FRANÇOIS GILBERT – Licensed Insolvency Trustee (LIT)
Do you need tax debt relief?
If you have tax debt, you are not alone. Almost half of our clients are dealing with debts owed to the Canada Revenue Agency (CRA). Of those, a large percentage are people who have paid their taxes every year. Tax evasion is just one of many reasons why a person may find themselves owing to the CRA. For the average employee who holds one job, their employer will automatically deduct a percentage for taxes from their wage, reducing the amount of money that person will owe come tax season. Unexpected tax debt typically occurs when a person has more than one source of income or is self-employed. Pensioners can also run into issues if they are receiving more than one pension. In particular, business owners run the most significant risk of accumulating large tax debts.
If you owe money to the Canada Revenue Agency, it is worth doing your research and consulting the right professional. Debt consulting agencies and tax lawyers can cost you thousands of dollars without resolving any of your debts. The CRA is very specific about what types of debt resolution they will accept. In this article, we explain exactly what your options are so that you can feel confident you are making the right choice. Not all tax debt resolutions are created equal. We can help you find the one that makes the most sense for you. It may be that you are able to make a direct agreement with the CRA for repayment plus interest over a one year term. In most cases, it is a little more complicated. At Fontaine & Associates, a licensed expert will help you find the right solution.
What are the best options for tax debt?
It can be hard to know where to turn when faced with tax debt. Licensed Insolvency Trustees specialize in helping people resolve debt and offer the only type of tax debt resolution recognized by the CRA. A consumer proposal is the only way to repay your tax debts for less than what you owe. Proposals offer an alternative to bankruptcy and are generally the preferred choice for most people. Keep in mind that debt resolution is not one-size-fits-all. In some cases, bankruptcy may be the better option to clear debts quickly and start over. A licensed insolvency trustee will reduce the guesswork by reviewing your finances and eligibility. In any tax debt situation, the CRA only recognizes the following methods of debt resolution:
- Consumer proposals – this is the only option for repaying your tax debts for less than you owe to the CRA. This type of proposal will include all taxes you owe up to the year previous plus any other outstanding debts you may have. Keep in mind that any taxes you owe for the present year are not included. A licensed insolvency trustee can advise you on a protocol for same-year debts. CRA proposals must be administered by a LIT who will work with you to create a reasonable offer that is within your budget. Your proposal will be accepted or rejected based on a majority vote amongst creditors. The majority is based on dollar value, which means that if you owe $35,000 on your credit card and $15,000 to the CRA, the credit company will have the deciding vote. What is so great about consumer proposals is that they are legally binding on all creditors. And, because licensed insolvency trustees know the ropes when it comes to dealing creditors and proposals, an average of 95% of proposals are accepted.
- Bankruptcy – this is the next option if you do not meet the criteria for a consumer proposal. By declaring bankruptcy, you are guaranteed a fresh start. This action is fast-acting and works quickly to eliminate your debts through the surrender of assets.
The CRA’s policies and terms surrounding debt repayment are particular. To receive any debt forgiveness, assets must be fully disclosed through a consumer proposal. The CRA will not accept a proposal unless it has been filed by a Licensed Insolvency Trustee. Canada Revenue Agency does not recognize debt settlement through credit councillors or similar agencies. At Fontaine & Associates, we understand that dealing with the CRA be overwhelming. We also know that most of our clients are struggling with their finances. With this in mind, your first consultation with an expert is always free. Our team is here to help you make informed decisions and get out of debt.
How does a CRA proposal work?
A consumer proposal is an offer to your creditors to pay a portion of what you owe based on what you can afford. A licensed trustee will look at your budget in relation to the minimum amount your creditor would likely accept to create a fair offer. No other financial professional can facilitate this procedure. While you may want to seek the expertise of a tax lawyer for a dispute, they are quite costly and unable to negotiate lower repayment to the CRA. In Canada, the only way to get CRA debt forgiveness is to file a consumer proposal.
As part of the review process, the CRA will consider a number of crucial details when deciding to vote for or against your proposal:
- Have you owed the CRA in the past?
- Do you have outstanding tax returns?
- Do you owe other collectors?
- Can you make monthly payments?
- Are you paying what you can towards your debt?
- Would the CRA receive more money in a proposal than they would if you declared bankruptcy?
If you seem like an honest person experiencing misfortune, the CRA is typically more willing to vote in favour of your proposal. There are many reasons a person could find themselves owing tax debts, and a licensed expert will be able to help build the best case for your offer.
When you owe money to the CRA having additional personal debts may seem like a disadvantage but, because the majority vote is based on dollar value, this may actually be an advantage. If you owe more to other creditors than your tax debts, they will hold the majority vote over the CRA. In rare cases, the Canada Revenue Agency may request an appeal of the proposal and, working with your budget, your LIT will come up with an offer of settlement.
What to expect with bankruptcy?
Consumer proposals may not be for everyone. If you need fast and effective relief for tax debt, bankruptcy may be the best way to get a fresh start. There are a few things to keep in mind when declaring bankruptcy with the CRA. For instance, the CRA may call for a court hearing if you owe more than $200,000. This hearing will investigate your finances and may result in a court order for payment of a portion of what is owed. Also, in rare cases, the courts may refuse discharge from bankruptcy.
In most cases, there should be no problems getting discharged from bankruptcy. However, it is possible to have remaining tax liens against property still. The CRA can place a lien against your property at any time of their choosing or your knowledge. It is a good idea to discuss this with your licensed insolvency trustee prior to declaring bankruptcy. Your LIT will be able to investigate and find out if any liens are active and their amounts. If most of your debt is already applied to your property, there is not much benefit to bankruptcy. However, once you declare bankruptcy, the CRA cannot register a new lien against your property.
Tax Debt Collections
If you are insolvent on your tax debts, the CRA can act quickly and see to it that your bank accounts are frozen and/or wages are garnished. While it can take several months to a year to see collection action with most creditors, the CRA has the legal ability to act almost immediately. Any other creditor must get a court order to enforce any wage garnishing. This process can take up to a year, and you will be notified. Canada Revenue Agency simply needs a signature from tax authorities to start collections. If you are self-employed, the CRA will notify your contracts that future payments must be sent to the agency instead.
You may have received collection calls with no significant consequences in the past, but the CRA is a lot more powerful and relentless. If you have tax debt, do not ignore it. It will only grow and become more challenging to overcome and can happen seemingly overnight. Need an expert opinion? You can trust our licensed trustees to get all your questions answered.
We know that dealing with tax debt can be overwhelming, and it can be hard to know where to turn. Book a free, confidential consultation with a licensed professional for expert advice. Knowing and understanding your options could save you thousands of dollars. Let’s get you back on track! Call 1-877-241-6018 to make an appointment!
Licensed Insolvency Trustee (LIT)
Francois obtained his CPA accounting designation in 1995, his CIRP insolvency designation in 1998 and became a Licensed Insolvency Trustee (LIT) in 1999. He has been working in the field of insolvency since graduating from University of Ottawa in 1991 and has been with Fontaine & Associates since 2002. Prior to that, Francois was working in the Ottawa office of PwC.
Francois has been helping individuals solve their debt problems now for over 20 years by providing advice on credit counselling, consumer proposals and personal bankruptcies. He also has extensive experience in business restructuring.
When he is not at work, Francois spends most of his time with his wife and kids doing outdoor activities and he also volunteers with local non-for-profit organizations in the Ottawa area from time to time. He is an avid musician and plays the keyboard, mainly for his own enjoyment.