Canadian Tax Arrears – How to Make a Deal with Revenue Canada

Question: I owe Revenue Canada approx $8000 in personal income tax arrears. I submitted an income and expense form showing that I have less than $100 left at the end of the month and submitted an amount of $150 per month as a voluntary payment option. My proposal was refused and the Canada Revenue Agency countered with $425. I cannot make that payment. Is there any recourse other than Consumer Proposal?

Dealing with Canada Revenue Arrears

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

Try to settle on your own: You could talk to them again and attempt to negotiate a lower payment.  You probably won’t be successful, since CRA has an unwritten collection policy that 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).

Send what you can: 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.

Application for Fairness: You could make a request for taxpayer relief or application for Fairness. CRA will review your request to waive penalties and interest accrued due to late payment of income tax. If you have a compelling reason or case (illness, accident, severe financial hardship) they may grant your request however this rarely happens as the conditions are onerous.  In addition, you will still be required to pay the original tax debt.

Make a settlement with CRA: As you suggest you could file a consumer proposal.  This can help you deal with not only your tax debts but any other debts you may be having difficulty paying. If CRA is your major creditor however they will have to approve your proposal.

Declare personal bankruptcy: Finally, you could declare personal bankruptcy, which does eliminate your tax debt, but obviously has other repercussions.

Dealing with Canada Revenue Agency can be complicated.  You should always speak to a professional advisor who has experience negotiating with Canada Revenue Agency and tax debts such as a bankruptcy trustee. If you owe money to CRA, contact a debt expert for help today.

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