FAQ

Income Taxes

How Can I Settle Outstanding Bills with Revenue Canada Taxation?

The answer to this question really depends on how much you owe in personal income taxes, goods and services taxes and employee deductions. It is important to note that the only time that Canada Revenue Agency can internally write off debt is through a program described as the Fairness Legislation. The applicability of this program is limited because through it you can only obtain a write down of penalties and interest assessed against you. You should know that there are so many applications for this relief that there are a lot of people waiting for response for their applications under the Fairness Legislation. It is not possible for anyone to call and arrange a meeting to discuss the applicability of their situation with the representatives from the Fairness Legislatin because all communications must be through the mail or by fax. There are significant waiting times on the responses from the Fairness Legislation.

You should be aware that there is no provision in the Fairness Legislation for a “time out” while your application is being considered. CRA can still seize assets, file writs against real estate and garnishee income.

If the amount that you owe Canada Revenue Agency is within your means, you can negotiate terms to pay the debt together with all interest and penalties resulting from non-payment of the monies due to Canada Revenue Agency.

If the amount that you owe Canada Revenue Agency is significant, you will need to consider using options that contain a stay of proceedings so that you can avoid Canada Revenue Agency collection actions while your settlement is being negotiated. Their collection actions include: withholding tax refunds and GST Credits, garnishing your wages or accounts receivables, seizing funds from your bank account and/or placing a lien on any real property you own until your debt is paid in full. Since they do not have to go through the Courts, they can act very quickly.

Sometimes people try to get around their debt to Canada Revenue Agency by giving away their assets to a spouse or to a friend. It is important that these people are aware that Canada Revenue Agency can raise an assessment against the person receiving the asset for unjust enrichment.

The best way to settle the debt owing to Canada Revenue Agency is to file a proposal if you have cash flows available to fund the settlement. The proposal can be drafted to include all outstanding taxes to the date that the proposal is filed. It is important to note that if the amount owed to Canada Revenue Agency includes monies deducted from employees for source deductions, those funds must be paid within six months of filing the proposal unless Canada Revenue Agency agrees to a longer period. The proposal must give Canada Revenue Agency more than they would receive if you were to file an assignment into bankruptcy and there must be some certainty that you can pay the funds being offered for settlement. All of your tax and goods and services tax forms must be filed up to the date of the proposal. Canada Revenue Agency needs to know the amount of the debt that they are settling.

Sometimes there just is not enough cash flow to fund a proposal and the only option is to seek protection by filing bankruptcy. Filing bankruptcy is not a good option if you have been previously bankrupt and had large Canada Revenue Agency debt or if you have high income and have the ability to repay the monies to Canada Revenue Agency. People who rush to bankruptcy without considering a proposal, are usually rewarded by some opposition to their discharge by Canada Revenue Agency. The opposition could result in a large conditional discharge, a long suspended discharge or a refusal of discharge.

There are many cases where Canada Revenue Agency does not object to a bankrupt’s discharge. Usually even Canada Revenue Agency understands that someone can make can experience financial difficulties and need the protection of the Bankruptcy and Insolvency Act.