Anyone who owes money to the Canada Revenue Agency (CRA) can enter negotiations with them directly to arrive at a mutually satisfactory arrangement without the assistance of a Licensed Insolvency Trustee. The debtor (the person who owes money) provides the CRA with all information and documentation necessary to support and confirm the requirements of the arrangement. Then, a CRA agent will perform internal and external searches regarding the debtor’s financial affairs. If the arrangement is accepted, it is then checked for compliance.
Although CRA collection agents may put aside or cancel any penalties or interest accumulated on the debtor’s tax debt they cannot reduce the amount of the original debt owing. That means only a portion of the tax bill could be excused and many debtors will still find themselves with a large tax debt and no way to pay it off.
When such events occur, a CRA collection agent may take legal action against the assets and income of the debtor (including garnishing wages, seizing company inventory, or even registering a lien against a debtor’s properties, such as an office building or matrimonial home). In some extreme cases, the Sheriff may be ordered by the CRA collectors to seize and sell the property owned by a debtor. This is the time when many people seek the help of a Trustee. The rule here is: The earlier you seek help the better the outcome.
In a consumer proposal, anyone who owes $250,000 or less (excluding the value of their home) can negotiate with their creditors with the help of the Trustee for a reduction or extension of the time needed to pay down their debts. This includes anyone who owes taxes (individual, payroll deduction, GST/HST) through the operation of a sole proprietorship or a corporation). They can file a Consumer Proposal and by doing so force the CRA into participating in the negotiation process. The Trustee will oversee and administer all negotiations and paperwork for the debtor. And the CRA agrees to allow the debtor up to five years to repay the agreed-upon settlement amount – without further interest being charged.
The Bankruptcy and Insolvency Act (BIA) provides that a proposal, once approved by the court, is binding on all creditors, including the CRA, but there are some incredibly unique policies the CRA insists upon regarding voting on proposals. Most creditors who file paperwork in a consumer proposal process fill out the standard creditor package forms and submit them to the Trustee for review. This could include a voting letter indicating if the creditor will vote “for” or “against” the settlement offer put forward in the proposal.
Instead, once the CRA receives the Trustee’s creditor package a formal process is triggered. The filing of the proposal puts an immediate stop to all CRA collection agent efforts. The agent now has no option but to transfer the file to an insolvency agent at a regional CRA office.
The CRA regional agent then begins a review of the creditor package received from the Trustee. But the CRA is rarely quick to vote in favour of most proposal offers. Previously, the debtor may have been supplying the CRA with their own financial information prior to the filing of the Proposal. This provides the CRA with an opportunity to compare the debtor’s original information with the calculations found in the creditor package The CRA is a unique creditor in that it has access to all returns and information slips filed by the debtor and any third parties such as the debtor’s employer or the debtor’s accountant. Most creditors do not have access to this information.
Once the review is complete, any discrepancies discovered between assets and liabilities appearing in the creditor package and in the CRA historical case files would then be questioned by the CRA agent through contact with the Trustee. If the debtor fails to disclose all his assets to the Trustee and such assets are subsequently uncovered by the CRA agent, the likelihood of getting the proposal accepted could be difficult.
The purpose of the CRA’s due diligence is quite simple: To assess the viability of the proposal. Does the debtor provide a true picture of his financial affairs? If so, do his cash flow calculations support the terms of the proposal? Are the expenses listed by the debtor in his budget reasonable?
Based on the information gleaned from its own case files and the creditor package, the CRA regional insolvency agent prepares a voting letter and submits it to the Trustee. Often the voting portion of the letter indicates an “against” vote, if only to trigger a discussion between all the parties as to what a fair settlement offer to the creditors might be. The Trustee will then hold a Meeting of Creditors 21 days after the standard 45-day voting period has been concluded.
At the creditor meeting the CRA will express its concerns and may request additional information and/or a higher settlement offer to be made by the debtor to satisfy their demands. Voting on the proposal can take place at this meeting and the majority wins the day — if the CRA is the majority creditor it can push the debtor to increase his settlement offer. If all parties agree then the proposal goes to the court for final approval 15 days later.
If you have locked horns with the CRA recently and need help negotiating with them, consider a Farber Consumer Proposal to resolve your financial pressures. Farber professionals will work with you to craft a successful Consumer Proposal and put protection in place using the power of the Bankruptcy & Insolvency Act so the CRA cannot garnishee your wages or freeze your bank accounts.
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