Is there CRA Tax Debt Relief?

CRA Tax Debt Relief header

“Two things are inevitable in this world, death and taxes” said Benjamin Franklin."  

Would you agree with this statement?  It’s become an accepted fact that there is no relief from tax debt.  Paying back tax debt can be financially and emotionally draining.  Not only can it lead to interest charges and penalties, but the Canada Revenue Agency can garnish wages, freeze bank accounts and place a lien on your property in an effort to collect tax debt owed. 

Canada Revenue Agency (CRA), may be willing to work proactively with Canadians directly, but they are certainly not there to provide CRA debt forgiveness. For those who are not able to pay their taxes, CRA does offer tax payer relief provisions.  This program allows Canadians who qualify, to have their interest charges and/or penalties waived, under the following guidelines:

  1. Extraordinary circumstances (natural disasters, civil disturbances, serious health considerations such as COVID19);
  2. Actions of the CRA (an error or delay that caused tax to accrue); or
  3. Financial hardship at a level approaching poverty.

However, it is important to note that even if you qualify for relief, the CRA only forgives penalties and interest, never the underlying principal amount.  This provision does not provide full debt forgiveness.

What if you’re unable to pay your taxes as they become due or the penalties and fees become overwhelming? There is good news!  There is one option for help with CRA debt and that is through a Licensed Insolvency Trustee like Bromwich+Smith.  To make a deal for less than the full amount tax debt owed, you must file a Consumer Proposal or Bankruptcy to Revenue Canada through a Licensed Insolvency Trustee.  While most folks know that a bankruptcy is, you may be wondering what is a Consumer Proposal?

What is a Consumer Proposal?

A consumer proposal is a renegotiation of what you owe to your creditors, handled by your Licensed Insolvency Trustee on your behalf. You pay what you can afford, instead of what your creditors demand. Think of it as a settlement with those you owe, on terms you both agree with. CRA debt does not take priority over other debts. An immediate benefit of filing a Consumer Proposal is that a “stay of proceedings” happens, which means collection action by creditors is stopped. In other words, if your wages are being garnished by the CRA or if your bank account has been frozen, filing a Consumer Proposal will stop this action and provide you with relief.

Bromwich+Smith offers a free personalized consultation where our debt relief specialists will review your financial situation and provide you with the best debt relief options for your CRA debt situation. One of these options may be a consumer proposal. If you choose to proceed with a consumer proposal,  the trustee will work with you to determine what a fair offer to your unsecured creditors will be. This offer is sent to all of your creditors, including the CRA if you have tax debt, who will then vote on whether or not to accept the offer. If the majority of your unsecured creditors vote to accept the proposal, then all are bound by the terms of the proposal. You make only one monthly payment with no interest and you are free from further CRA collections actions.


Why Will CRA Only Decrease or Forgive Debt through a Licensed Insolvency Trustee?

They are not willing to enter into an informal debt settlement, nor will they accept a debt management plan through a credit counselling agency for less than the full amount owed. In order for CRA debt to be forgiven, you must file a consumer proposal or bankruptcy.  Otherwise the full amount will continue to be owed to CRA

Will a consumer proposal or bankruptcy affect my credit score?

Consumer proposals will assign you what’s called an R7 rating, which will remain on your credit report for three (3) years after you complete your proposal.

Bankruptcy will assign you an R9 rating, which will be reported for six (6) years after you complete your bankruptcy (fourteen (14) years if you have been bankrupt before).

Creditors use these ratings to determine risk and to set your cost of borrowing. However, even while in a restructuring program, you can start to rebuild your credit right away, and Bromwich+Smith has the tools and resources to help you do so.

Will CRA debt affect my credit score?

If the CRA takes legal action such as registering a lien against your property or going to court for a judgement or if they send your arrears to a collection company, then, these actions will be reflected on your credit report and can lower your credit score.

Next Steps

  1. Know Your Numbers

In order to determine the best way to get CRA debt relief, you will need to know what you owe Canada Revenue Agency.  You can access this information by logging into your My Account or getting in touch with a reputable Accountant or Bookkeeper.  Many non-profit agencies offer free tax clinics.  File your taxes and be sure they are up to date.  Review past tax returns and ensure you have taken advantage of all tax deductions available to you.  If there are penalties or an interest charge, you may want to look into the Taxpayer Relief Provisions. 

  1. Understand the Consequences

CRA debt collection is quite unique to other unsecured debt collection.  CRA can take the following steps:

  • Charge penalties and interest based on balances due on late filed tax returns.  You should consult with your income tax preparer as to your due dates.
  • In the event that returns are not filed, the CRA can make an arbitrary assessment for your income tax liability.
  • The CRA can withhold child tax credits, Canada Pension Plan or Old Age Security benefits, GST credits and tax refunds until your debt is paid.
  • The CRA can garnishee your bank account and paycheque directly from your employer.  No court application is required and as such, your bank or employer need only be served with a “Requirement to Pay” notice by the CRA.

The CRA will typically not accept less than full payment from a taxpayer unless you engage the services of a Licensed Insolvency Trustee.  From the CRA perspective, should they accept less than the full balance outstanding, they would be setting a precedent that would force them to accept lower amounts from all other taxpayers.  As such, the obligation can only be reduced through a Licensed Insolvency Trustee or through the Taxpayer Relief provisions.

  1. Get CRA Debt Relief

You may be able to negotiate a lower or differed penalty or interest fee directly through CRA, however, this will not eliminate your total principal balance or a complete CRA debt settlement.  If you find yourself struggling to pay off your CRA debts, before you borrow from a friend, take out a loan or consider cashing in your RRSP call Bromwich+Smith for a free consultation.  Borrowing to pay off any type of debt, usually just delays the inevitable and can often create a snowball effect. 

Licenced Insolvency Trustees, Bromwich+Smith have debt relief specialists available to offer debt advice and debt restructuring entirely from the comfort of your own home. One of the first in the industry to offer video appointments with clients, Bromwich+Smith’s Debt Relief Specialists are available for FREE personalized CRA debt consultation by phone at 1-855-884-9243 or via the contact us page. https://www.bromwichandsmith.com/contact-us.

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