Four Tricks to get CRA to Accept your Consumer Proposal

Will Canada Revenue Agency (CRA, formerly Revenue Canada) accept a consumer proposal? Yes, they will, but only if certain conditions are met. Today I’ll explain the four most important “tricks” or tests that you must meet for a successful consumer proposal when CRA (the Tax Man) is involved.¬† It’s important to understand that while creditors like credit card companies and banks will almost always accept a reasonable proposal, CRA has their own set of rules, so they may not accept a proposal that would be acceptable to other creditors.

Why is CRA more “difficult” than other creditors? As many representatives of CRA have told me in the past, “Revenue Canada did not choose to be one of your creditors.” That’s true. You filled out a credit application with the bank, or the credit card company, and they decided to grant you credit. CRA never had the chance to make a credit decision; you didn’t pay your taxes, and now you owe them money, and that’s why they are never happy about being a creditor in a proposal.

Douglas Hoyes, Consumer Proposal Administrator

My name is Douglas Hoyes, and as the co-founder of Hoyes, Michalos & Associates Inc., one of the largest consumer proposal administrator firms in Canada, I have administered thousands of successful consumer proposals over the last 15 plus years, and I have had many proposals accepted by Revenue Canada, allowing debtors to avoid bankruptcy in Canada, and based on my experience, there are the four tests you must meet to get a consumer proposal accepted by CRA.

1 First, as is the case with all creditors, you must offer more than they would receive in a bankruptcy, you must offer them a minimum return (they won’t accept one cent on the dollar, even if it is more than bankruptcy), and you must demonstrate that you can make the proposal payments. I described these requirements in detail in my post on What Will My Consumer Proposal Cost, so I won’t repeat them in detail here.

2 The second test you must meet is the up to date test. CRA will automatically reject your proposal if all of your tax returns are not filed up to date. That makes sense, because it’s impossible for Canada Revenue Agency to know how much you owe if you haven’t filed your taxes. So, if you call my consumer proposal office and say you have tax debts and you want to file a consumer proposal, my first question will be quite simple: “Have you filed all of your tax returns?” If you haven’t, I’ll tell you to file them, and then call me back, because I know it’s impossible to get CRA to accept a proposal while there are tax returns outstanding.

3 The third test you must meet is what I call the honourable citizen test. This is a phrase I made up, but in my experience with CRA it’s very important. If Revenue Canada does not believe you have behaved in an honourable and honest manner, they will not accept your proposal, even if you are offering what would otherwise appear to be an acceptable amount of money.

I have had cases where the person went five years without filing taxes. They then filed them, so they met the requirements of Test #2, the up to date test, but CRA was not happy about the fact that they didn’t file taxes for five years. In my experience CRA representatives understand that there are cases where Canadians can’t pay their taxes, perhaps due to job loss, business failure, medical issues, or whatever. What they never understand is why you didn’t file your taxes. It’s not that complicated (in most cases), everyone else in Canada is required to do it, so why didn’t you?

If you are perpetually late filing taxes, they assume you are not an honourable citizen, and that makes it much less likely that they will accept your proposal.

4 The fourth and final test you must meet is the I promise to stay up to date test. You owe taxes because you either didn’t file your taxes on time, or didn’t pay them, or both. CRA may be willing to give you a break and accept your proposal, but only if they are confident that in the future you will file on time, and pay on time. How can you convince them that you will stay up to date?

If filing taxes was a problem in the past, showing that you now have an accountant helping you will help.

If paying was the problem, you must agree to make installment payments so that when you file your taxes next year, nothing is owing. You may be a “quarterly remitter”, meaning you are required to make installment payments every three months. In my experience CRA will be much happier if you make installments every month, or even more frequently (weekly, bi-weekly, or semi-monthly if that’s how you get paid at your job).

