Archive for Category 'Tax Debt'

Question: We filed a consumer proposal in April of 2009 and part of that consumer proposal was to pay Canada Revenue back for income tax, if in the 2010 year we were to receive a tax refund, will we be eligible to receive this refund without penalities?

Answer: Yes, CRA generally keeps your refund and applies it against back taxes for the year of the proposal, but you should receive all tax refunds starting in 2010.

Question: My fiance received a letter from CRA. We have a child together who is now 3 years old. By definition we are common law but we’ve been filing our taxes as “single”. I’ve been told that there’s a good percentage of people that do this. One of the proofs that CRA is asking for is proof that I do not live with her. Any government related mail are addressed to my folks and even my T4 and pay stub go to my folks address.
Issue is my credit card bill and cable bill are addressed to where we reside now. We decided that come 2009 tax season is the time to claim as common law. If we can’t provide sufficient documentation, whats our worse case scenario?

Answer: The worse case scenario is that they charge you with fraud, although that is highly unlikely.  More commonly they will re-assess both you and her as though you had filed as common-law, which may mean you and her will be required to repay some or all of the child tax credits you have received, and you may also owe more in income tax.

Since you are common-law, you are correct, you should file as common-law to prevent these types of problems from occurring in the future.

Question: I owe Revenue Canada approx 8K in personal income tax arrears. I submitted an income and expense form showing that I have less than 100.00 left at the end of the month and submitted an amount of 150.00 per month as a voluntary payment option. My proposal was refused and Rev Can countered with 425.00. I cannot make that payment. Is there any recourse other than Consumer Proposal?

Answer: It is not easy to make a deal with Revenue Canada (now called CRA).  You have a few options:

First, you could talk to them again and attempt to negotiate a lower payment.  You probably won’t be successful, since CRA wants all debts paid off within a year, or 18 months (which is why they want you to pay $425 per month; your debt will be paid in about 18 months).

Second, you could simply start sending them $150 per month and see what they do.  They may simply accept your payment and take no further action.  Of course you will continue to incur interest on the debt, and you run the risk that they may decide to freeze your bank account or garnishee your wages to collect.

Third, as you suggest you could file a consumer proposal.  If CRA is your only creditor, they are not likely to accept it, however it may be worth a try.

Finally, you could declare personal bankruptcy, which does eliminate your tax debt, but obviously has other repercussions.  You should consult with a bankruptcy trustee to understand all of your options before deciding on the best option for you.

Question: In 2006 my girlfriend and I had a baby and began what the CRA defines as a common law relationship. I have been self employed for the last three years and I have not filed my 2006 or 2007 tax returns. I don’t have the money to pay any tax owing right now. As a common law spouse, does my wife have to claim my income for 2006 and 2007 on her personal income tax return? Is there a way my common law spouse can file her personal income tax so that she is not assessed with my unpaid 2006 and 2007 tax?

Thank you in advance for any information you can give me.

Answer: This is a question you should ask of a tax accountant, since the rules are complicated.  In simple terms, if you are living together and have a child together you are considered common-law, which is the same for tax purposes as being married, so yes, she is required to report your income on her tax return.  She will not be assessed for your unpaid taxes; that’s your responsibility.  However, CRA may prevent her from getting child tax credits if your taxes are not filed.

We recommend you discuss this with a tax accountant, who will probably suggest that you file all outstanding returns, and then make payment arrangements directly with CRA.

Question: My friend is raising a grandchild who is now 16 . My friend has legal custody & has been receiving the Child tax benefit for the child since 1997. Revenue Canada decided to audit her this year.They requested a number of documents which she supplied.Apparently the documentation was not good enough though it was all that they requested from her.They then requested more documents which she also supplied.They have suspended her CTB payments & sent her a letter saying she owed $9000.00. The next day she received another letter saying she owed $12000.00. My question is this:If she cannot get this straightened out & they still insist that she owes this money, will they take that money from her pension? She has no other assets.I know that you get many questions everyday but she is at her wits end & does not know what more she can do s& she is thinking the worst & I would really like to be able to give her something positive to look at. Hopefully, this question will be of enough interest to warrant an answer.Thank you for taking the time to read this.
you for taking the time to read this.

