It can be hard to know who to turn to when you are dealing with Canada Revenue Agency and you need tax debt help. Some situations are relatively simple and can be resolved on your own, while other situations may require more expertise. Choosing the wrong professional for your situation, may end up costing more than it should.
On today’s show, I speak with Janette Martin, a Certified Credit Counsellor, and Ian Martin (no relation), a Licensed Insolvency Trustee with extensive experience with the CRA, about how to get the right tax debt help.
Janette shared two stories about clients with fairly simple tax situations, who sought the advice and services of a tax lawyer to resolve their issues. While the tax lawyer was able to help one client with a clerical error, the client paid thousands of dollars for what they could have resolved on their own with a T1 Adjustment Request or through a tax accountant for a nominal fee, or could have avoided by getting help from tax preparer in the first place.
Another client forgot to record his foreign pension in his tax return. Eventually, he was reassessed and owed CRA $12,000 in income tax and lost his eligibility for the guaranteed income supplement that he claimed for years. With a fixed income, the client couldn’t afford to enter into an agreement to repay CRA, and they began garnisheeing his pension by $385 a month. In the hopes of getting out of the debt, the client took a cash advance of $5,000 on his credit card to pay for a tax lawyer. The tax lawyer was not able to get him out of a tax debt he legitimately owed. As a result, the client now owed both the CRA and had credit card debt. He eventually contacted us to resolve his tax debt and credit card debt by way of a consumer proposal or a bankruptcy. In this case, talking directly to a licensed insolvency trustee about tax debts that he did owe, but could not pay, would have saved him money in terms of lawyers fees and unnecessary credit card debt.
What do you do in these situations? How do you get tax debt help?
Unfiled tax returns – The solution to this problem is simple: file your taxes. Nothing upsets the Canada Revenue Agency more than unfiled tax returns because they have no idea how much you owe them. You can file the tax returns yourself, or with a competent tax preparer, bookkeeper, or accountant. If you work in a specific industry where certain tax exemptions may apply, be sure to ask friends, family, and coworkers who they would recommend. It is extremely important to file your tax return as the CRA will discover the omission, will estimate your taxes owing and has the authority to seize your bank account or garnish your wages.
CRA accuses you of a crime – CRA can say you have committed fraud if you are deliberately under reporting income or making up a bunch of the deductions. Fraud is a serious crime, and you will need to speak with a tax lawyer. If convicted, you could have to pay severe fines, restitution orders, or serve jail time. A lawyer has solicitor-client privilege, meaning you can tell your lawyer anything and it will remain confidential. Also, a lawyer can represent you in court and work with the CRA and its lawyers to deal with the legal issues.
CRA has made a mistake – It happens, and it can be resolved without the assistance of a lawyer. Visit an accountant to review the assessment to see if CRA has correctly assessed your tax situation. If the CRA has made a mistake, an accountant can help you deal with Canada Revenue Agency to correct the error. You or your accountant can fill out a T1 Adjustment slip. An accountant can be helpful if you are not sure what line the expense was supposed to be on in the original tax return.
You owe money to CRA – Making a mistake is not a crime. Forgetting one of your T4 slips or accidentally claiming the wrong expense on the wrong line are not criminal acts. Generally, fix the error and move on. There may be a penalty for the error, you may owe some tax, and some interest. There are three ways to deal with tax debt if you owe the CRA money:
- You can make a deal – You can make an arrangement with CRA to pay them back within 12 months, plus interest.
- File a bankruptcy – If you owe more to the CRA than you can hope to repay, or you are concerned that the CRA will seize your bank account or garnish your wages, you can file either bankruptcy or a consumer proposal. Both are governed by federal law, and as the income tax act is federal legislation, the Canada Revenue Agency must follow federal law, so income taxes can be included in a consumer proposal or personal bankruptcy. If you go bankrupt, all taxes owing up to the date of the bankruptcy are included.
- File a consumer proposal – In a consumer proposal, all taxes are included up to the end of the previous year. There are special rules concerning taxes owed in the current year, so be sure to consult with your Hoyes Michalos professional. Also, in a consumer proposal, each creditor has the opportunity to vote to accept your proposal. If CRA is the majority creditor, they are the controlling vote. They can decide if your consumer proposal is accepted or not.
How do you get the CRA to accept your consumer proposal?
