Canada Revenue Agency: Will They Make a Deal on Taxes Owed?

Is it possible to make a deal with the Canada Revenue Agency or CRA for taxes you owe?

It is possible, but CRA is more difficult to deal with than other creditors (like credit cards or banks).

Let’s look at a simple case: You are self-employed, and have not paid your taxes for the last two years. You now owe CRA $25,000 in taxes, plus $5,000 in penalties and interest. You don’t have $30,000, but you could afford to pay $1,000 per month towards this debt.

If you, or your accountant or lawyer, call Canada Revenue Agency and attempt to negotiate a repayment plan, CRA will probably be willing to let you pay over time, but probably not over a period of greater than one year. They will also continue to charge interest during this period.Since you cannot pay as fast as required by CRA, it is likely that they will consider taking further action, such as contacting your customers to garnishee payments, or perhaps seizing your bank account.

How can I deal with Revenue Canada?

There is one strategy that will work when dealing with Canada Revenue Agency for back taxes.
You can file a consumer proposal if your total debt to all creditors is less than $75,000 (not including your mortgage; in 2009 this limit will be increased to $250,000).

In a consumer proposal, a licensed trustee works with you to determine how much you can afford to pay each month, and then negotiates with CRA and your other creditors to have the proposal accepted. In a consumer proposal, it is not necessary to get all creditors to agree to the proposal. If more than half of the dollar value of creditors accept the proposal, all creditors are bound by the proposal.

What if Canada Revenue Agency is my largest creditor?

If CRA has the controlling vote, it will probably be necessary for you and your trustee to meet with CRA to work out the terms of your proposal. CRA will require:

• That all outstanding tax returns are filed with CRA before they will accept the proposal;

• That you have sufficient income to meet the payments in the proposal; and

• That you agree to make installments on your current year taxes, so that you don’t fall behind on next year’s taxes.

What are the chances of success?

To be successful, you require the assistance of an experienced trustee. This is definitely not a “do it yourself” project. Click here to find a trustee near you.