Like most creditors, the Canada Revenue Agency (CRA) is willing to consider the acceptance of a consumer proposal.
A consumer proposal is the only government legislated program in Canada that allows consumers to put forth a legally binding debt settlement offer and tax debts owing to the CRA can be included in a consumer proposal.
As with all creditors, consumer proposals must be fair and reasonable for all parties involved. The payment has to be something you can realistically commit to and afford over the term of the proposal, and it also has to be something the creditors consider a reasonable payment.
As long as the benefit received in a consumer proposal is greater than the amount your creditors would likely receive in a possible bankruptcy, the consumer proposal has a chance of being accepted.
CRA’s mandate is typically to not negotiate on tax debts owing, however, they will accept the laws of the land and they understand like any creditor that they are subject to the rules and procedures outlined in consumer proposal legislation. Furthermore, like with any creditor, it’s generally not in their interest or the tax payers’ interest to see you file a bankruptcy.
Along with considering the dollar amount offered, CRA will typically look for a few extra things before they accept a consumer proposal:
- They will review your file to ensure all outstanding tax returns are filed. They need to quantify how much you owe them and this would be impossible to do if you have not filed overdue tax returns.
- They will consider what caused the tax debt. For example, did you cash in RRSP’s, or did you run a business? They’ll want to see that you’ve taken steps to ensure that whatever caused you to incur a tax debt does not happen again.
- If you ran a business, they’ll want to consider the future viability of the business. Did your business fold or is it still ongoing? If it’s still ongoing, is there opportunity for new business in the future or have you changed your accounting systems to ensure you don’t incur further tax debts going forward?
- They will consider your efforts to repay previous debts owing. Have you been honest with CRA in the past and tried to work with them to make payment arrangements in the past?
- Is the consumer proposal tax driven? Do you have other debts or have you repaid other debts at the expense of not paying your taxes first?
- They will consider your future financial prospects. If they agree to the proposal, are they satisfied that you’ll have the ability to fulfill its terms whilst at the same time, not incurring new tax debts.
- They will sometimes ask that a clause be added to the consumer proposal where you undertake to agree to file future taxes on time and pay any balance owing on time. They essentially want you to agree to do something you should be doing anyway.
- They may ask you to agree to add a clause to the consumer proposal to agree to add the proceeds of any sudden windfall received during the proposal, to the proposal.
This list is not exhaustive, however, it at least provides a good starting point for understanding what the CRA may look for if you’re considering offering a consumer proposal that includes tax debts.
To find out more about how the consumer proposal process contact a local Ontario trustee for more information and to create a plan to eliminate those debts.