CRA Debt and Consumer Proposals: Manage Your Tax Debt

If you are dealing with tax debt from the Canada Revenue Agency (CRA), you might be feeling overwhelmed. Do not worry—you are definitely not alone in this, and the good news is, there are ways to handle it! Whether you are negotiating with the CRA directly or thinking about filing a consumer proposal, you have options to get your finances back on track.

Here is the thing: the sooner you tackle your tax debts, the better. Ignoring those CRA letters can lead to some pretty stressful consequences. With the right plan, you can manage your income tax debt, get debt relief, and breathe a little easier.

The Role of the Canadian Revenue Agency (CRA) in Debt Negotiations

So, what exactly does the CRA do when it comes to tax debts? The Canada Revenue Agency is responsible for collecting all kinds of taxes—from your income tax to GST/HST and more. If you fall behind, they will eventually come knocking. But do not panic! It is important to know that you can negotiate with them.

At first, the CRA might offer a payment plan to help you get caught up. However, if you are still struggling, they have the power to take more serious actions, like garnishing your wages or even freezing your bank account. That is why many people look into filing a consumer proposal as a way to avoid those harsher consequences.

How the CRA Handles Debt Collection

The CRA takes debt collection seriously, but they are also open to working with you. If you owe income tax debt or other tax debts, their goal is to help you set up a plan to pay it off. But here is the catch: if you cannot keep up with their payment terms or ignore their requests, they may take more extreme measures like:

• Freezing your bank accounts
• Seizing your assets (yep, even your car or house)
• Garnishing your wages

If it gets to that point, it is pretty stressful. But before you let it escalate, you can work with a Licensed Insolvency Trustee (LIT) to see if a consumer proposal is a better solution for you. Filing a consumer proposal can stop those scary collections in their tracks and give you a bit of breathing room to get things sorted.

Types of Debts Managed by the CRA

Before we dive deeper into how the CRA handles consumer proposals, let’s talk about the types of debts they collect. The CRA is not just after income tax debt. They are also responsible for collecting things like:

• GST/HST arrears
• Payroll deductions (for business owners)
• Other taxes and government-related debts

Addressing these debts quickly is essential because, as we have mentioned, the CRA has a lot of power to enforce collections. That is why understanding your options is so important.

Negotiating Directly with the CRA

If you are the type who likes to take care of things on your own, you can definitely negotiate with the CRA directly. Basically, you will need to show them a clear picture of your finances—things like your income, assets, and expenses—so they can figure out a payment plan that works for you.

Payment Arrangements and Settlements

If you cannot pay your debt right away, you can arrange and schedule a series of payments through your CRA account. They have a personal income and expense worksheet to help you determine what you can afford to pay on a regular basis. Then you can set up your payments online or by the phone.

Be sure to make your regular payments because if you do not or you start paying less than what you have agreed to, the CRA may proceed with legal actions to collect what you owe.

Voluntary Disclosures Program (VDP)

If you are having trouble with your CRA debt, you can also look into the Voluntary Disclosures Program (VDP). It grants relief on a case-by-case basis to taxpayers and registrants who voluntarily come forward to fix errors or omissions on their tax filings before the CRA knows or contacts them about it.

If the CRA accepts your application, then you will receive relief from prosecution, and in some cases, relief from penalty and partial interest. To be eligible, you have to meet all of the five following conditions:

• You must submit your application voluntarily and before the CRA takes action
• You must include all relevant documentation, including returns, forms, and schedules
• Your information provides an application or potential application of penalty 
• Your information is at least 1 year or 1 year reporting period past due
• You must include payment of the estimated tax owing, or request a payment arrangement

These options could be good when tackling CRA debt. But here is the catch: while the CRA might cut you some slack on penalties or reduce the interest on your tax debt, they will not lower the actual amount you owe. So, you are still responsible for the full debt. And if you miss a payment, they might start coming after your assets or income.

If you are juggling multiple debts—good debts and bad debts—and struggling to make ends meet, a consumer proposal might be a better fit. It helps consolidate everything into one manageable plan, overseen by an expert, which can be a game-changer when you are feeling overwhelmed.

What Is a Consumer Proposal?

A consumer proposal is kind of like your financial “reset” button. It is a legal way to work with your creditors—including the CRA—to reduce your overall debt and give you more time to pay it off. 

Plus, with a consumer proposal, you are working with a LIT who handles all the negotiations for you. That means less stress for you and better protection from things like wage garnishments or bank account freezes.

Here is a quick breakdown of how it works:

• Your LIT will sit down with you to review your finances and help you put together a realistic repayment plan.
• Once your consumer proposal is filed, the CRA and other creditors have to stop all collection actions. No more calls, no more frozen accounts—just peace of mind while things get sorted.
• The CRA will review the proposal and, if they agree, you will be set up on a payment plan that could stretch up to five years. The best part? No more accumulating interest during that time.

A consumer proposal can make life a lot easier by cutting down on the total debt you owe, including income tax debt. It is a great option if you are feeling buried under tax debt and need a manageable way out.

How the CRA Deals with Consumer Proposals

Once you file a consumer proposal, the CRA is required to stop all collection actions immediately. This includes wage garnishments, bank freezes, and any legal actions they may have initiated. The LIT will take over all communications with the CRA and other creditors.

CRA’s Involvement in Proposal Negotiations

Once they have received your consumer proposal, the CRA will review your financial situation to see if the repayment plan makes sense. They will look at things like your income, assets, and past tax filings. If the CRA feels that your proposal is fair, they wil agree to it. But if they think you are not offering enough, they might request a higher payment or more information about your financial situation.

Because the CRA is often one of the biggest creditors in a consumer proposal, their vote carries a lot of weight. This is why it is super important to work with an experienced LIT—they can help you prepare a strong proposal that has the best chance of being accepted.

Tips for Negotiating with the CRA

Whether you are negotiating directly with the CRA or going through a consumer proposal, there are a few things you can do to improve your chances of success:

1. Be Transparent: When dealing with the CRA, honesty is key. Make sure you provide accurate information about your income, assets, and expenses. The CRA has access to your tax returns and other financial data, so they will know if something does not add up. 
2. Get Help from a Licensed Insolvency Trustee (LIT): If you are thinking about filing a consumer proposal, working with a Licensed Insolvency Trustee is essential. They will guide you through the process, help you understand your options, and handle all the negotiations on your behalf. 
3. Act Quickly: Do not wait until things get worse. The sooner you address your tax debts, the better. If the CRA is already threatening to garnish your wages or seize your assets, it is time to get help and explore your options. 

How Farber Can Help You Handle CRA Debt

At Farber, we understand how overwhelming it can be to deal with tax debt—especially when the CRA is involved. That is why we are here to help. Our team of experts will work with you to review your financial situation, explore your options, and help you file a consumer proposal if that is the best choice for you.

With a consumer proposal, you can stop collection actions in their tracks and start working toward a brighter financial future. We will take care of the paperwork, negotiations, and everything else so you can focus on getting your life back on track.

Schedule a free consultation with us today, and let’s figure out the best way to get you back on your feet. Our team of professionals, including a Licensed Insolvency Trustee (LIT), will guide you through the process, handle all negotiations with the CRA, and help you create a plan that works for you.

Do not wait—get started with a Licensed Insolvency Trustee today and take control of your financial future!