Consumer Proposals and the CRA
You may be able to settle your tax debt with the Canada Revenue Agency (“CRA”) by filing a Consumer Proposal; However Consumer Proposals and the CRA make for some unique requirements when combined. For your consumer proposal to be accepted by the CRA you’ll need address the following issues.
File All Outstanding Returns
The first thing that you’ll need to do is file any outstanding returns. This includes personal income tax as well as HST returns if you collect HST. The reason for this requirement is that the CRA needs to know how much you owe them in order to decide whether the settlement that you’re offering is fair or not. They may be happy to accept $30,000 as a settlement on $90,000 of debt, but may not consider the same $30,000 settlement if you owe $250,000. That’s why they’ll vote against your proposal until they understand how much you owe them.
File A Provisional Return
If you file a consumer proposal in 2014, and the CRA accepts it, then all of the tax debt you accrued prior to December 31, 2013 is erased. To erase your current year tax debt (in this case, 2014), you need to estimate your current year tax debt so that the CRA can judge your proposal as mentioned above. While the CRA does not have to allow you to include your current year tax debt in your proposal, Welker and Company includes special clauses in its proposals which allow your tax debt to be erased once accepted by the CRA.
There is a catch; If you estimate that you owe $10,000 for the period January 1st to October 31st for example, and it turns out that you actually owed $15,000 for that same period then the $5,000 difference survives and you continue to owe it to the CRA even after completing your proposal. That is why its important to estimate your current year taxes as accurately as possible. Welker and Company will assist you with this estimate.
Start Making Instalment Payments
To improve the chances of the CRA accepting your proposal you need to show that you will not build up a similar tax debt again after filing your proposal. To prove that you’ll avoid making the same mistakes you’ll need to start making tax instalments to the CRA on at least a quarterly basis. In fact, the CRA may even require that you commit to these instalment payments in writing in your proposal.
It is possible to erase your tax debt through a consumer proposal, but there are a few additional requirements when dealing with the CRA as opposed to other unsecured creditors.
To have your situation assessed for free at one of our six conveniently located offices please send us an email or give us a call. Our licensed Trustees in Bankruptcy are always happy to meet with you, take the time to understand your unique personal situation, and explain your options to you. Don’t delay, the CRA doesn’t just go away, so give us a call; you’ve got nothing to lose except your debt!