Yes. The Canada Revenue Agency can be included in a consumer proposal, and it votes on it like your other creditors. 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, for unsecured income tax debt, a creditor like your others, and the stay of proceedings applies to it too, unless CRA holds security such as a registered lien.

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 proposal or a bankruptcy is the only usual route that writes off tax you actually owe. Under a proposal, the part of the tax debt that is not in your offer is written off when you finish.

If the assessment itself is wrong, it can be corrected through a reassessment or an objection. Beyond that, and apart from a rare remission order granted by the federal government, 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. A vote is held at a meeting of creditors, and a meeting is called when creditors holding at least a quarter of the proven claims ask for one. The Official Receiver can also call one. If no meeting is called within 45 days of the filing, the proposal is treated as accepted, and it is treated as approved by the court 15 days later unless someone asks for a court review. At a meeting, a majority of the dollar value of the claims that vote decides. If CRA holds more than half of all the claims, 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 can still ask for a meeting on its own. At the meeting, the result then depends on how much debt the other creditors who vote hold.

Three things the CRA looks for before it votes yes, in the experience of trustees who file these proposals:

Every return is filed, up to the date the proposal is filed. Outstanding returns are a 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 divided at the filing date. You still file one return for the whole year. The tax for that year is divided between the time before and after the filing date: a statement of the split is sent to the CRA, and without one the CRA divides the year by the number of days. The share before the filing can go into the proposal. The tax on what you earn after the filing date is yours to pay on time.

Refunds for years after the filing are not taken for the debt in the proposal, although the CRA can still apply them to any new tax you owe. 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 for as long as the proposal runs. 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 unremitted source deductions are held in trust for the Crown, so they are treated differently from 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. For tax, there is one special rule 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. A consumer proposal is limited to debts of $250,000 or less, not counting debts secured by your principal residence, so a larger tax file needs a different kind of proposal, under Division I of the Act.

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. Little moves on the CRA side until the returns are in. If you do not file, the CRA can assess you without a return, on its own estimate of your income. That estimate can leave out deductions and credits you would have claimed, and the CRA collects on it. For every year you owed tax and did not file, there is a late-filing penalty and daily interest on top of the tax. 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 for a first late return. If you were also charged a late-filing penalty in one of the three years before and the CRA sent you a demand to file, the penalty is 10% plus 2% for each full month, up to 20 months: $3,400 on the same $10,000 at one year late, and $5,000 at 20 months. 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. If the proposal fails, the CRA can collect the old debt again.

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.

Do I have to file all my returns first?

In practice, yes. The law does not stop you filing a proposal first, but in the experience of trustees the CRA will not vote yes on a proposal from someone who has not filed, or it accepts only on the condition that the returns are filed by a set date. Filing is also the usual way to replace an arbitrary assessment with the real number, which can be lower.

Filing your taxes during and after a consumer proposal

You keep filing a tax return every year, while the proposal runs and after it ends. A consumer proposal deals with the tax debt that goes into it. It does not change your duty to file.

The refund rule you read about is a bankruptcy rule

A lot of what you find online about returns and refunds comes from bankruptcy. The CRA page on doing your taxes when filing for bankruptcy says the trustee files a pre-bankruptcy return. It also says refunds for years before the year of bankruptcy are the property of the estate and are sent to the trustee. That page is about bankruptcy, not a consumer proposal.

A proposal works differently. The Office of the Superintendent of Bankruptcy says that in an accepted consumer proposal you make your payments to the Licensed Insolvency Trustee and keep your assets, provided you keep paying your secured creditors. You must also follow any other conditions written into the proposal. Read those conditions before you count on a refund.

What changes when the proposal ends

The same OSB page sets out both endings. If you meet the conditions in full, you are legally released from the debts included in the proposal, and you receive a certificate of full performance. If you pay monthly and miss three payments, the proposal is generally deemed annulled. Your creditors, the CRA included, can then take action to collect, unless the court orders otherwise or an amendment has been filed.

The release covers only the debts in the proposal. Tax on income you earn after the filing date was never part of it, so you file and pay that tax as usual. If a new balance with the CRA builds up after the proposal, start with the returns, then look at your options for tax debt relief in Ontario before the CRA starts to collect.

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. However, he is not the only one you should get your information from. Unlike a Trustee, we look to preserve your equities and assets, not liquidate them. What we do is make sure you only pay what you have to pay, not what someone thinks you can pay. We use every tool available to make sure you protect your home, your business and other equities as well as Spousal rights. Once you’re ready to move forward with whichever process you choose, that’s when it’s time to move on to the selection of a Trustee. Please keep in mind that if for any reason, you have to deal with a legal matter during your Bankruptcy or Proposal, a Trustee can NEVER legally represent you. However, he CAN act against you. Choose your representation wisely!

On a CRA file, the outstanding returns and the treatment of source deductions have to be right before anything is filed, and we can act as your authorized representative with the CRA and arrange for the tax filings. We look at every type of CRA debt and at 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.