What’s the Difference Between Monthly and Lump Sum Payments For Tax Debt?

For many, lump sum or monthly payments is the ideal solution for financial goals. However, for others, it is the complete opposite. The reason being is that some people have a lump sum or monthly payments because their goal is to buy a particular asset and in the process realize profits. Other people, on the other hand want to save the majority of their money so that when they do retire, they can comfortably provide a comfortable retirement.

The crux of the matter is that proponents of a fixed payment versus lump sum payment to think that one method is better suited to their situation. Proponents of a fixed payment include: Finance Canada, aboriginal groups, and insurance companies. For a start, lump sum is by far a much better solution than fixed payments. Secondly, if you consider how large the cache is, it would be easier to access it if you really need it later.

On the other hand, proponents of monthly payments include: Finance Canada, aboriginal groups, and insurance companies. When considering a fixed sum versus payments with a levy, the proponents would argue that a fixed rate will actually disadvantage them. Why? Because every time there is a repayment, the government increases the levy. This makes it difficult for First Nations, Inuit, and other indigenous peoples to access cash if their reserve is already at full capacity.

As you can see, both ways result in disadvantages and options that differ in both size and flexibility. Is this enough to encourage you to make a different decision? Probably not… Consider the following. There are two major tax consequences for not paying your taxes:

You’ll end up with a tax debt, and an interest charge from your credit card company. You’ll also have to pay administration costs to the Canadian Revenue Agency. The second major tax consequence will come from the debt collection agent. If you do not follow through on your payments, the debt collector may go after you personally for these extra fees.

With a lump sum payment, you avoid all of these costs and potential pitfalls. As a result, you can typically expect to pay less in fees to the debt collector. You can also choose between payment plans, which can be beneficial if you are stuck paying one creditor. This way, you can easily follow through on your payments each month without missing any of your commitments.