Answer: Yes, Revenue Canada  has the power to deduct money from CPP or OAS if they are owed money.  We suggest your friend continue to talk to CRA to reach a settlement.  If that doesn’t work, she should call her MP and see if they can intervene on her behalf.

Question: Hello.  I am hoping you can give me understanding of a situation with the bank – on a corporate bank account. The corporation bank account was given over draft protection by the bank when it was opened in 1997.

I have researched and found the Limitations Act, 2002, S.O. 2002, c. 24, Sch. B
In Ontario the Statute of Limitations on debt collections is two years.

The Initial Revenue Canada GST Demand Notice was served on the bank for the Corporation Account on Wednesday, November 16, 2006.

The corporate account was $4,000 in overdraft at the time of the Demand Notice.

The Corporation, ceased business on November 16, 2006 due to actions of Revenue Canada.

There is no regular income since that date for the Corporation. My sole source of livelihood as Vice President of the Corporation ceased that day as well. (The President of the Corporation is my ex husband and he is no where to be found)

Just as an added measure Revenue Canada served the bank again on March 24, 2007. No Clue why.

I am currently being harassed by the 5th collection agency for the bank. Risk Management is calling and leaving threatening messages. I have kept a record of them (dates and times).

I have researched the Government information in Ontario and I found, The Ontario Ministry of Government Services consulted the collection industry to develop a standard to be followed by all collectors. Having a standard also allows the public to have a better understanding of what collection agencies can and cannot do. The regulations forbid collection agencies from:

“Using threatening, intimidating, or coercive language, or using undue, excessive, or unreasonable pressure”;

I have noted the dates and times of all the threatening and intimidating messages from

Tuesday, Jan. 13, 2009 – 8:30 am
Wednesday, Jan. 14, 2009 – 7:30 am
Friday, Jan. 16, 2009 – 10:45 am
Tuesday, Jan 20, 2009 – 12:26 pm
Monday, Jan. 26, 2009 – 8:17 am
Wednesday, Jan 28, 2009 – 7:31 am
Tuesday, February 3, 2009 – 12:25 pm
Wednesday, Feb 11, 2009 – 3:15 pm

The bank also had a lien against my house and it was removed in November 2008, coinciding with the initial date in November 2006.

And now I was threatened by the collection agency that they are turning this matter over to their legal department to look at Default of payment. I was also threatened they would look at the assets for the Corporation. There are none. Been there done that with Revenue Canada in January 2008 in court.

And the Collection agency in the same phone call then threatened my personal property if I did not return their call.

The time period is now over 2 years since Revenue Canada served the bank and ceased corporate business – the amount owing to TD Canada Trust is now 8000.

The Corporate Bank accounts are still frozen at this date. Nothing has changed .. Stage one was a request to have an audit from Revenue Canada, which was just completed at the end of 2008 and now Stage 2 is the Revenue Canada GST audit is complete then I am hoping to move forward and settle with Revenue Canada.

In the meantime, how do I handle the bank and their latest Collection Agency? May I write them? They are aware of the Revenue Canada action already and yet they continue to harass me via telephone.

How do I stop the bank and their current Collection agency Risk Management? Are either aware of the Statue of Limitations? Do I have any rights with this, as this is a corporate matter and if so what are they?

Thank you your time and expertise.
Tired from it all.

Answer: You are in a very difficult position.  The Statute of Limitations may provide some relief, but it is necessary to consult with a lawyer experienced in these matters to develop a course of action.  Here is a link to a lawyer that works with debtors to deal with collection agencies.

