According to the CRA, almost 15 million Canadians got a tax refund this last year. However, about 6 million Canadians had a tax bill with an average balance owing of $6,600.
Whenever clients receive a large tax bill like this, they can react in a variety of ways, the one I hear most often is “what can i do now to make this amount smaller“ but 95% of the time we are way past the dates where anything could actually be done to decrease those taxes- but there are ways to help minimize your overall tax situation.
First, having accurate income and expense projections throughout the year and being educated about taxes in general are the keys to avoiding surprises. By proactively estimating a clients combined personal and/or corporate income and expenses - we help them minimize their overall taxes and as well as create a budget for saving to pay for those taxes.
This means that clients won't have to borrow money (which no one wants to do right now with sky high interest rates) or be using their future earnings-cash flow to pay the current tax bill, since the cash will be ready and waiting when April 30th rolls around.
If you find yourself in a situation where your overall taxes owing is greater than you can manage, because maybe you were a few years behind in filing and did a catch up. You can ask CRA for a payment arrangement, but please know that these are usually just for the short term, like 6 months.
Us tax professionals often suggest that, rather than negotiating with CRA themselves, clients should enlist their tax preparer or accountant or even a lawyer to work with the CRA on their behalf. A professional representative will usually be able to negotiate the same if not better payment terms, largely because the representative will limit what information about your situation is disclosed to the CRA and CRA recognizes that the representative doesn’t have any skin in the game.
Ultimately, this usually results in a better outcome for the taxpayer but do understand that if you do setup a payment arrangement and fail to meet the requirements, even missing the payment date by a day, you're technically in default and CRA can now take immediate action to garnish your wages or your bank accounts,among other things.
Finally after receiving your notice of assessment, it is crucial to make sure the assessment is accurate and that all the deductions and tax credits you claimed have been accounted for.
Until Next Time,
Christine Walters
