Canada Revenue Agency is more difficult to deal with than other creditors (like credit card issuers 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. What do you do?
If you, your accountant or your 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. In the meantime interest, and perhaps further penalties, may be added to your tax debt.
If you cannot pay as fast as required by CRA, they may consider taking further action. They can withhold HST and child tax credits, contact your customers to garnishee payments, garnish your wages or seize your bank account.
If CRA is after you and you are unable to pay your outstanding taxes, you need tax debt relief.
Tax Debt Relief Options
The first thing to do is make sure you have filed all your previous tax returns. It is important to know exactly how much you owe before beginning any proceedings to deal with the Canada Revenue Agency. Once this is done you may need to:
- Negotiate a partial repayment plan with CRA by filing a consumer proposal.
- File for personal bankruptcy.
In a consumer proposal, a licensed Ontario bankruptcy 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 including the Canada Revenue Agency.
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;
- you have sufficient income to meet the payments in the proposal; and
- 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. Our Ontario bankruptcy trustees have an excellent track record in negotiating terms that meet the needs of both CRA and their client.
For more information and answers to how you can deal with unpaid tax debts, find an Ontario bankruptcy trustee near you.