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Do you owe money to the Canada Revenue Agency (CRA)?

taxYou may have received a letter from the CRA advising you of an unpaid tax amount and it will speak of “legal actions” to come if you do not call and arrange a repayment. The types of legal action that CRA may take are varied and the letter will warn that these legal actions may be taken without further notice.

What you may not be aware of that the Canada Revenue Agency has a powerful set of collection tools at its disposal if you fail to pay unpaid taxes. These tools include a range of recovery devices like garnishments, seizure & sale of your property, third party assessments and in 1999, the CRA also gained the ability to certify your debt in Federal Court and then register your tax debts against your assets. The registration of these tax debts against your real and personal property effectively creates a charge or security interest in your assets.

It’s worth knowing too that the CRA may register against your real and personal property whenever your tax debt exceeds a specific threshold dollar amount (as low as $10,000) and/or whenever your repayment will take an extended period of time. In many such cases the CRA does not notify you of the registration and you will be unaware of the registration until you attempt to refinance, sell/dispose of the asset that has become encumbered by CRA. Once CRA registers a lien or security interest against your property it then becomes a secured creditor that expects full payment before it will release your asset.

This change from unsecured creditor to secured creditor may effectively prevent you from resolving those tax type debts in either a bankruptcy or proposal administration. To find out if the CRA has registered against any of your assets, you can contact the CRA directly or go to a Service Ontario office nearest you.

To sum up, if you have a large tax debt or know that you are about to be assessed a significant tax liability you may wish to urgently consult with a tax attorney and/or a Licensed Insolvency Trustee to discuss and review your options.

Can I still make a Consumer Proposal if I owe Canada Revenue Agency Taxes?

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Yes, most amounts owed by you to Canada Revenue Agency (CRA) and various tax authorities can be included in your consumer proposal.

The starting point of your consumer proposal (or an assignment in bankruptcy) is when you make a full disclosure of the totality of your debts.  Creditors will want to know what is owed and how they will share in the proposal.  It is for this reason that if you have taxes owing and/or tax returns & reports that are overdue, that the Canada Revenue Agency and trustee will expect  you to prepare and file all of your outstanding personal income tax returns. Similarly if you operated a sole-proprietorship business, you may also file a consumer proposal and again you will be required to complete and file all of your outstanding business related returns.

The Canada Revenue Agency will not usually give favorable consideration to any proposal where returns and reports are outstanding.

In the end, the Canada Revenue Agency takes a common sense approach to considering your proposal. It seeks to maximize recovery of the amounts you owe (as do all creditors), while recognizing your ability to pay and taking measure of the recovery potential of your proposal versus a bankruptcy filing. The nature of the Canadian insolvency proposal processes is one of recovery and rehabilitation and that said, creditors including the Canada Revenue Agency may request that you agree to certain non-monetary terms and conditions throughout the proposal period. These terms are of equal importance as they serve to show your commitment to take full advantage of this situation and to start anew on a path to reestablishing good money and credit management practices.

The trustee will work in partnership with you, the Canada Revenue Agency and your creditors to prepare a consumer proposal arrangement that is practical for you and beneficial for all of your creditors.  Call Paul J. Pickering Limited to have a no cost discussion about your financial situation and your consumer proposal options.