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 most important “tricks” or tests that you must meet for a successful consumer proposal when CRA 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. Unless their specific requirements are met, CRA may not accept a proposal that would be acceptable to other creditors.
Why is Canada Revenue Agency 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.
Based on my experience, for CRA to accept your offer, it must meet these conditions. You must:
- Offer CRA more than they would receive in a bankruptcy,
- Meet their minimum return requirements (they won’t accept one cent on the dollar, even if it is more than bankruptcy)
- Demonstrate that you can make the proposal payments.
- Be up-to-date on all tax returns
- Meet the honourable citizen test in your previous dealings with CRA
- Promise to file all future tax returns on time.
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.
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 (and your finances may be better as well) 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). If filing taxes was a problem in the past, showing that you now have an accountant helping you will help.
The reason you must file all back-tax returns before making a consumer proposal is because it’s impossible for Canada Revenue Agency to know how much you owe if you haven’t filed your taxes. CRA cannot determine if the offer you have made is reasonable if they don’t know how much back taxes you owe.
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, is affordable, that all your taxes are filed, and that you can demonstrate the ability to file and pay your taxes when due in the future.
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.