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Canada Revenue Agency (the “CRA”) has been playing a more active role in the negotiation of Consumer Proposals after the amendment to the Bankruptcy and Insolvency Act (the “BIA”) came in effect on September 18, 2009.


Previously, consumers who owed $75,000 or less, excluding amounts secured by the principal residence, were able under Division II to negotiate with their creditors for the reduction or extension of the time for payment of their debts. That amount increased to $250,000 when the BIA was revised in 2009. This revision provides the entities that owe taxes (individual, payroll deduction, GST/HST) through the operation of a sole proprietorship or corporation, the opportunity of filing Consumer Proposals and thus bring CRA into the negotiation process.

The Bankruptcy and Insolvency Act provides that the proposal, once approved by the court, is binding on all creditors including the CRA. To this end, the CRA has developed their own policy regarding voting on proposals. This paper breaks into two parts and summarizes the trends we have seen from day to day contacts with CRA agents in the negotiation of Consumer Proposals.

At CRA Collection Stage

CRA and Consumer ProposalGenerally speaking, the debtor can enter into negotiations with CRA directly to arrive at a mutually satisfactory arrangement. The debtor provides the CRA with all information and documentation necessary to support and verify the terms of the arrangement. Then CRA agent will perform internal and external searches regarding the debtor’s financial affairs.  If the arrangement is accepted, it is then monitored for compliance.

Although CRA collection agents may waive or cancel penalty or interest on a discretionary basis, they are not authorized to compromise on the principal amount of the tax liabilities.  Thus extenuating circumstances may still exist where the debtor is not able to maintain the arrangement agreed previously. Under such circumstances, CRA agent may take legal action against the assets and income of the debtor including garnishing wages, trade receivables and registering a lien against the debtor’s properties. In some cases, the Sheriff may be directed to seize and sell assets of the debtor to satisfy the debts. In real life, this is the time when most of the debtors seek the help of a trustee even though the Trustee’s negotiation with CRA would be much easier if the debtors had explored their options with a Trustee much earlier.

Filing a Consumer Proposal

Pursuant to Section 69.2 (1) of the Bankruptcy and Insolvency Act, “no creditor has any remedy against the insolvent person or the insolvent person’s property, or shall commence or continue any action, execution or other proceedings for recovery of a claim provable in bankruptcy, until the Consumer Proposal has been withdrawn, refused, annulled or the administrator has been discharged”.

Filing a Consumer Proposal means an immediate halt to any legal action taken by the CRA collection agent. At that time the file in question would be transferred from the CRA collection agent to an insolvency agent of a regional office.

CRA Insolvency Agent’s Due Diligence Investigation

The CRA’s due diligence starts with the Statement of Affairs and cash flow sworn by the debtor. As discussed previously, the debtor may have been supplying CRA with his own financial information for a while prior to filing the Consumer Proposal. This provides the CRA with an opportunity to compare that information with the information in the Statement of Affairs. The CRA is the unique creditor who has access to all returns and information slips filed by the proponent and third parties such as proponent’s employer and accountant. Any discrepancy between assets and liabilities appearing on the Statement of Affairs and in the CRA case files would be questioned by the CRA agent. If the debtor fails to disclose all his assets to the Trustee and such assets are subsequently revealed by the CRA agent, the likelihood of getting the proposal acceptable will not be great.

The purpose of CRA’s due diligence is quite simple: to assess the viability of the proposal. Does the debtor give the true picture of his financial affairs? If so, does his cash flow support the proposal? Are the expenses included in the debtor’s’ budget reasonable?  (If the debtor is self-employed, the most recent employment contract may be asked for reviewing the forecast of cash flow.)

Would you like to learn exactly how a Consumer Proposal or a Bankruptcy can help you to get out of debt? Contact us for a free, non-obligation consultation, to discuss all your available debt relief options.

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