If you have a tax debt that has interest and penalties assessed and you have a serious medical problem, suffer from financial hardship, have been the victim of a disaster or you can prove that the CRA (Canada Revenue Agency) has made an error, you can make an application for Interest and Penalty Relief to the CRA.
This is a long process and a large percentage of these applications end up being declined. This is usually the case because taxpayers make the applications themselves and do not provide the sufficient evidence needed to prove their claims.
Even if a taxpayer has been accepted for taxpayer relief it could take 1-2 years before a decision is made. In the meantime, interest will continue to accrue and if (like in many cases) it is not accepted – you will have to pay the extra interest and will face aggressive collection action.
Homeowners have even more to worry about because once a property tax lien is applied the CRA will notify mortgagors, such as the bank. This will raise awareness of the tax dispute/issue and the outcome of this could be long-term destruction to your relationship with your bank.
If you own your home and have a tax dispute, tax debt or believe you may qualify for taxpayer relief, we recommended using your home as a tool to satisfy the CRA, then pursing your dispute.
Refinancing your home to pay off your tax debt will result in much less interest than the interest charged by the CRA. Using a mortgage as a tool to pay your tax debt can enable you to pay off large debt with very little impact to your budget/monthly payments.
Most banks will shy away from working with a customer who has a large tax debt - even if you are borrowing the money from them to pay the debt in full. The mere existence of a tax debt will lead to many banks flagging you as a high risk.
There are however many Credit Unions, Trust Companies, Mortgage Investment Corporations and even private lenders who will extend mortgage financing to individuals who have a large tax debt even if there is a lien on their property.
There are many mortgage solutions for taxpayers, who are in need of refinancing, to deal with tax debt. These include first mortgage refinancing, second mortgages and home equity lines of credit. A good mortgage broker will be able to access all funding sources and products so that you can see all of the options that exist. Also a mortgage broker can be trusted with all of your financial information without rendering judgment or damaging your banking relationships.
The fastest way to deal with a tax debt is to pay it off. If there is an underlying dispute or you want to apply for penalty relief – if it is granted the CRA will pay you the money. You can apply it to your mortgage as a lump sum payment to principal.