial hardship to come and shouldn’t be ignored. Putting it on your calendar and getting filed and paid on time will save a lot of stress and could prevent bigger problems down the road.

For more information direct from CRA:

Powell Associates Ltd. is a Licensed Insolvency Trustee. We are experienced, hands-on insolvency practitioners who understand the personal impacts of major financial stress;

You won’t be stuck in an assembly line process.
You will expect and receive prompt responses and resolution of issues from our supportive and experienced team.
We will review your debt solution options, including filing a consumer proposal or personal bankruptcy.
We help Canadians with overwhelming debt get fresh financial starts.

Once you file a consumer proposal or personal bankruptcy, we deal directly with your creditors on your behalf. Your unsecured creditors are required to stop contacting you or continuing legal proceedings against you. Contact us for a free consultation.

We offer free consultations to review your financial situation and practical debt resolution options. Contact us to discuss your situation over the phone, a video chat, or in-person in Saint John, Moncton, Fredericton, Charlottetown, Dartmouth, or Miramichi.

A Little Extra Time for Self-Employed People to File

admin — Thu, 17 May 2018 16:08:27 +0000

The April 30, 2022, personal tax deadline is approaching. However, for self-employed individuals (if you or your spouse or common-law partner carried on a business in 2021), the deadline to file for you and your spouse is June 15, 2022.

Even though the return is not due until June 15th, you are required to pay your income tax debt by April 30th. These dates also apply to filing your GST/HST return if you are an annual filer for GST/HST purposes.

“Contrary to popular belief, the interest you pay CANNOT be claimed as a deduction on the following year’s income tax return.”

If you have an amount owing (of more than $2) and cannot pay it in full by the deadline, you will be charged compound daily interest. The current interest rate is 6% (per annum) and changes quarterly. Generally, you can make arrangements for monthly payments as long as the debt is paid before the next income tax deadline. Contrary to popular belief, the interest you pay CANNOT be claimed as a deduction on the following year’s income tax return. The fact that the interest is not deductible can effectively double the rate as compared to deductible interest, depending on your tax bracket. 6% does not appear to be an unreasonable rate but, because it is not deductible makes it very expensive.

What happens if you’re late filing your return? Even if you cannot pay your full balance owing on or before April 30th, you can avoid the late-filing penalty by filing your return on time. Take note of the penalties:

If you owe tax for 2021 and you file your return for 2021 after the due date of June 15th, you will be charged a late-filing penalty. The penalty is 5% of your 2021 balance owing, plus 1% of your balance owing for each full month your return is late, to a maximum of 12 months.
If you were charged a late-filing penalty on your return for 2018, 2019, or 2020 your late-filing penalty for 2021 could be 10% of your 2021 balance owing, plus 2% of your 2021 balance owing for each full month your return is late, to a maximum of 20 months.

Like interest on amounts owing, penalties are not deductible for tax purposes, so the penalty rates above are effectively doubled if you are in the highest tax bracket. The penalties are easily avoided by getting your return filed on time. You have five and a half months after December 31st to get the return done and filed. This really should be lots of time.

A large income tax debt (including penalties and interest) is one of the first signs of financial hardship to arise and shouldn’t be ignored. Besides the money stress, dealing with CRA and their collection calls and procedures can cause significant additional stress.

Avoid all the stress by putting filing dates and reminders on your calendar, budget for payments, and get returns filed and debts paid on time. Easier said than done? Not everyone likes carrots but most of us prefer to avoid “the stick”.

For more information direct from CRA:

Powell Associates Ltd. is a Licensed Insolvency Trustee. We are experienced, hands-on insolvency practitioners who understand the personal impacts of significant financial stress;

You won’t be stuck in an assembly line process.
You will expect and receive prompt responses and resolution of issues from our supportive and experienced team.
We will review your debt solution options, including filing a consumer proposal or personal bankruptcy.
We help Canadians with overwhelming debt get fresh financial starts.

Income Tax Deadlines Are Coming Soon But Why Do They Matter?

admin — Thu, 12 Apr 2018 16:05:21 +0000

For Canadians, April 30 is the official deadline to file your personal income tax return with the Canada Revenue Agency and once you have completed your return, you will either be entitled to a return refund or have an amount owing.

The deadline, if you or your spouse or common-law partner carried on a business in 2021 (other than a business whose expenditures are primarily in connection with a tax shelter), is June 15. However, if you have a balance owing for 2021, you have to pay it on or before April 30, 2022.

If you owe them

If you owe income taxes it must be paid on or before April 30 to avoid getting charged interest.

If you have an amount owing (of more than $2) and cannot pay it in full by the deadline, you will be charged compound daily interest. Generally, You can make arrangements for monthly payments as long as the debt is paid before the next income tax deadline. Contrary to popular belief, the interest you pay CAN NOT be claimed as a deduction on the following year’s income tax return.

What happens if you’re late?

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“Even if you cannot pay your full balance owing on or before April 30, 2022, you can avoid the late-filing penalty by filing your return on time.”

If you owe tax for 2021 and you file your return for 2021 after the due date, you we will be charged a late-filing penalty. The penalty is 5% of your 2021 balance owing, plus 1% of your balance owing for each full month your return is late, to a maximum of 12 months.

If you were charged a late-filing penalty on your return for 2018, 2019, or 2020 your late-filing penalty for 2021 could be 10% of your 2021 balance owing, plus 2% of your 2021 balance owing for each full month your return is late, to a maximum of 20 months. Yikes!

For more information direct from CRA:

Powell Associates Ltd. is a Licensed Insolvency Trustee. We are experienced, hands-on insolvency practitioners who understand the personal impacts of significant financial stress;

You won’t be stuck in an assembly line process.
You will expect and receive prompt responses and resolution of issues from our supportive and experienced team.
We will review your debt solution options, including filing a consumer proposal or personal bankruptcy.
We help Canadians with overwhelming debt get fresh financial starts.