Question: I have recently met with a credit counsellor and was advised that my only options based on my income (I am currently working doing odd construction jobs and some music gigs as I play guitar which equals about $2400 a month and this may increase as my friend and I get more construction jobs) are consumer proposal or bankruptcy. I chose consumer proposal because I can afford to pay something and want to be responsible plus it will be purged from my equifax report 3 years ater my last payment whereas bankrupsy stays forever. Also my girlfriend and I intend to marry one day and she doesn’t want a bankrupsy to haunt us as she works for a bank.

My question is that I have no assets except a humvee that is basically worthless if I tried to sell it, in fact the leasing company issued the buy back out at $1500 and deplated it. However, my concern is that when my creditors see that I own a humvee they think its worth thousands. Mine was purchased on lease to own in 1997 for $90000 which I paid off last month. However the leasing company deplated it because it does not work and will not pass emissions or certification. The reason for this is because the transmission blew and all the parts had to be removed including tires and is basically gutless as I sold off parts to pay my debt in my 3 year struggle to try to hold onto my business and had no money to keep it maintained.  Also, I have to file my last 3 years in taxes and close my old business that went belly up before the proposal. I owe past taxes which is a large part of my debt but this total (35k of a 70k debt) could be substantially reduced once I close out my business by filing my returns. The trustee quoted $24k as a proposal but said CCRA will probably not accept this and we will have a meeting.

My questions are this: what information do I have to bring to my first meeting with the trustee regarding my debts and truck? What questions will be asked of me at the proposal meeting if there is one. In my past tax returns prior to 2001 I reported my truck as a capital item which they refused to accept anyway even audited me. Its been such a nightmare. Your advice would be greatly appreciated. Thanks.

Answer: Before we provide answers to your questions, we should correct your statement about credit reports:

You are correct that a consumer proposal remains on your credit report for three years after the proposal is completed.  A bankruptcy remains on your credit report for six years after you are discharged, so it is not correct to say that a bankruptcy remains on your credit report forever.

Regarding Canada Revenue Agency (CRA), your trustee is correct; they will ususally not accept a proposal if you have not filed your tax returns.  In fact, they may file a proof of claim based on what they guess you might owe, which may give them enough votes to defeat your proposal.  Therefore you should not file your proposal until you have filed all outstanding tax returns.  It is a waste of time to file a proposal that will almost certainly fail.  Get the tax returns filed, which as you say will probably lower what you owe, so it’s to your advantage to file them first.

Now, to your questions.  Bring to your meeting with your trustee all information regarding the truck.  Ideally, you should have a humvee dealer give you a written appraisal on it before you file your proposal.  By getting an appraisal first, it is unlikely anyone will question what it is actually worth.

At the first meeting of creditors, if there is one, CRA will ask what happened to your vehicle, and they will want to know what happened to your business.  They will also want to know how you plan to keep your taxes current in the future.

If you are not satisfied that your trustee explained all of this to you, we suggest you consult another trustee for a second opinion.

Question: I am self-employed, and have never had trouble in the past, but because of some major legal issues facing the building I live in, the owners in the complex are now being charged several times the typical strata maintenance fees and levies each month.

I am realizing that all my money is being funneled into this, plus paying off a personal loan I had to take out for a previous special assessment in the several thousands of dollars, plus my mortgage payments, lus myBC Medical Services Plan payments twice a year for my family and I, plus payingfortrips to the dentist, plus power, plus property taxes, plus food and clothing for my wife and son, gas for the car, phone, internet (necessary for working from home), and still provide a few basic comforts for my family, namely the cable TV.

At the end ofthe day, I don’t know that I will be able to keep enough money to make my income taxes in April. Every timeItrytoput money away when I cash my cheque, something unavoidable and beyond my control comes along that eats that money up.

Because of the legal battles the building is involved in, it would be extremely unlikely anyone would want to buy my condo if I put it on the market to pay my taxes.

Someone half-jokingly told me I should become a drug dealer because there’s no taxes and the jail term is shorter than if you fail to pay income tax on legitimate earnings.

So, joking aside, is there anything I can do? I am on the verge of serious depression here because I fear I may be bankrupted by factors I can’t control. Please help.

