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Dealing with Tax Debt? Filing A Consumer Proposal or Personal Bankruptcy Can Help

Father Stressing About Money

Owing money to the Canada Revenue Agency (CRA) can be stressful. Especially because of their ability to resort to extreme means of collection action quickly.

Unlike other creditors, the CRA doesn’t need to obtain a court order to start a wage garnishment, and Ontario’s limit on how much income may be garnished doesn’t apply to them.

So, if you have a balance owing that you’re unable to repay, it’s best to consider solutions as soon as possible.

The good news is Crawford, Smith and Swallow’s Licensed Insolvency Trustees (LITs) have two solutions that can help with your CRA debt: making a consumer proposal or filing personal bankruptcy. Depending on your situation, one may be more favourable than the other.

This blog will explain the benefits of each solution and how to decide which one is the right method of action for you.

Solving Tax Debt with a Consumer Proposal

A consumer proposal is an offer to creditors to pay back a percentage of the debt you owe over a period of up to five years. The terms of the offer are prepared and negotiated by a Licensed Insolvency Trustee.

If you choose to proceed with a consumer proposal, a trustee will work with you to determine a fair offer to present to the CRA. If the majority vote to accept the proposal, you will be responsible for making monthly payments according to the terms of your proposal. If all conditions are met, you will be legally released from the debts included in the proposal.

Eliminating Tax Debt with Personal Bankruptcy

If your income tax debt is substantial or your consumer proposal was refused, it may be appropriate to file for personal bankruptcy.

In this case, a Licensed Insolvency Trustee would be assigned to your bankruptcy claim to take control of your assets, with limited exemptions , investigate your affairs, and monitor your progress for bankruptcy obligations.

If you complete these requirements, you will be discharged from your consumer debts and those owing to CRA for income taxes, business GST/HST and source deductions. The time in which this happens varies anywhere between 9 to 36 months, depending on how many previous bankruptcies you have filed and your income level.

Consumer Proposal vs. Bankruptcy: Choosing the Best Path Forward

A consumer proposal is often considered a popular alternative to bankruptcy because it provides debt relief from unsecured creditors, including the CRA, without selling your assets to repay your debts.

But if you have a large amount of debt, a low income, and rent instead of owning a home, bankruptcy may be the better option. In this case, your trustee would be required to file a pre-bankruptcy tax return and a post-bankruptcy tax return.

If the pre-bankruptcy filing results in debt owing to the CRA, this would be covered in your bankruptcy. However, if a post-bankruptcy tax return results in debt owing, you’re responsible for paying this amount. The post-bankruptcy filing includes any time between the first day of your bankruptcy to December 31 of the same year.

  Crawford, Smith, and Swallow ’s Licensed Insolvency Trustees (LITs) are here to support you during this financial hardship. Our experienced team is here to provide you with the guidance you need to choose the best course of action when dealing with tax debt. To book your free consultation, get in touch by phone or visit our website today.

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