Yes. The Canada Revenue Agency can be included in a consumer proposal, and it regularly votes to accept them. Tax debt is not immune. It is not a special category that has to be handled separately.

That surprises people. CRA feels different from a credit card company. It has powers a bank does not. It can garnish your wages without going to court first, and it can freeze a bank account. But once a proposal is filed, CRA is a creditor like any other, and the stay of proceedings applies to it too.

Does the CRA forgive tax debt?

No. There is no form you can send in that cancels the tax you owe, and nobody can get one for you. Three things do exist, and it is worth knowing which is which.

Taxpayer relief. The CRA can cancel or waive penalties and interest, never the tax itself, when something outside your control kept you from paying, or when you cannot pay and the interest is what is sinking you. It looks back ten calendar years. The rules are on the CRA’s taxpayer relief page.
A payment arrangement with the CRA. You pay the full amount over time. Interest keeps running the whole way, at the CRA’s prescribed rate, compounded daily.
A filing with a Licensed Insolvency Trustee. A consumer proposal or a bankruptcy is the only route that changes the tax itself. Under a proposal, the part of the tax debt that is not in your offer is written off when you finish.

Anyone who sells you a “CRA forgiveness” outcome outside those three is selling you something that does not exist.

Does a consumer proposal include CRA debt?

Personal income tax, including penalties and interest.
HST and GST owed by a sole proprietor.
Source deductions and payroll amounts, in some situations. These are treated differently and need a careful look.

If a debt is secured against property, or CRA has registered a lien, the position changes. That is a question about your file, not a general rule. Every file is different, and your buddy’s file is not yours. How you answer the questions about your property matters.

Will CRA accept a consumer proposal?

CRA votes on the dollar value of what it is owed, the same as any other creditor. If it holds more than half the voting value of your debt, its vote decides the outcome on its own. If it holds less, it is one voice among several.

An example: say you owe $60,000, and $35,000 of it is to CRA. That is more than half, so CRA’s vote decides. If CRA is owed $20,000 of the $60,000, it is one voice among several.

Three things the CRA looks for before it votes yes:

Every return is filed, up to the date the proposal is filed. Outstanding returns are the most common reason for a no that had nothing to do with the money on offer. If you have unfiled years, they are dealt with first.
You stay current during the proposal. The CRA usually asks for a term that says you will file on time and pay each new year’s tax when it is due while the proposal runs.
The offer beats a bankruptcy. CRA compares your offer with what it would recover if you went bankrupt instead. A proposal that offers meaningfully more has a straightforward case. One that offers barely more does not, and you want to know that before filing.

What happens to this year’s tax, and to your refund

Tax for the year you file is split at the filing date. What you owe for the part of the year before the filing can go into the proposal. What you earn after the filing date is a new year’s tax, and it is yours to file and pay on time.

Refunds for years after the filing are yours. A refund for a year before the filing is different: the CRA can apply it against what you owed before you filed. If you are counting on a refund to get through the spring, ask about it before the proposal goes in, not after.

CRA wage garnishment: what stops when it is filed

The CRA does not need a court order to garnish. It sends a Requirement to Pay to your employer or your bank, and the money is taken at source. The stay of proceedings puts a stop to that, including a garnishment CRA has already started. It stops further collection action while the proposal is considered. For many people, that is the reason to act, and it is a good one. We know what a garnishment does to a family.

Two things the stay does not do. It does not return money already taken before the filing. And a Requirement to Pay for unremitted source deductions stands in a different position from one for income tax. If you have employees and the payroll account is behind, that is the first thing we look at.

Does bankruptcy clear CRA debt?

For most people, yes. Personal income tax is an unsecured debt in a bankruptcy, and it is released on discharge like a credit card balance. There is one exception written into the law: if your personal income tax debt is $200,000 or more and it makes up three quarters or more of your unsecured debt, the discharge is not automatic. A court hears it. That rule is in section 172.1 of the Bankruptcy and Insolvency Act. A proposal is not subject to it, which is one reason large tax files often go that way.

Does CRA debt expire?

There is a limit on how long the CRA can collect an income tax debt: ten years. It is not the answer people hope it is. The clock starts 91 days after the notice of assessment, and it restarts every time you make a payment, put a payment arrangement in writing, or acknowledge the debt in writing. A garnishment restarts it too. The CRA sets this out on its page on how long a debt can be collected. Do not build a plan on waiting it out.

If you have not filed for years

File. Nothing moves until the returns are in. If you do not file, the CRA files for you, with an arbitrary assessment that is usually higher than the real number, and it collects on that. On top of the tax there is a late-filing penalty and daily interest for every year outstanding. Our CRA late-filing penalty calculator shows what that has already added up to, year by year, using the CRA’s own published rates.

Say you owed $10,000 for a year and did not file. After a year late the penalty alone is $1,700, and the interest is running on top of both, every day. That is the example. Your number is on the calculator.

Questions people ask

Does the CRA have priority over my other creditors in a proposal?

No. For income tax it is an unsecured creditor with the same vote per dollar as everyone else. Source deductions and a registered lien are the exceptions, and both are looked at before anything is filed.

Does the interest stop?

On the day the proposal is filed, yes, on the debt that goes into it. New tax after that date earns interest as usual if it is paid late.

Can HST be included?

If you are a sole proprietor, yes. A corporation’s HST is the corporation’s debt and needs a different kind of proposal, and a director can be assessed personally for it. That is a separate conversation, and we have it often.

Do I have to file all my returns first?

Yes. The CRA will not vote on a proposal from someone who has not filed. It is also the only way to replace an arbitrary assessment with the real number, which is often lower.

Where we fit

Get Total Debt Relief is a debt consulting and representation firm, not a Licensed Insolvency Trustee. Only a Licensed Insolvency Trustee can file your documents for a consumer proposal or a bankruptcy with the Superintendent of Bankruptcy. What we do is the work before the filing: we go through your whole situation with you, we answer your questions for as long as it takes, and the path you choose comes from that.

On a CRA file, the outstanding returns and the treatment of source deductions have to be right before anything is filed, and we work on every type of CRA debt and on personal, business and tax debt together, which is usually how it arrives.

DISCLOSURE:

Get Total Debt Relief is a debt consulting and representation firm. We are not a Licensed Insolvency Trustee, and we are not connected to the Canada Revenue Agency or any government body.

Only a Licensed Insolvency Trustee can file your documents for a consumer proposal or a bankruptcy with the Superintendent of Bankruptcy.

OUR SERVICE:

However, any Trustee you choose can’t legally represent you over your Creditors nor can he give you any advice that will benefit you over your Creditors. The Trustee’s job is to maximize how much he can get from you and your estate for the benefit of your Creditors and the more he collects in a Proposal, the more he makes.

What we do is the work before the filing and the path you choose will come from the advice and information that goes with it. More importantly, we use tools that are not available to the Trustee because of who’s interests he represents. We go through your whole situation with you. We answer your questions, for as long as it takes and as many times as you need to ask them. Every consultation is free and if or when you decide to move forward, you’ll know which option best suits you, your family and or your business. And, unlike the Trustee, we will NEVER use the information you’ve given us against you in Court. The bottom line is that we don’t look to liquidate your assets and equities, we look to protect them.

Every consultation is free, and you can call as many times as you need. Call 647-276-8844 or talk to us.