Answer: Yes, there are many possible solutions, including a consumer proposal or personal bankruptcy.  To decide which option is best for you, you should immediately make an appointment to meet with a trustee, who will review your monthly income and expenses and help you decide which option is best for you.  The initial consultation is free, so the sooner you get help, the sooner you will be able to get a fresh start.

Question: What happens to a person that owes big income tax (10,000) has not filed in years, is only on welfare, and cannot pay the taxes he owes, if they find that person, will they go to jail, will they take their welfare check, when he has nothing else to live on or no other income coming in.

Answer: No, you don’t go to jail because you owe money on taxes.  You have two options.

First, you could do nothing.  Up to this point it appears that the government has not noticed that you have not filed your taxes, so you could just ignore it.  Ignoring problems is generally not a good idea, and is obviously very stressful.

Your second option is to file your un-filed taxes.  If you are on welfare it is unlikely that you owe money for the years you were on welfare.  In fact, it is possible that you may have small refunds in those years.  Those refunds may offset the money you owe from prior years.  Once you know how much is owing, you can then either attempt to make payment arrangements with the government, or consider personal bankruptcy to eliminate the tax debt.

Question: I’m sure this is nowhere near as complicated as it seems to me:

I am the owner of a small corporation that earns about 125K annually. I am currently running the business out of my apartment and so the phones / internet that I need for business are in my home. Through the corporation, I lease a car.

The corporation has one major loan (approx 15K left to pay to American Express Bank by end of August 2008. We have never been late with that payment). Other than that, it owes some small debt (approx 10K). Some of that is to Revenue Canada. Some is to a business MasterCard. Unfortunately, half of that amount is owed to an accountant who filed my 2005 taxes and who has been patiently waiting since. Just to complicate this, I have not filed my 2006 taxes (corporate or personal) because I can’t ask for more service from someone who hasn’t been paid for the last service he provided (and I don’t know how to do it myself). At present, Revenue Canada is demanding I file….or else.

Personally, I owe about 10K in Student Loans (6500 of which is in collections). I also have about 60K in credit card debt. And, Revenue Canada would like 3000 from me in back taxes.

I currently am overdrawn at the bank (900) and have only $200 left in RRSPs.

I have reservations about declaring bankruptcy for debt I incurred; it’s no one else’s fault. As well, I understand that, as the director of a corporation, I cannot be bankrupt.

On the positive front, although the summer months are tough on us historically, the business is picking up and doing all right. I just moved the business to the city in which I currently reside 22 months ago and started “fresh”. So, I have no doubt I can make this work.

Here’s the problem I don’t know how to solve:

1) I need the car and phones to do the only work I know how to do (on the road consulting).

2) I need the point of sale machine to ensure cash flow regularity so I can pay bills, the consultants who subcontract, and occasionally, myself.

3) I am currently heading into the second month of delinquency on all personal credit card debt and the business MasterCard.

4) If I file a credit proposal, must I include the business debt since, as director, I am co-signer on those accounts?

5) I need some time. And I need some relief from the interest on personal credit card debt. How can I buy time / reduce payments etc. on the personal debt without compromising the business and my ability to make an income from it?

Thanks, firstly, for the investment of your time to read this long description. And then thanks, in advance, for any wisdom you might impart.

Answer: Your situation is complicated, because you have both personal and corporate debts.

If you believe the business is viable, then there are a number of strategies to keep the business active.  If you end up filing personal bankruptcy, it may be necessary to have a friend or relative start a business that you would then operate on their behalf while bankrupt.

The timing makes your situation more complicated.  If you believe the business will show rapidly increasing cash flow, then “hanging in there” for the next few months may be your best option.  However, given your debt levels, you may not be able to earn your way out of debt.

Since there are many variables to consider, we strongly recommend that you consult a bankruptcy trustee and have them walk you through all possible resolutions to your situation, so that you can make an informed decision as to which course of action is best for you in the long term.