Doug speaks with Ian Martin, who shares what factors could get your proposal accepted or rejected. Ian notes that the CRA reviews consumer proposals on a case by case basis. They like to know the following:
- You are up-to-date with your tax returns
- You have co-operated with them in the past
- Whether you have filed a prior insolvency – if you have, were taxes the issue?
- If you have tried making payments
- If they will be receiving more in money in the proposal than they would get if you were to file for bankruptcy
- You’re ability to make the payments in the consumer proposal
If you can convince [CRA] that you are honest but unfortunate, you’ve got a much greater chance of success.
If you are able to show the CRA you are an honest but unfortunate individual, they are more likely to agree to your consumer proposal than if you are someone who has avoided filing their tax returns and have made no effort to make any payments. It’s important to know that only a licensed insolvency trustee can file a consumer proposal or a bankruptcy, which are the only ways to reduce tax debt for less than the amount owing.
Things you can do to determine if you need a lawyer, an accountant, or tax preparer?
- Do your research
- Ask a lot of questions
- Make sure that the advice you’re getting is for your specific situation
- If you are unsure about something, get a second opinion
- Be sure that the advisor you are speaking to, has your best interests at heart
See below to read the full transcript of today’s show.
Resources mentioned in the show:
- Canada Revenue Agency
- T1-ADJ T1 Adjustment Request
- How To Deal With Tax Debt
- Dealing with Tax Debt
- Tax Debt Settlement: What CRA Wants
- A Guide to Dealing with Tax Debts and CRA
FULL TRANSCRIPT show #84 with Janette Martin and Ian Martin
It’s the month of April and in Canada that means it’s tax time, our favourite time of the year. Today on Debt Free in 30 we’re going to talk about tax problems but not tax problems in the conventional sense. Lots of people owe money on their taxes and we’ve talked before on this show how to deal with tax debt. If you can afford it, your best option is to work out a payment plan directly with Canada Revenue Agency. As a general rule, they’ll almost always accept a plan if you can pay off the tax debt over a period of up to one year. So, if you owe over $12,000 and you can afford to pay them $1,000 a month, they’ll probably accept $1,000 a month deal.
If you owe more tax than you can hope to repay, a consumer proposal or a bankruptcy may be your best option because taxes can be eliminated in a bankruptcy or a consumer proposal. So, if you have more tax debt than you can pay, talk to a licensed insolvency trustee to find out if a consumer proposal or bankruptcy is the best solution for you.
But what if your tax problem is more basic than that, what if you don’t know how much you owe? What if you haven’t filed your taxes? What if CRA is pursuing you? What do you do? Who do you turn to? Should you talk to a tax preparer, a bookkeeper, an accountant or do you need a lawyer or a licensed insolvency trustee?
At this time of year there are lots of commercials on the radio for tax accountants and tax lawyers, well what’s the difference? How do you know who to turn to? How do you know if you’re getting bad tax advice? To answer these questions I’m joined today by Janette Martin who helps people get out of debt in the North York and Scarborough offices of Hoyes and Michalos. Janette, thanks for being here today, how are you doing?
Janette Martin: I’m good Doug, how are you doing?
Doug Hoyes: I’m good thanks. So, you and I were talking a few weeks ago and you told me the story of Tom and Janice, now that’s not their real names and obviously I don’t want you to reveal any person information but I want you to give me the gist of their situation. So, they had debt issues so they came into talk to you, so, tell me about your meeting with Tom and Janice.
Janette Martin: Oh sure. So, Tom and Janice are currently in a proposal with us. But prior to meeting with us, Janice, although she’s still in – she’s in her late 70s, she still works part-time and is considered self employed. She had years where she did not pay her income tax or HST and that accumulated and accumulated. So, prior to meeting with us they went to a tax lawyer hoping to reduce that tax or not have to pay it. That did not work out, so, when I met with them, they had other debts, we put together a proposal and that dealt with that debt and that’s fine.
So, after their proposal’s in place they’re still preparing their taxes by hand, her husband is. And on one of his most recent tax returns they claimed a business expense but they put it on the wrong line of the tax return but they wrote a note on the tax return explaining why it was there. The expense was disallowed by Revenue Canada pending the supporting documents. They panicked, they again went back to a tax lawyer and the tax lawyer charged them some money and wrote to Revenue Canada explaining that it was simply an error, the expense was claimed on the wrong line. It was eventually worked out. I’ve suggested to them that maybe they consider going to tax preparist to avoid these type of issues in the future. I’m not sure if they will but I’m not sure that going to a tax lawyer really was great.
