Canadian homeowners have more negotiating power than they think when it comes to the Canada Revenue Agency. That is until the CRA has located your property and placed a lien on it.
Using your home to negotiate with the Canada Revenue Agency all comes down to timing. If you have some equity in your home and owe the CRA money or are about to owe the CRA money, here are the best steps to take.
Many homeowners in this situation will go to their bank first to obtain the financing to pay off a tax debt. This could be fatal because the mere mention of a tax debt could cause your bank to rate you as high risk and could result in a loss of credit privileges. That is the last place you should go for help when in the midst of a credit problem.
Speak with a trusted mortgage broker and disclose all the facts. They will know which lenders will be likely to deal with you and they will know, given your circumstance, how much equity you can take out of your home. This is a crucial first step, because if you don’t have enough equity to pay the debt in full, you will have to make arrangements on the balance.
If there will be a balance, your next step will be to divide the balance by 24. Can you afford to pay this sum each month? If the answer to this question is yes, you are in a position to make a deal.
If the answer to this question is no, you may need the assistance of a debt counsellor or trustee to help you negotiate a settlement with respect to your tax debt. This would be a last resort because if it involves insolvency, this will mangle your credit.
If the answer was yes, it’s time to make a deal with the CRA to avoid enforcement action. So in our example we raise a lump sum payment on the tax debt using home equity and planned to propose a monthly repayment plan on the balance.
Whether you contact the CRA directly or hire an Advocate to contact the CRA on your behalf – Get the entire agreement in writing. A verbal agreement with the CRA is meaningless and I repeat, you must get the agreement in writing.