Can I File a Consumer Proposal if I Owe Canada Revenue Agency (“CRA”)?

As a Windsor Ontario trustee I am meeting with more and more people who filed their income tax returns incorrectly and now owe Canada Revenue Agency (“CRA”) tens of thousands of dollars in penalties and interest. Many have hired lawyers to appeal the penalties and taxes, but that can be expensive, and success is not guaranteed. In fact, it appears that few appeals are successful.

When someone comes to see me, I always ask for background information about how their debt troubles began. When someone owes a large amount of money to CRA, the first question is if they are now, or when they are self-employed. Self-employed people are more likely to owe money to CRA since they don’t have income taxes deducted from their paycheque. If they are not self employed but owe money to CRA, lately it has been because of the tax scheme they were involved in.

In order to get CRA to accept your consumer proposal you need to meet certain conditions:

  1. You must offer more than they would get in a bankruptcy, you must be able to afford the payments and you must offer a minimum return.
  2. Your tax filings must be up to date. If you haven’t filed your tax returns since your tax debt was first uncovered, CRA won’t know the total amount that you owe. From my experience, unless all of your returns are all filed, CRA won’t accept your proposal.
  3. You will need to keep all of your future tax filings and payments up to date. CRA will require this to be a term of the consumer proposal.

From my dealings with CRA, they look at each person’s situation differently. If they think your situation warrants an increase in your payment, they will advise us of their terms. If they think your offer is reasonable, they will vote in favour of your consumer proposal.

To date, all of the consumer proposals we filed that had tax debt due to the tax filing scheme have been accepted. This doesn’t mean that your proposal will be accepted, but it lets you know that CRA is willing to review a consumer proposal.

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