Daniel had a good job, working at the same company for almost 20 years. He was doing well until five years ago when both of his elderly parents got sick and he had to take a leave of absence from work to take care of them. He was eligible for some sick benefits through EI, and some benefits from work while he was off, but when he went to file his taxes at the end of the year he discovered that he owed money to the government for taxes. Daniel didn’t have the money to pay the taxes, so he decided not to file his return.
That was five years ago, and Daniel hasn’t filed any tax returns with the Canada Revenue Agency since.
Each year he intended to file his taxes, but he was afraid that he might owe more money, so he kept postponing. To complicate things, Dan moved twice in the last five years and lost some of his T-4s so he didn’t have the necessary information he needed to file his taxes.
The stress caused by worrying about his taxes led to some medical problems, and Dan was hospitalized briefly with a heart problem. That’s when he knew he needed help.
He didn’t know where to turn, so he called a bankruptcy trustee.
The trustee met with Dan, and quickly realized there was one obvious question that required an answer: How much does Dan owe in taxes? As an employee, Dan had taxes deducted from each paycheque, so in a typical year Dan usually received a tax refund. Five years ago it was the combination of employment income, sick benefits and Employment Insurance that caused Dan to owe taxes. But since he had not prepared a tax return in five years, no-one knew for sure how much Dan owed.
The trustee’s advice was simple: file your taxes! While that appears to be a simple task, for Dan it was intimidating. He’s not an accountant, and he didn’t have the money to pay a tax preparer to do five years’ worth of taxes. Fortunately the trustee had a solution: he picked up the phone, and with Dan they called Canada Revenue Agency and asked for copies of all of Dan’s T-4 slips for the last five years, and for copies of blank tax returns so Dan could file them.
A week later Dan received everything in the mail, but he had a problem: he had no idea how to fill out the tax returns. Dan called the trustee again who gave him his second piece of advice. He told him to simply put his name, address, birth date and social insurance number on page one of each years’ tax return, and then paper clip his T-4 for that year to the return, and then sign the last page. That’s it! The trustee explained that CRA will do the calculations, so there is no need to complete the full return. Dan’s case was simple; all he had was a T-4 slip and a rent receipt, so there was no need for him to hire an accountant to do his tax return. Dan completed the returns, and went to the post office and mailed them to CRA.
About a month later, Dan got the surprise of his life: CRA owed him money!
It turned out that Dan did owe almost $2,000 in taxes from five years ago (half of which was penalties and interest from filing his taxes five years late), but in each of the next four years Dan actually was eligible for a $700 refund, so for those four years CRA owed him $2,800. Dan was very happy to get a cheque from CRA for the difference: $800.
From Dan’s story we can learn three important lessons:
- If you think you have debt problems, there is no downside to talking to a trustee in bankruptcy. Dan first called a trustee because he thought he would need to file bankruptcy, but he was very pleased that the trustee did not immediately suggest bankruptcy. The correct answer was to gather all of the facts and get the tax returns filed, and by taking those proactive steps Dan was able to resolve his financial situation.
- File your tax returns. If you do owe back taxes, and need to file bankruptcy or a consumer proposal to deal with your tax debts, your trustee will need to know how much you owe.
- Procrastinating doesn’t make the problem go away. Dealing with the situation sooner, rather than later, will help you eliminate your worries.
If you think you owe more money than you can repay, whether taxes or other debts, talk to a trustee today. They will look at your situation and help you develop a plan to deal with your debts, even if it means you may not need to file bankruptcy at all.