Doug Hoyes: Yeah, it’s not what they needed to do. What they had was in effect a clerical error. They put the expense on the wrong line. And so, the solution is to send in the T1 adjustment request to Revenue Canada saying oh, sorry I put it on this line, it should have been on that line, you know, here’s why, here’s the receipts, here’s the support, whatever. That’s something that you can actually do yourself, but certainly having an accountant or a bookkeeper or tax preparer do that as well is a lot cheaper than having a lawyer write a letter. ‘Cause I’m assuming the lawyer didn’t do that for $50. I assume writing that letter cost $1,000, $2,000, $3,000, something like that or do you know?
Janette Martin: I agree. I believe it was thousands of dollars.
Doug Hoyes: Thousands of dollars, so okay so in their case they made a mistake and ended up going to a lawyer to fix it when there were certainly cheaper solutions. And this is kind of one of the things that bugs me that the lawyer should have said to them look, this is a simple matter, you can either do it yourself, let me send you to a bookkeeper to fill out the form or let me just fill out the form for you. I’ll charge you a few bucks ’cause obviously nobody works for free but charging the full lawyer cost was probably a little bit excessive.
Janette Martin: Taking advantage, yes.
Doug Hoyes: Yeah, they were taking advantage. And obviously they ended up paying a bunch of money to a lawyer for something they could have got a lot cheaper. There was another person you were telling about and again we’re going to change names here because I don’t want to be using anybody’s names on the radio here. And maybe we won’t reveal every single fact we know about this person. But let’s call this guy Joe. Tell me about Joe’s story.
Janette Martin: Oh sure. So, recently I took a call from an elderly gentleman who was in his 80s. So, Joe receives OAS and CPP and as well he also has a pension coming from another country. He did use a tax preparer, the same tax preparer for several years and that tax preparer did not include his out of country pension in his tax return. He did not think it had to be claimed.
CRA eventually caught up with this and reassessed Joe for several years. When they reassessed him, not only did he have to pay income tax, he was also, he also became ineligible for the guaranteed income supplement that he claimed for several years.
So, now he has a tax debt with Revenue Canada of about $12,000 and on a fixed income he cannot possibly pay that back. He could not enter into a payment arrangement because he really cannot afford it. So, OAS or CPP they’re now garnishing his pension by I think $385 a month, which is really going to leave him cash strapped.
When I was speaking to him about his debt he also mentioned he does have some credit card debts and part of that credit card debt that he is now incurred is because he also hired or went to speak to a tax lawyer about this problem to see if they could help him. So, they charged him I believe about $5,000 to help him.
Doug Hoyes: $5,000?
Janette Martin: Yes.
Doug Hoyes: Wow. And this guy doesn’t have any money, where did he get the $5,000 from?
Janette Martin: Credit card.
Doug Hoyes: So, he took a cash advance on his credit card to pay $5,000 to a lawyer to try to get him out of this debt, which they couldn’t. And I guess this kind of raises a pretty important point here that lawyers are great when there’s some kind of criminal activity and you need defending or it’s a very complicated legal issue.
In this particular case, in Joe’s case, this was a very simple issue. He forgot to put some of his income on his tax return. There’s no grey area of law here. And I understand why the mistake was made; I mean obviously he gets the T slip from CPP and OAS every year so he remembers to put it on. His pension from another country doesn’t send him a Canadian T slip and it’s probably not massive dollars, so he just okay, I didn’t realize I was supposed to put it on. If you don’t tell your tax preparer about all your sources of income, they’re not going to know to put them on either. So, it was a pretty simple matter. He didn’t report his income so he owes the taxes on it.
That’s not something a lawyer can get you out of. So, in this particular case the solution for Joe was either a bankruptcy or a proposal depending on what his income was to deal with the debt.
Janette Martin: That’s right, that’s right. He’s not sure which way he’s going to handle it. I mean he is in his 80s so he has to take that into consideration.
