If you have tax debt and are unable to work out a tax debt payment plan with Canada Revenue Agency (CRA), formerly known as Revenue Canada, you still have options. There is only one possible method to get CRA to agree to a tax debt settlement and accept less than the full amount owing for taxes from you: You must file a consumer proposal.
Below we explain the circumstances under which the CRA would accept the settlement and what do in the event you cannot negotiate an acceptable tax debt solution with Canada Revenue Agency.
Consumer proposal tax debt settlement program
A Consumer Proposal is the only Federal Government tax relief program that offers taxpayer tax relief and under which CRA will settle your tax debts for less than the full amount owing.
In a consumer proposal, all creditors are offered the same “deal”, and the “deal” must be better than what they would receive if you were to file for bankruptcy.
In order for Revenue Canada to accept a tax debt settlement through your consumer proposal, the proposal must contain the following terms:
- All tax returns must be filed and up to date prior to the filing of the consumer proposal.
- All tax returns due during the proposal period must be filed when due.
- All taxes owing during the proposal period must be paid as they become due (the consumer proposal will only include taxes owing prior to the proposal date).
- In the event that taxes for prior years are re-assessed and a refund is due, that refund must first be applied to Revenue Canada’s outstanding indebtedness.
In certain circumstances, Revenue Canada may require additional terms.
Why will Revenue Canada only make a deal if you file a proposal?
Revenue Canada wants to ensure that all of your assets are disclosed, and that all debts are being treated equally. The only way they can ensure this is by requiring you to file a formal consumer proposal when applying for the settlement.
A consumer proprosal as a tax relief program is a complicated procedure and law requires that it is administered for the courts by a trustee acting as a consumer proposal administrator, on your behalf. Look for a consumer proposal administrator who has experience in dealing with CRA tax debts and can help you negotiate a successful settlement that will get you some needed tax relief.
To see if Consumer Proposal will help you with your tax relief, contact a Consumer Proposal Administrator today.
Dealing with tax debt by filing bankruptcy
If you are not able to negotiate a tax debt settlement or make an acceptable proposal to deal with your tax or other debts, filing for bankruptcy might be your last resort to eliminate your tax debts. Income tax and HST/GST debts can be included in a bankruptcy and are generally eliminated upon your discharge. There are some things to consider however:
- CRA does have some special collection privileges under the Income Tax Act such as the ability to register as a secured creditor (take a lien) against your home or other real property. They must however have taken appropriate steps to attempt to collect on your tax debts prior to the date of your bankruptcy for these special privileges to apply. It is important that you discuss your particular situation with a trustee in bankruptcy
- If you owe Revenue Canada more than $200,000 for personal income tax and this amount represents 75% or more of your unsecured debts you will not be eligible for an automatic discharge and will have additional duties to perform before the completion of your bankruptcy.
We recommend you contact a trustee in bankruptcy to review your tax debts and confirm if they will be discharged if you go bankrupt.