How To Pay CRA Debt When You Are A Homeowner

Last week I got an email from someone in a real pickle with the CRA. They are self-employed, and their taxes have not been filed for several years. Recently they received a letter from the Canada Revenue Agency demanding a payment of $90,000 and putting a lien on their home.

 As you can imagine, this got their attention! Leaving them with a lot of burning questions:

  • How could they handle existing credit card debt on top of this?
  • How will the lien affect access to home equity?
  • How real is the danger of foreclosure?

The truth is, I’m all too familiar with this situation. We’ve helped three homeowners in these exact circumstances in the past two months! There are ways to handle this, it’s just a matter of making sure you’re aware of the main factors.

Let me break it all down for you:

When a mortgage applicant is self-employed, the lender is always going to want to see their Notice of Assessment and statement of account — proving no income taxes are owing, and that tax filings are current.

“A lenders” will typically not lend to an applicant if the purpose is to pay CRA personal income tax arrears AND of course you have the lien.

Here is a winning approach that I’ve proposed in the past:

  • Immediately prepare and file all the tax returns which need to be done — collect the notices of assessment and understand the total amount owing — including interest and penalties.
  • We arrange a short term, OPEN, private second mortgage on your home for the express purpose of paying CRA in full. It will be done by the lender’s lawyer.
  • The lender’s lawyer will work with CRA to have the lien lifted
  • Concurrently we secure approval from an “A lender” — to combine the current first mortgage and new second mortgage into one new first mortgage. A condition of approval will be proof no taxes owing — we will be able to satisfy that condition having done the tax returns and funded the second mortgage. If your heart is set on dealing with RBC we can coach you in that regard.
  • This new first mortgage I typically schedule to close 3 to 4 weeks after the second mortgage closes. I like this step because it gives the second mortgage lender comfort (AND YOU!) that there is an exit strategy for the second mortgage.
  • If you have family or friends who might lend you the amount you owe CRA, that would be cheaper, but in reality that is a lot harder than it sounds!

Are You In The Same Tight Spot?

If you’ve found yourself with CRA debt and you’re a homeowner, this might work for you, but of course everyone is different. It’s worth consulting with a mortgage broker who specializes in this kind of work to create a custom plan which works for your unique circumstances. You’d be surprised how many solutions are out there once you start looking!

Financial Literacy Leader of the Year Award 2017 Crest
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