Doug Hoyes: And often for somebody in their 80s we say well, you know, they’re not going to be able to garnishee your wages ’cause you don’t have any but in this case CRA is garnisheeing his CPP. So, he is actually losing money every month because of this debt. So, if he was to go bankrupt or file a proposal, that tax debt would be eliminated, the garnishment on his CPP would stop right away.
So, I guess he’s really got to decide is the cost of the bankruptcy or the proposal worth it to save that garnishment and it probably will be in his case. So, have you run into other people who have had their CPP garnisheed in the past?
Janette Martin: Occasionally I have, yes. Yes, actually I met with somebody yesterday who’s losing all of their CPP to the government but he has not filed his taxes in 10 years.
Doug Hoyes: Wow and in my experience that’s about the only time CRA is going to garnishee a pension is if there is something pretty egregious wrong. If you haven’t filed your taxes in 10 years, well they don’t know how much you owe, so in order to get your attention it’s not uncommon for them to take some or all of your CPP. A normal creditor can’t do that. If you owe money to VISA or MasterCard, they can’t take your CPP but CRA can.
So, I guess them message here Janette is number one, file your taxes, ’cause you’re going to get into trouble if you can’t and number two, if you have a tax issue, well you can consult a lawyer if you want but remember lawyers deal with specific things. They aren’t able to make a proposal to eliminate the debt, that’s not something lawyers do.
Janette Martin: That’s right, that’s not a negotiable amount, the tax that you owe is the tax that you owe. Also, CRA does usually send out some warning signs, they sent out letters, they don’t usually just garnishee your pay out of the blue.
Doug Hoyes: Yeah and in the case you just cited where the person hadn’t filed their taxes for 10 years, well that certainly wasn’t out of the blue that was something that had accumulated over an extended period of time.
Janette Martin: That’s right.
Doug Hoyes: Excellent, well I appreciate those real life stories, thanks for being here Janette.
Janette Martin: You’re welcome.
Doug Hoyes: Thanks Janette, we’re going to take a quick break and we’ll be right back right here on Debt Free in 30.
Welcome back, today on Debt Free in 30, we’re talking about how do to identify whether or not you’re getting bad tax advice. On the first segment, Janette Martin told us two examples of people she has helped relatively straightforward tax problems but they went overboard and hired a tax lawyer to help them. They ended up paying thousands of dollars to the tax lawyer for nothing.
So, let’s answer today’s question. How do you know if you’re getting bad tax advice? How do you know if you need a tax lawyer, a tax accountant or someone else? Well, the first step is to indentify your problem, and as I see it there are four possible problems. First, you’ve got unfiled tax returns. Second, Canada Revenue Agency has audited or assessed you and they say you’ve committed a crime. Third, CRA has made a mistake, perhaps they disallowed a reduction and now they say you owe more money than you actually do. And fourth, you actually owe CRA money. You filed your tax returns and there are not mistakes, you simply owe money for taxes.
So, let’s go through each of those four problem areas and figure out whether you need a tax lawyer, or tax accountant or someone else to help you solve the problem. So, problem number one, unfiled tax returns, if you haven’t filed your taxes for last year or a few years, that’s a problem. As I said in the first segment with Janette, in my experience the one thing that will upset CRA more than anything else is unfiled taxes. They get upset if you owe them money but they get even more upset if you haven’t filed your taxes. Why? Because they don’t know how much you owe them. They don’t know how serious the problem is and they don’t like uncertainty.
If you have unfiled tax returns, the solution is simple, you need to file your tax returns. You need to either do them yourself or find a competent tax preparer, bookkeeper or accountant to get them filed. So, how do you find a good tax preparer? Well, ask around. Ask your friends and family, if you work in a specific industry, ask other people in your industry who they use. For example, if you’re a truck driver, ask other truck drivers who they use to prepare their taxes. Truck drivers can claim specific deductions for meals when they’re on the road. So, using a tax preparer who is familiar with the trucking industry, makes sense. If you don’t know anyone, call your local Hoyes Michalos office at 310-PLAN and we’ll tell you who we would recommend.
Now let me address one more issue here. A lot of people come to me and say wait a minute, I haven’t filed my taxes for two or three years and Revenue Canada is leaving me alone, if I file the taxes and it turns out I owe money, isn’t that going to be a serious problem? Well, yes, yes it is but it’s going to be an even more serious problem, if and when Canada Revenue Agency figures out wait a minute, you haven’t filed your taxes.
