Dancing with the Taxman – Proposals to Canada Revenue Agency

You can often make a deal with the Canada Revenue Agency (CRA) for taxes you owe. You can either negotiate payment terms or file a Consumer Proposal under the Bankruptcy and Insolvency Act (BIA) rather than filing for bankruptcy.

If you owe CRA and cannot pay the balance in full, you can explain your financial situation to negotiate a payment plan. If you are unable to successfully negotiate terms,CRA may take further action against you to collect the taxes owing by withholding your tax refunds and HST Credits, garnish your wages, take funds from your bank account and/or place a lien on any real property you own until your debt is paid in full.They do not have to go through the Courts so they can act very quickly.

You will be relieved to hear that CRA will consider a reduction on your tax debt through a Consumer Proposal. CRA will not negotiate an informal offer with you on the principle amount owing unless you file a Consumer Proposal. This will ensure to CRA that you have disclosed all of your assets, and that all debts are being treated equally.

A Consumer Proposal is a legal process under the BIA that enables you to make an offer to all creditors to modify your payments or to pay them a percentage of what you owe. A proposal allows you to have a fresh start without going bankrupt.

There are several things to consider before making a Consumer Proposal to CRA.  A major success factor in dealing with CRA is communication.  You must have all of your tax returns filed and up to date prior to making an offer.  It is CRA’s mandate to ensure all tax returns are filed and that you are in compliant with the IncomeTax Act. CRA will require detailed information on your financial situation, the causes of your difficulties and the steps taken by you to get back on solid financial ground. CRA needs to be convinced that you have not been abusing the process, that the proposal is the best deal possible and that it will result in a greater return than CRA would realize in a bankruptcy.

In addition, there are a number of provisions required in a proposal prior to its acceptance by CRA:

  1. Income tax installments and returns will have to be kept current going forward; and
  2. If applicable, HST collected and payroll taxes deducted will have to be remitted on a timely basis going forward; and
  3. If applicable, payroll source deductions in arrears are required to be paid within 6 months after the approval of the proposal by the court, or within a timeframe mutually agreed to by CRA.
  4. In some cases, CRA may require additional terms.  

When making an offer to CRA, you must offer them more than they would receive in a bankruptcy situation. CRA will often start negotiating from the standpoint of being paid “100 cents on the dollar” of what it’s owed. This of course is unrealistic given the financial circumstances of most tax debtors. The return expected by CRA will vary depending on your financial circumstances.  It is essential to put one’s best foot forward at the start by submitting a proposal that is fair and reasonable in your circumstances.  Figuring this out on your own can be complicated.  At Doug Lee& Associates Inc, we will work out the numbers for you and ensure that the proposal is fair and reasonable.  Give us a call for a free consultation, we would be happy to assist you with a new financial beginning.

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