Are you Dealing with Tax Debt?

It is possible to make a tax debt settlement with Revenue Canada.

There are a number of options available in dealing with tax debt. The likelihood of negotiating a successful tax debt settlement with Revenue Canada or a payment plan will depend on several factors. These include the amount you owe, your ability to pay, and your history of dealings with Canada Revenue Agency (“CRA”).

Negotiating payment terms with Canada Revenue Agency

If you owe GST or are dealing with tax debt and are unable to pay the balance all at once, you may be able to directly negotiate a reasonable payment plan with CRA, such as paying the balance in full over a period of 12 months or so.

The key issues to consider in this type of arrangement are as follows:

  • The payment plan will usually require that you pay the full amount of the tax debt rather than a compromised or reduced amount as is often possible under a consumer proposal through a licensed insolvency trustee;
  • The unpaid balance of the tax debt will continue to attract penalties and interest while it remains unpaid;
  • The payment plan should be one that you are reasonably able to keep up with. CRA will likely not agree to a payment plan unless they think that you are financially capable of following through with it.

If you are unable to successfully negotiate terms for unpaid tax debt, CRA may take further action against you to collect the taxes owing. They can:

  •  Withhold tax refunds and GST Credits;
  • Garnish your wages or accounts receivable;
  •  Seize funds directly from your bank account; and/or,
  • Place a lien on any real property you own until your tax debt is paid in full.

Unlike most other creditors, CRA does not have to go through the courts to do these things so they are able to act very quickly.

Negotiating a CRA tax debt settlement via proposal

Another option available to you when dealing with tax debt and CRA is to negotiate a tax debt settlement by filing a proposal with a licensed insolvency trustee. Key advantages of filing a proposal under the Bankruptcy and Insolvency Act (BIA) are as follows:

  • CRA will often accept less than the full amount of the tax debt owing;
  • If your tax debt is less than 50% of your total unsecured debts, CRA may be forced to accept the proposed terms as long as your other creditors vote in favour of them;
  • All interest and penalties will stop on the date of the proposal; and,
  • Garnishments and other actions by CRA will also stop once the proposal is filed.

In general, a proposal through a trustee enables you to negotiate a binding compromise or settlement of your tax debt obligations without going bankrupt.

In order to file a proposal, you will be required to disclose all your assets. Your creditors must also receive a generally better financial settlement than they would otherwise likely receive if you were to file bankruptcy. The proposal payments can usually be made over a period of three to five years.

A Proposal must be Filed though a licensed insolvency trustee.

CRA will not consider agreeing to any reduction of the principal amount of the tax debt owing except through a formal proposal filed with a licenced insolvency trustee. The basic terms of the proposal will always depend on your unique situation. However, in order for CRA to consider accepting your proposal, it must include the following terms:

  • All tax returns must be filed and up to date prior to acceptance of the proposal;
  • All tax returns due during the proposal period must be filed as required and any tax owing must be paid as it becomes due. The proposal will only include taxes owing for periods prior to the date the proposal is filed.
  • In the event that taxes for the year of the proposal or prior years are re-assessed and a refund is generated, that refund must first be applied to your outstanding tax debt with CRA.
  • CRA may require additional terms in some cases.

Dealing with tax debtS by filing FOR bankruptcy

If it is not possible to negotiate a tax debt settlement or to make an acceptable proposal to deal with your tax debts, filing for bankruptcy might be the only option. Upon your discharge from bankruptcy, all debts for income tax and GST are legally extinguished.

If you have any questions about dealing with tax debt, tax debt settlement, and dealing with Canada Revenue Agency, contact us for a free consultation – we will be glad to help.