And they’re going to know if you have any income that gets reported directly to them. Employment income for example it goes on a T4 slip, that goes to CRA. If they get a T4 slip and there’s no tax return, eventually they’re going to say wait a minute, why isn’t there a tax return and that’s going to set off the alarm bells for them. It may not be income, you may be self employed and so there are no T4s going to CRA but if you have any money in a bank account that earns interest, an RSP contribution you make, anything else that gets reported to CRA if there isn’t a tax return filed that’s going to raise the alarm bells for them.
So, in my experience, it’s better to file your taxes so you don’t have them rushing to judgment and starting to seize bank accounts and garnishee wages. And then once the tax is filed, then you’ve got deal with the taxes that are owing.
We’re going to talk about that, but let’s go back to the four different problems you could have that may require expert help. So, the first one is not filing your taxes, we talked about that, get them filed. Problem number two, Canada Revenue Agency says you’ve committed a crime. So, if CRA says you’ve committed fraud, well that’s a criminal act so you probably want to talk to a lawyer. For example, if CRA says you deliberately under reported your income, they may say that’s fraud. If they say you made up a bunch of fake deductions, well that’s fraud. Fraud’s serious, it’s a criminal act. And if you are convicted you could be subject to severe fines, restitution orders or even jail time.
So, if you’ve been charged with a criminal offence, you should consult a lawyer. Now a lawyer can do two things, first there’s what’s called solicitor, client privilege, meaning that you can tell your lawyer anything and it’s confidential. So, if you know you’ve committed fraud or some other illegal act, you want to tell your lawyer the full story and you want it to be confidential. Second, of course a lawyer can defend you. They can negotiate with CRA or CRA’s lawyers, which are from The Department of Justice, and if your case gets to court, they can represent you in court. So, when you’re charged with a crime, yes I agree you should talk to a lawyer.
Now problem number three, what if CRA has made a mistake? So, what if you haven’t committed a crime? And let’s face it, it’s pretty rare for somebody to be committing deliberate tax evasion, that’s a very rare circumstance. It’s much more common that a simple mistake is made.
Making a mistake on a tax return is not a crime. Forgetting to put one of your T4s on your tax return is not a crime. Putting an expense on the wrong line of a tax form is not a mistake, that’s a clerical error. You fix the error and off you go. Yes, there’s probably going to be a penalty for the error, you owe some taxes, maybe some penalties and interest and that’s it. It’s not a criminal event, so you don’t need a lawyer. And in my experience, that’s the most common scenario, you made a mistake, you fix it and you move on. And in the examples we talked about with Janette in the first segment, that’s what happened, it was an error, it needed to be fixed.
Now where else could you need a lawyer? Well, tax lawyers are valuable for very complicated tax situations. If you have a corporation or a trust or an offshore company, then a tax lawyer may be necessary to make sure all of the tax forms are filed correctly. If you’re setting up a new corporation, a lawyer is very helpful. You could fill out the paperwork yourself but in most cases it’s prudent to spend the extra money and have a lawyer do the work.
So, if you haven’t committed a crime but you disagree with what CRA is saying, what do you do? In other words if you’ve received a notice of assessment from Canada Revenue Agency, and they’ve disallowed a reduction, what do you do? Do you need a lawyer? Generally the answer is no, you don’t need a lawyer. You need an accountant to do two things. First, review the notice of assessment to see if Revenue Canada is correct. Perhaps, you tried to deduct something that you can’t deduct. Maybe, you did forget to include one of your T4s or forget to report some other income. If that’s the case, CRA is correct so you don’t need to fight it, you owe the tax.
However, if there is an error an accountant can help you deal with CRA to correct the mistake. In most cases, it’s a simple procedure, you or your accountant fills out what is called a T1 adjustment request. And, you can go to the show notes for this episode at hoyes.com, that’s h-o-y-e-s-dot-com, I’ve got a link to the CRA website where you can get a copy of a T1 adjustment request. Or you can go to Canada Revenue’s website and do a search for T1 adjustment request. It’s a simple form, you can download it right from CRA’s website and you simply put the line number for your tax return that requires adjustment. You put the original number and then the adjusted number with an explanation of the difference. That’s it.
