A 64-year-old B.C. woman is declaring bankruptcy after being hit with a big, unexpected tax bill — plus interest — because she said the federal government didn't deduct enough tax from her Employment Insurance payments last year.

"The professional who did my taxes says EI does not take enough tax off," said Angela Dodds.

Tax experts told CBC News Dodds is among many unemployed Canadians who find they owe taxes after being on EI.

The Canada Revenue Agency sent her an assessment, which indicates she owes $2,096.57 in taxes, plus 5 per cent interest, compounded daily.

"It's the compounding daily interest they are charging that really bothers me," said Dodds. "That's like a loan shark.

Why is somebody who worked all their life being forced to make these kind of interest payments to the government — after they were the ones that didn't take enough tax off?"

Dodds is a former security guard. She said she was laid off after the Olympics and claimed EI while working part-time. Records show the federal government deducted $1,102 in taxes — less than 10 per cent — from the $14,311 she received in 2010 for E.I.

Combined with her employment income from part-time jobs, that left Dodds with taxes owing, because B.C.'s lowest marginal tax rate is over 20 per cent.

'Not the only one'

Dodds said the H&R Block representative who did her taxes told her he's seen many clients surprised by big bills because not enough tax was deducted from their EI.

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Dodds owes more than $2,000 in taxes, after insufficient deductions were taken from her EI payments. ((CBC))

"I know I'm not the only one," said Dodds. "I just think they are out to take us for whatever they can get, plus interest."

Human Resources and Skills Development Canada — which manages EI payments — said each case is different.

"The amount of tax withheld is calculated for each client, individually, and is based on the their EI benefit rate, their province of residence, the tax credit choice they selected at the time of application, and, for Saskatchewan residents only, the number of dependants claimed by the client for income tax purposes," said HRSDC in an email statement.

When asked why the government doesn't deduct more tax routinely, HRSDC didn't give an answer. Instead, it referred questions to the CRA.

"Clients who have questions regarding their tax obligations should contact the Canada Revenue Agency (CRA), as they are the authoritative source to provide guidance on tax obligations."

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One section of the HRSDC website advises, "Claimants may wish to have their income tax deductions increased in order to avoid having to pay a large amount of income tax at year-end. This request can be made by phone, mail or in person."

Dodds said she applied online, but doesn't remember anything about deducting more taxes.

"I did not read everything that is on the website," said Dodds. "If they know this is happening, then why not correct it?"

NDP critic Jean Crowder said the government should do more to make claimants aware of this before it happens.

"The average person [just] looking at their website wouldn't know that they will face a tax bill at the end of the year," said Crowder, who pointed out the tax bite is bigger for claimants with other income during the tax year they collect EI.

"It is worse for the people working a part-time job and earning a little extra every week. Or to new parents who take family leave and get a top-up."

Declaring bankruptcy

Dodds said chronic health problems have now forced her to retire early, so she expects to be living on $600 per month from the Canada Pension Plan and social assistance.

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Dodds said her tax representative at H&R Block told her many unemployed clients are shocked by big tax bills. ((CBC))

"I can't afford to pay this [tax bill]

now," Dodds said. "Every time that interest goes higher and higher, that means it's less chance that I am going to be able to pay that back. I'm going to be declaring bankruptcy."

Dodds feels she is being forced to do that to wipe out the tax bill because otherwise the government could deduct from her CPP to pay her taxes.

"They can take from the CPP that I have paid for!" said Dodds. "It's the same thing with EI. I paid for that. Every single paycheque I paid for it."

A CRA spokesperson confirmed that CPP benefits can be seized to pay taxes, interest and penalties.

"If an individual's personal income tax debt remains unpaid with no mutually acceptable payment arrangement, the CRA may take legal action such as garnisheeing sources of income, including Canada Pension Plan benefits," Phillippe Brideau wrote in an email.

"The CRA reviews all sources of income earned by the individual to ensure that the action will not cause undue hardship to the individual. The rate of garnishee will depend on the individual's circumstances that are known to the CRA."

Tough fight to win: lawyer

Vancouver tax lawyer Alistair Campbell said taxpayers can apply for relief from interest owing, but those cases are hard to win.

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Vancouver tax lawyer Alistair Campbell said it's very tough for clients to get interest relief from the CRA. ((CBC))

"You encounter many situations of taxpayers who have a relatively small tax debt but they have a huge arrears interest balance," said Campbell.

He points out, someone in Dodds's situation also can't afford a lawyer to fight her case anyhow.

"She's on her own. And she's fighting up against an agency that makes up the rules. Not exactly a level playing field."

CRA figures show 86,709 taxpayers applied for relief in the last fiscal year and the CRA granted "relief in full or in part" to less than half: 42,416.

Dodds said she believes bankruptcy is her only choice. She points out the CRA will then get none of her unpaid taxes from last year but, if HRSDC had deducted more tax in the first place, her tax bill would already be paid.

"It makes no sense. No sense whatsoever," she said.