To prove that you are trustworthy, it’s wise to include a clause in your proposal demonstrating your commitment to staying up to date. Here are the standard clauses that I include where tax debts are a significant debt in the proposal:

The Debtor confirms that all tax returns will be filed as due, and that all required tax installments will be made when due. If tax returns and installments are not prepared and paid when due, such breach will be considered a default in the terms of this proposal.

In simple terms, this means that if you file your tax returns late, or if you don’t pay your required installments, CRA can kill the proposal.

To summarize, it is possible to file a successful consumer proposal even if CRA is a large creditor. However, before you file you must ensure that the proposal makes sense, and is affordable, and that all of your taxes are filed, and that you can demonstrate the ability to file and pay your taxes when due in the future.

For more information, please read my posting on consumer proposals and taxes. If you have debts, including tax debt, and you want to find out if a consumer proposal may be the solution for you, arrange a no-charge initial consultation by contacting a licensed consumer proposal administrator today.

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6 thoughts on “Four Tricks to get CRA to Accept your Consumer Proposal

  • Shari

    Just wondering. What are the chances of CRA accepting a consumer proposal if they have charged you with gross negligence penalties, because you filed false business losses? ( they were a part of that Fiscal Arbitraitors tax evasion scam) A lot of these tax evaders are trying to appeal it in court, but every case is being ruled by the Tax court that these people chose to be willfully blind. what are your thoughts on getting a consumer proposal when CRA has charged you with this? Do you think the chances are good or not?

    Reply
  • J. Douglas Hoyes Post author

    Hi Shari. It’s impossible to predict how CRA would vote in your case.

    You are correct that being charged gross negligence penalties does not help your case.

    However, if CRA votes against your proposal and you have no other choice but to declare bankruptcy they will get less, so it may still be to their benefit to accept your proposal.

    They will make their decision based on many factors, including your other tax history. If this “tax evasion scam” is the only blemish on your record with CRA, and you were otherwise up to date and current with them, your chances of success are greater. I would suggest you consult with a consumer proposal administrator who can review your complete situation, and help you predict the chances of making a successful consumer proposal.

    Reply
  • Michael R.

    I was just turned down by CRA on my proposal. The Trustee said it was a good proposal 30 cents on the dollar. I have been Bankrupt twice in my life. last one discharged twenty years ago. I am not a good tax payer. i was told I could submit another proposal or go bankrupt again. Do you think I have a chance at an accepted proposal

    Reply
    • J. Douglas Hoyes Post author

      Hi Michael. This is a question to ask your trustee, or another one. here is a list of licensed insolvency trustees.

      The answer to your question will depend on whether or not the proposal has been officially rejected at a creditor’s meeting, or if you are still in the negotiation stages. If you filed a consumer proposal and it was rejected, you cannot file a second consumer proposal for the same debts. Your only proposal option would be to file a proposal under Division 1 of the Bankruptcy & Insolvency Act, but that’s a more complicated and expensive procedure, and there is no guarantee that CRA would accept it. In fact, since they rejected your consumer proposal, it is likely they would reject your Division 1 proposal.

      If you have two previous bankruptcies and if you have significant tax arrears it is difficult to get CRA to agree to a proposal, so you may have no choice but to file bankruptcy.

      The bigger issue for you is that you say that you are “not a good tax payer”. CRA knows that, which is why they rejected your proposal, so your goal should be to become a “good” taxpayer, so you may need assistance from an accountant or other professional to help you file and pay all taxes on time, or else these problems will occur again in the future.

      Reply
  • Natasha

    My husband was involved with GLGI tax avoidance shelter. The court ruling was that everything including the original donation amount has been disallowed. He wants to pay them back but the fees and penalties are extraordinary! What are the chances of getting the penalties and interest waived?

    Reply
    • J. Douglas Hoyes Post author

      It is possible to get interest and penalties waived, but it’s difficult. In most cases an application to the tax fairness committee may be required.

      Another alternative is a consumer proposal, which can eliminate penalties and interest, and principal, if CRA agrees. A licensed consumer proposal administrator can provide further information.

      Reply

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