An accountant is helpful if you don’t know what line it was on the original tax return or if you don’t know how to describe the change. Otherwise, you may be able to do it yourself. In most cases, there’s no point in paying a lawyer to do it.
Problem number four: you owe money. Well, if you’re taxes are file and they were filed correctly and CRA assessed them correctly, you now owe money. So, what do you do? Well, we’re going to discuss that in the next segment, but before we finish talking about whether or not you need a lawyer or a tax accountant here are some things you can do.
First of all, do some research. When you’re talking to the professional, the tax lawyer, the tax accountant, ask a lot of questions. Make sure that the advice you’re getting is specific to your situation. I said earlier if you’re a self employed truck driver dealing with an accountant who understands that industry is great because they can give you very specific advice. You don’t want general advice if your situation is more specific. And if you’re at all unsure, get a second opinion and then compare the advice. And finally, be sure that the advisor is acting in your best interest. Don’t be talking to mutual fund’s salesman about how you should be handling the tax consequences of an investment, they’re there to sell you an investment. You want someone who is just working for you, giving you unbiased advice, which is generally the case with someone like a tax accountant. Those are four things you should look out for when you’re dealing with tax issues. And that hopefully will give you some practical advice on how to deal, how to recognize bad tax advice. We’re going to take a quick break and then I’ll come back to wrap it up with some final thoughts and some suggestions on what to do if you actually do owe taxes. We’ll be right back, you’re listening to Debt Free in 30.
It’s time for the Let’s Get Started segment here on Debt Free in 30. In the last segment, I discussed four problems you can have with The Canada Revenue Agency. And the last problem I discussed was owing money to CRA and in most cases, in my experience, that’s the most common problem.
So, what can you do if you owe money on your taxes? Well, you’ve got three choices. First, you can make an arrangement with CRA to pay them, which is what you should do if you have the money to pay them. In my experience, CRA will accept a deal if you can pay them back over a period of no longer than a year. So, if you own $24,000 and you can afford to pay $2,000 a month, plus interest, they’ll generally agree to that deal.
If you don’t have the money to make a deal with CRA and you owe more money than you can ever hope to repay and if you’re worried about them garnishing your wages or freezing your bank account, there are two more options: filing a consumer proposal or personal bankruptcy. A lot of people don’t realize but income taxes are included in a bankruptcy or consumer proposal. Why? Because bankruptcy and consumer proposals are governed by federal law and the income tax act is federal legislation, so CRA is required to follow federal law. It’s as simple as that. If you go bankrupt, all taxes owing up to the date of bankruptcy are included.
In a consumer proposal, all taxes are included up to the end of the previous year. There are some special rules so if you got taxes owing for the current year, talk to your Hoyes Michalos professional. In a consumer proposal, each creditor has the opportunity to vote, to accept or accept the proposal. If CRA is the majority creditor, meaning half of your debt is with CRA, they control the vote. They alone can decide whether or not your consumer proposal is accepted or rejected.
So, what are the chances that CRA would accept a proposal, back on show number 30, I asked Ian Martin that question. Ian, who’s no relation to Janette Martin who was on the first segment, is currently a licensed insolvency trustee and consumer proposal administrator with Hoyes Michalos. And before joining Hoyes Michalos, he spent many years working for CRA, so he understands the process from both sides of the desk.
So, my question to Ian was, have you ever had CRA accept a consumer department that you filed.
Ian Martin: Yes, I have. I mean it’s gone the other way as well but I don’t want people to think it’s an impossibility.
Doug Hoyes: So, it is possible, you know, you worked at CRA for many years. You’re now on the other side of the desk. You’ve had many creditor’s meetings with them. What are they looking for? What’s going to make them say yes to it?
Ian Martin: I guess, the way I see it, the CRA, Canada Revenue, they take it more on a case by case basis compared to some of the more big banks when they receive proposals. So, what they’re looking for if they’re sitting down with you and asking questions is a lot about your past, quite honestly, if you’re up to date with the returns, if you co-operated with them in the past, if there had been a prior insolvency, meaning a prior bankruptcy or proposal where taxes were one of the large issues. So, they want to see have you been a problem in the past, basically. But then also how are you going to be in the future?
Doug Hoyes: So, they’re actually looking at your character.
Ian Martin: That’s a good way of putting it.
