Will Not Paying My Taxes Lower My Credit Score?
It’s almost that time of the year again: tax season. Paying your taxes isn’t the most exciting thing to do. This annual task, requiring meticulous research, filing forms, paying your accounts or spending the time yourself, and leaving you at least a few hundred dollars short. Sometimes, it can leave one wondering what’s the point of it all. (Here’s a great article on why we pay taxes.)
Let’s say this year, you decide not to pay. Perhaps you are short on cash because you didn’t save enough for your tax debt, or maybe you just didn’t feel like it. What are the potential consequences of this? Does this affect your credit report and credit score? Will your file be sent to a collections agency?
The Canada Revenue Agency (CRA) is the organization that collects taxes. These taxes go towards a number of services provided by the government, including health care, childcare, employment insurance, and much more. Your taxes directly benefit not only you, but your fellow citizens as well. Needless to say, paying your taxes is an important responsibility, which means leaving them unpaid will ultimately affect you—and your credit score.
Small amounts are dealt with internally, such as charging an individual with a penalty for late payments, and not reported to the CRA. But if you owe a sufficient amount, this may lead to the involvement of a collections agency, and ultimately, the CRA putting a tax lien on your credit report. A tax lien is something of a last result that forces the debtor to pay what he or she owes. Unless the amount is paid back, and the debt is dismissed in bankruptcy court, or some sort of deal has been reached with the CRA, the lien remains on the individual’s public record. They may also issue a garnishment to intercept any funds someone else owes you or holds for you, seize or sell your assets, or hold another party jointly responsible for your debt.
Evidently, owing the CRA a large sum can cause some damage to your credit score, whether they take you to court or your tax debt is made public. Being forced to file bankruptcy can also damage your credit score for up to seven years.
While the CRA provides the option of paying your tax debt in installments, it’s important to always create a budget for yourself and set aside some money that may potentially go towards any tax debt. The CRA also accepts appeals in extenuating circumstances, such as financial hardship provisions, in the event that you really cannot pay your taxes. The takeaway? Pay your taxes, even if you can only do it a little bit at a time.
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