If you owe an unmanageable tax debt (or suspect you might if you caught up your tax filings) the first thing you should do is speak to a licensed insolvency trustee about getting immediate legal protection through a proposal to creditors or a bankruptcy filing. This can make a critical difference. It is often results in your being able to get rid of all your tax debts once and for all, while giving up the least in terms of equity in a house or other assets as well as limiting future payments under a proposal settlement.
CRA Tax Collecting Tools
The fact is that Canada Revenue Agency (CRA) has many tools available to it, including the ability to register liens on your property or garnish wages. Unlike most other creditors, they can also do these things virtually overnight. Banks and other creditors must go through a much longer and costly process to do these things and their liens can be removed as soon as a proposal or bankruptcy is filed. Not so with CRA!
Don’t lose your tax negotiating position!
Therefore, any attempts to negotiate or deal with CRA either by yourself or through a representative simply tips off CRA that you are in financial trouble and can’t pay your taxes. In fact, they may have not even been aware of how much tax you even owe. CRA can then immediately register a lien on your property that stays on title even through a bankruptcy. It essentially acts as a mortgage on your property and must be paid if you ever want to sell it. If the lien was not there, any exempt equity in the property is your to keep ($12,000 for the Capital Regional District and $9,000 elsewhere). If CRA registers its lien then that equity is gone.
Perhaps you have various other consumer debts plus the tax debt and have some house equity you can use to finance a lump sum proposal to pay a fraction of the total debts. Or perhaps you have some surplus income that you can use to make payments over a few years under a 20% to 30% proposal. If the tax debt is less than 50% of the total debts to be compromised, then CRA will be forced to accept the proposal as long as you get the other creditors to accept it (you only need 51% by dollar value voting for it).
However, if CRA registers a lien before you file the proposal, they will then have a secured charge and they don’t need to even consider the proposal. The equity in your property will no longer available to offer to the creditors in the proposal and your options will have been severely impacted.
Do not delay in getting professional advice
The bottom line here is that delays in addressing your tax debt problem can be very detrimental. if you attempt to negotiate by yourself (or through a representative of any sort including debt consultants) this can often result in you putting yourself in a worse financial position. Your future ability to negotiate a manageable settlement and/or maintain exempt assets can effectively be lost.
Always seek advice from a licensed insolvency trustee such as G. Slocombe & Associates Inc. Contact us today, before taking any further steps with your tax debt problem.