Doug Hoyes: And I agree with you, a big bank is looking at it and going hey you know what, if a proposal gets us more money than a bankruptcy, we’re going to take it. Whereas CRA has a different view: we are here to guard the taxpayers’ money. So, your character then becomes an issue.
Ian Martin: There’s definitely different considerations and definitely a higher level of scrutiny that the government exercises in saying yes to it. ‘Cause you’ve indicated this, basically a proposal is an offer to settle the debts for less than the full amount. The banks usually if you, you know, their more formulaic in terms of what they look at. The CRA has –
Doug Hoyes: Yeah, it’s a math question for them.
Ian Martin: Correct. Whereas The Revenue Canada is more – there’s some softer considerations that will also weigh on whether they say yes or no.
Doug Hoyes: So, if you’re filing a proposal and you haven’t done your taxes for the last three years, it’s going to be a no.
Ian Martin: That’s going to be pretty difficult. Before they will be even willing to say yes or no they’re going to be wanting to see what the returns are, what is the dollar amount because they want to know what they’re considering.
Doug Hoyes: Because unlike a bank, a credit card company can look at your statement and see how much you owe. CRA can’t do that because you haven’t filed your taxes yet. So, at a bare minimum your taxes have to be filed and up to date. And your chances of success are increased if you have made a significant effort in the past too. You’ve been trying to make monthly payments, you’ve been filing your taxes on time. If you’re way behind on taxes and you haven’t given them any money in five years your chances of success are significantly less.
Ian Martin: I agree. And I think kind of the common sense explanation of that is that why would they say yes if they’re looking at your situation and think that agreeing to some kind compromise through their proposal is basically going to be a waste of their time.
Doug Hoyes: Yeah and really they are the honest but unfortunate debtor kind of guy. If you can convince them that you are honest but unfortunate, you’ve got a much greater chance of success. They obviously also look at the math as well and they want to be receiving more in a proposal than they would get in a bankruptcy.
Ian Martin: Right. And that would be for anybody, whether it’s the government or a bank. What I find is that there is, as I have said, a higher level scrutiny and sometimes the government will seem to push for a higher rate or return but I don’t think it’s formulaic, I think it ties back into some of these other considerations. But, really they want to know where the money’s going to come from as well. Where they want to know the self- employed guy, how is business going to be so much better than it was in the past?
Doug Hoyes: And so, if you can prove to them that not only can, that there’s a legitimate reason for the past but you can stay up to date in the future, then you got a good chance of success with them.
Ian Martin: Correct.
Doug Hoyes: Great, thanks very much Ian. That was some good tips on taxes and debt. You’re listening to Let’s Get Started here on Debt Free in 30.
Announcer: You’re listening to Debt Free in 30. Here’s your host Doug Hoyes.
Doug Hoyes: Welcome back, it’s time for the 30 second recap of what we discussed today. On today’s show we discussed bad tax advice. And Janette Martin told us the story of two people who paid a lot of money to tax lawyers for no reason. Ian Martin explained that if you have tax debt, consumer proposal may be a good option. That’s the 30 second recap of what we discussed today.
Tax lawyers serve an important function, if you’re charged with tax evasion or setting up a complicated tax structure, you should see a tax lawyer. But if your problem is that you put an expense on the wrong line of a tax return, you don’t need a lawyer, you need to correct the problem either yourself or with a tax accountant who can generally do it more cheaply than a high priced lawyer. If your problem is that you owe a lot of money in taxes and you can’t pay it, a lawyer can’t help you.
CRA does have the power to reduce interest and penalties in exceptional circumstances but the law says that CRA cannot reduce the principle you owe on your taxes, unless you go bankrupt or file a consumer proposal. A lawyer can’t file a bankruptcy or consumer proposal, only a licensed insolvency trustee can, so, if you owe taxes and want a no charge initial consultation to find out your options, give Hoyes Michalos a call at 310PLAN and we’ll walk you through the process.
That’s our show for today. Full show notes are available on our website including links to CRA’s website and the T1 adjustment form we talked about and information on how a consumer proposal or bankruptcy can eliminate taxes. So, please go to our website at hoyes.com, that’s h-o-y-e-s-dot-com for more information.
Thanks for listening, until next week I’m Doug Hoyes and that was Debt Free in 30