Consumer Proposal to the Canada Revenue Agency
Can you make a consumer proposal to the Canada Revenue Agency? Absolutely, so long as your total debts, excluding the mortgage on your principal residence, don’t exceed $250,000 (in which case you’d have to file what is called a Division I Proposal).
Under a consumer proposal, tax debts owed to the Canada Revenue Agency are treated like any other debts. And “tax debts” include debts for personal income taxes as well as business-related debts such as GST and payroll taxes.
However, when the CRA is the majority creditor, their vote for or against your proposal will decide its fate. As such, there are practices it engages in that you should be made aware of – and for ease of explanation, we’ll just focus on personal income taxes.
Filing your income taxes
You will need to bring your tax filings current before you file your consumer proposal. So if you’re filing your proposal on November 1st, 2019, you’ll need to have filed all your T1 returns up to the 2018 tax year.
A consumer proposal will deal with your tax debts up to the date of the proposal filing. Therefore, your Trustee will work with you to prepare what is called a “provisional” income tax return which will be sent to the CRA along with your proposal documents for their review. A provisional income tax return covers the period starting from January 1st to the date of your proposal filing. So if you’re filing your consumer proposal on November 1st 2019, your Trustee will prepare a T1 return covering January 1st 2019 to October 31st 2019. Any income taxes owed on that provisional tax return will be a debt included in your consumer proposal.
Undertaking to keep post-proposal tax filings and payments current
If you’re self employed, the Canada Revenue Agency will require the following provisions in your proposal as a condition of them accepting it:
1. The debtor covenants and agrees to keep current all filings, remittances and installments, if any, to Canada Revenue Agency during the course of the Proposal. Should the debtor fall into arrears by:
(a) more than $5,000.00; or
(b) more than two (2) months
and should the Trustee be notified in writing of such arrears, the CRA may then request that the Trustee declare the Proposal to be in default, or alternatively, request that the Inspectors, if any, temporarily waive such default based on its investigation of the underlying circumstances.
2. Upon notice in writing to the Trustee by the Canada Revenue Agency of a default with respect to the filing, remittance and installment requirements during the period outlined in the preceding paragraph, the Debtor shall be given thirty (30) days from the date of the notice to rectify any such default. Should the default not be rectified within the thirty (30) day period, a request can be made to the Trustee to have the Proposal annulled.
This simply means that during your proposal, you’ll have to keep your post-proposal tax filings and tax payments in good standing. Otherwise, the CRA will notify the Trustee that you’ve been negligent in your post-proposal tax filings and payments, in which case the Trustee will have to declare that your proposal is in default and hence annulled.
Meeting of Creditors
If the Canada Revenue Agency won’t accept your consumer proposal as filed, they’ll remit to the Trustee what is called Voting Letter “against” your proposal. In that event, the Trustee will have to call a Meeting of Creditors so that a CRA representative can meet with you to discuss what led to your financial difficulties, your current financial status, and your future financial prospects. By discussing these matters with you, the CRA representative is on a fact-finding mission to determine if the proposal that you offered is the best you can do.
Once she’s gathered all the facts about your situation, she’ll negotiate with you (with the Trustee acting as the facilitator) on what would be a fair settlement given your circumstances. Once both sides agree on what the terms of your consumer proposal should be, she’ll make a recommendation to her Director at the CRA that it accept the amended proposal.
On the other hand, if both sides cannot agree, CRA’s Voting Letter “against” your proposal will stand, and your proposal won’t be approved. At that point, you may want to consider filing for personal bankruptcy as an alternative to dealing with your debts.
If you want to work with a Trustee who will give you confidence and peace of mind that your consumer proposal is being dealt with in a professional manner, look no further.
Reviews of Our Services
Victor was quick to contact me and the consistent contact was amazing. Victor is really passionate about listening to my needs and it showed as his service with me was nothing short of an amazing experience. He went out of his way to meet on my sched and his attention to detail is exceptional. If yo
Victor and his team (Mary) were always extraordinarily prompt with their responses to any inquiries and went out of their way to respond to questions in detail. They were extremely helpful at all times, even after my Proposal was completed. VIctor is an excellent advocate for his client's needs and
Victor and his team were amazing. Treated us with the upmost professionalism. Answered all our questions, took care of everything and turned an unfortunate situation and made it much less stressful. I highly recommend Fong and Partners. Thank you all for your support through the process.
Working with Victor Fong was great. We just finished our consumer proposal a week ago and the entire process was quite easy. Mary was amazing at answering all my questions and accommodating me when I had any questions or concerns. Her response time was impeccable. Our initial meeting with Victor wa
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