Spoiler alert: failing to pay your taxes can cause a whole lot of problems for you. The interest the Canadian Revenue Agency (CRA) charges is just the beginning!
There are many scenarios that could have led to not being able to pay your taxes, but it’s important to deal with the situation right away. The CRA’s collections department has a lot of power and can order wage garnishments, freeze and seize bank accounts, and freeze your investments — yikes. If your balance owing is quite high, it’s also likely that the CRA will issue a lien against your property. This is why you can’t delay in paying the CRA.
But did you know a low-interest personal loan is an excellent option to pay off your tax debt? If you still need a bit of convincing to steer clear of owing a balance to the CRA, let’s talk about what can happen when you don’t pay it on time.
What happens if I don’t pay the CRA on time?You’ll be charged interest.
If you have a balance owing from the previous year, the CRA charges compound daily interest on your balance and that includes interest on penalties starting the day after your filing due date if you’re late filing the return. The tax filing date this year for most Canadians is April 30th, 2019, and for self-employed Canadians, for 2019 it is June 17th, 2019. However, if you owe money, it’s due to the CRA by April 30th. You’ll be charged late penalties.
If you file your tax return after the due date and you owe money on that return, the CRA will charge you a late-filing penalty of 5% of your total balance owing, which grows by 1% every month that your return is late, to a maximum of 12 months. Additionally, if you have been assessed previous late-filing penalties, your penalty could double to 10 %, plus 2% of your balance owing for each full month your return is late (to a maximum of 20 months).
As you can see, filing your tax return late and having a balance with the CRA can end up costing you a lot of money. You should try your best to avoid being late, which is why an affordable personal loan is a great option. For more information on interest and penalties and the CRA, visit the CRA’s website.
Is it a good idea to pay off taxes with an affordable loan?
Absolutely! A personal loan is an attractive option. Let’s walk through the pros of a personal loan and some things to be aware of.
Pros of taking a personal loan1. Favourable loan terms
You should absolutely shop around to find the personal loan with the most favourable loan terms. This means a low-interest rate and flexible repayment options. Your interest rate will be one of the main deciding factors when comparing loans and luckily, Borrowell personal loans start at just 5.99% APR*. If you qualify, you’ll be offered a 3-year or 5-year option, so you can set your very own debt-free date to work towards.2. The loan amount
You’ll need to find a loan that covers the amount you owe to the CRA, however, it’s important not to risk taking on too much debt. Borrowell offers personal loans from $1,000-$35,000, which should be substantial enough to pay down your tax debt.
Check your rate on a Borrowell personal loan to see what you could qualify for.
Check My Rate 3. Loan fees (or lack thereof)
If you want to pay off your loan early, some lenders (like us at Borrowell) won’t charge you any repayment fees. This seemingly small perk can make all the difference when you’re trying to pay off debt as quickly as possible.
Things to watch out for
1. Hidden costs
Be sure to carefully read the terms and conditions of any loan you’re considering. Origination fees are standard for online platforms, however, be wary of any unadvertised fees or costs, such as loan repayment fees.2. Too-high interest rates
It’s important to make sure the interest rate you’re getting on a personal loan is favourable. Depending on the lender, some interest loans may not be as competitive as others, which is why it’s important to shop around and weigh your options. The CRA does offer tax debt repayment plans, but they do so only when you can prove that you do not have the ability to pay, or to borrow.
Other (not recommended) ways to pay off your taxes1. The CRA
As we mentioned above, the CRA will allow you to pay back your taxes owing via a repayment plan, but it doesn’t come without strings! In order to be accepted for this plan, you have to give the CRA full disclosure about your finances, and if they still agree, then you get to repay your debt, with interest still being charged and you must remain current and pay all future taxes owing as well. When you take into account the high rate of interest that the CRA charge, it becomes a risky method. 2. A credit card
We’ve said this many times: credit cards are a great tool to access credit but should not be used to borrow against. This method to pay off your taxes is strongly advised against because of the high interest rates on credit cards, which usually fall anywhere between 19.99%-29.99%. These kinds of interest rates are a lot higher than those of the CRA or from most lenders. This could also negatively affect your credit score because of your credit utilization ratio, which is how much credit you’re using out of what’s available to you.
The bottom line
There are a few options for you to consider, but the most important thing is that you find a way to pay the CRA as quickly as possible. As always, weigh all of your options and choose the route you’re most comfortable with. If you’re looking to pay off taxes with an affordable loan, check your rate with Borrowell to see what you could qualify for.
Check My Rate
*Please note that final approval of your application for a Borrowell loan is conditional on completion of the steps set out in your application (including identity, income, and bank account verification) as well any further underwriting review deemed necessary. Additional documents may be required. Borrowell retains the right to adjust any loan options presented to you or to decline your application at any time prior to final approval.