How Do Your Taxes Owed Affect Your Credit ?

Credit Score and taxes

While nobody likes the thought of having a tax bill over their heads, they often take solace in the fact that it is hard for credit gatherers to determine the amount owed because of the Privacy Policy of the CRA and not releasing confidential information.

There is a time though where this information can end up becoming public like for example when the CRA brings your tax matter before the Courts, and it then becomes a matter of public record.

In another instance you may not have any choice but to disclose your tax situation, like when you are going after a mortgage.   Many lenders like the banks will ask for the previous year’s tax assessments and sometimes want even the last two years.   This is going to show your true standing with the CRA, and it could be a deterrent to you getting the mortgage that you are after.

Lending institutions are nervous about giving mortgages when the CRA could potentially have a claim against the property.   For example, if all avenues of collection were exhausted the CRA could force sale of the property in order to get your tax debt cleared, and this could leave the mortgage holder in a precarious situation.

Sometimes for those that desperately need a mortgage and cannot qualify at a lower interest rate lending institution because of their tax assessments they will go elsewhere where the criteria is not so stringent but they will end up paying a much larger interest rate.

Even if the tax department has not taken any actions against you in regards to the taxes that you owe they are still a debt, and on a personal level you still need to take this into account that this is a debt you owe, and one that you will not be able to constantly avoid.   There will come a time where you will have to pay this debt and if you have incurred additional private debts you may simply be above your means for paying.   The end result is you could end up in bankruptcy.

The best approach is to face your tax debt head on and work with the CRA to resolve the issue.   If you truly want to get back on track then possibly you will be able to work out a payment schedule with them.   If it has been your habit to simply try and avoid paying taxes then this is a habit you should break as quickly as possible. Either directly or indirectly it can have an adverse effect on your credit, and your financial future.

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Sam Seidman, CPA, CA, LPA
629 Sheppard Avenue West
Toronto, Ontario
M3H 2S3

Telephone: (416) 398-1700
Fax: (416) 398-6226

Chartered Professional Accountant, Chartered Accountant, Licensed Public Accountant


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The information provided here and throughout the site of TorontoAccountant.CA is intended for general tax information only, and should not be misconstrued as a legal source of information regarding your tax situation, or be used for any other purposes other than for general information.
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