CRA Tax Claim Reduced By Over 90%

A Saskatchewan tax debtor was discharged from his bankruptcy and over $248,000 in tax and GST debt wiped out on condition he pay $18,000 into his bankruptcy at $500 per month. This was a substantial reduction of his original debt and was also well below the $60,000 amount that CRA had requested as a condition at the discharge hearing.

Key Questions for the Court

As the debtor owed more than $200,000 of income tax debt, he was classed as a high tax debtor which required a discharge hearing at which CRA opposed the discharge. The court heard the evidence and considered the following general and specific questions in arriving at its decision:

  • Do the unique circumstances of this bankruptcy warrant terms of discharge?
  • Is this a high tax bankruptcy within the meaning of s.172.1 of the Bankruptcy and Insolvency Act?
  • What were the Bankrupt’s circumstances at the time the personal income tax debt was incurred?
  • What efforts did the Bankrupt make to pay the personal income tax debt?
  • Did the Bankrupt make payments on other debts while failing to make reasonable efforts to pay his personal income tax debt?
  • What are the Bankrupt’s financial prospects?
  • Are terms of discharge warranted?
  • What terms of discharge are appropriate given the unique circumstances of this bankruptcy?

The Licensed Insolvency Trustee requested the discharge be conditional on payment of just $18,000 and the court agreed. In cases such as these, the court usually feels compelled to order some kind of condition and the Trustee suggested a reasonable amount in view of the debtors circumstances.

Reasons for decision

The key circumstances noted by the court were as follows:

  • The debtor was a “high tax debtor”;
  • The tax debt was accrued over ten years and as such a large portion was penalties and interest. He did not live extravagantly and simply failed to budget for the tax when providing for a family of five;
  • He did make bona fide efforts to pay his tax debt but after a few years the amount became impossible to pay off with the continuing penalties and interest;
  • He did not make any meaningful payments towards other debts while not paying the tax debt; and,
  • He was 64 and supported a spouse with no income and some health issues. His earning prospects were poor.

Each tax debt situation usually has it’s own set of unique circumstances. Even though CRA may be aggressive, they don’t always get their way. If you have a tax debt issue, call us today for a free consultation.