Income Tax Deadlines

admin — Tue, 25 Apr 2017 06:00:48 +0000

Income Tax Deadlines

For Canadians, April 30 is the official deadline to file your personal income tax return with the Canada Revenue Agency. Where April 30 falls on a Sunday, your return will be considered filed on time if it is received or postmarked on or before May 1, 2022. If you file your return past the deadline you will be assessed a late filing penalty. If you owe income taxes it must be paid on or before this date to avoid getting charged interest.

Note: if you are filing a return for a deceased person please refer to the following link – http://www.cra-arc.gc.ca/E/pub/tg/t4011/t4011-16e.pdf

Once you have completed your return, you will either be entitled to a return refund or have an amount owing.

Note: for tax payer relief provisions for individuals and businesses refer to the following link – http://www.cra-arc.gc.ca/gncy/cmplntsdspts/txpyrrlf-eng.html

A large income tax debt is one of the first signs of impending financial hardship and should not be ignored.

Powell Associates Ltd. is a Licensed Insolvency Trustee. We are experienced, hands-on insolvency practitioners who understand the personal impacts of major financial stress;

You won’t be stuck in an assembly line process.
You will expect and receive prompt responses and resolution of issues from our supportive and experienced team.
We will review your debt solution options, including filing a consumer proposal or personal bankruptcy.
We help Canadians with overwhelming debt get fresh financial starts.

What is a Deemed Trust?

admin — Tue, 31 Jan 2017 14:53:52 +0000

What is a Deemed Trust?

By simple definition, a “trust” constitutes property held by a third party (the trustee) for the benefit of another (the beneficiary).

A deemed trust is a trust created by statute or by legislation, whether you like it or not.

When an employer deducts income tax, CCP, and EI from its employees’ pay, those amounts are deemed to be held in trust for the Crown and remitted later.
Similarly, when a vendor collects GST/HST, they are deemed to be holding those amounts in trust for the Crown’s benefit.

The deemed trust attaches to the employer or vendor’s assets and must be paid to the Crown in priority to all other security interests.

Regardless of whether the funds have been segregated or commingled with the employer or vendor’s property, the deemed trust is a priority over all other security interests.

If you do not pay the payroll deductions or GST/HST amounts to Canada Revenue Agency (“CRA“) when they are due, CRA will assess your business for the amount owing and ask you to pay the full balance right away, including any penalties and interest that apply.

You should not use money held in trust for the Crown as a source of cash to run your business. Even if you keep these amounts with your personal or business funds, you should consider them to be held separate and apart.

In a bankruptcy, amounts owing for GST/HST and the employer portion of CPP and EI, and penalties and interest on these amounts are unsecured claims, ranking the same as all other general creditors of a debtor. However, before bankruptcy occurs, CRA may obtain a lien or charge (by filing a memorial judgment) against the real or personal property of a debtor. If CRA files a memorial judgement, it will be a secured creditor in bankruptcy for those debts.

Although income tax debt is not a deemed trust, if CRA files a memorial judgement for income tax debt, it will be a secured creditor in bankruptcy for that debt.

Powell Associates Ltd. is a Licensed Insolvency Trustee. We are experienced, hands-on insolvency practitioners who understand the personal impacts of major financial stress;

You won’t be stuck in an assembly line process.
You will expect and receive prompt responses and resolution of issues from our supportive and experienced team.
We will review your debt solution options, including filing a consumer proposal or personal bankruptcy.
We help Canadians with overwhelming debt get fresh financial starts.

Personal Bankruptcy and Income Taxes – What You Need to Know

admin — Tue, 14 Oct 2014 06:00:19 +0000

Bankruptcy and Income Taxes – What You Need to Know

Last Updated: May 12, 2023

Personal Bankruptcy and Income Taxes – What You Need to Know

When filing a personal bankruptcy, income tax debts are discharged in the same as any other unsecured debt, like credit cards and personal loans. As such, despite popular belief, income tax debt relief & debt forgiveness exists in Canada.

Your Trustee will prepare your income tax return for the year of bankruptcy and will split your income tax return into two returns, pre-bankruptcy and post-bankruptcy income tax returns.

The pre-bankruptcy tax return will cover your income and deductions, from January 1 of the year of bankruptcy up to your date of bankruptcy. Your Trustee will receive any income tax refund from the pre-bankruptcy return; to be deposited to your bankruptcy estate for the benefit of your unsecured creditors.

If you previously owed the Canada Revenue Agency (“CRA”) money, CRA will have the right to keep any income tax refund from your pre-bankruptcy income tax return to pay this debt.

If you owe on this income tax return, it is included in your bankruptcy, so you will not have to pay this debt.

The post-bankruptcy income tax return covers your income and deductions from your day after bankruptcy to December 31. Your Trustee will receive any income tax refund from the post-bankruptcy return and it will be deposited to your bankruptcy estate for the benefit of your unsecured creditors.

If there is an amount owing on your post-bankruptcy income tax return, you will be responsible for paying this debt as it was incurred after you went bankrupt.

If you are struggling with income tax debt or your wages are being garnished, you should seek professional assistance from a Licensed Insolvency Trustee.

Powell Associates Ltd. is a Licensed Insolvency Trustee. We are experienced, hands-on insolvency practitioners who understand the personal impacts of major financial stress;

You won’t be stuck in an assembly line process.
You will expect and receive prompt responses and resolution of issues from our supportive and experienced team.
We will review your debt solution options, including filing a consumer proposal or personal bankruptcy.
We help Canadians with overwhelming debt get fresh financial starts.