Back taxes are one of the most difficult debts to absolve because they are owed to the government and required by all income-producing residents. Making a consumer proposal can be a good option when you have tax debt as you could potentially pay less than what you owe. However, Canada Revenue Agency (CRA) will not approve a proposal as easily as other creditors. CRA may not consider the same terms that credit card companies and financial institutions may accept because they never actually approved you for credit – your outstanding debt forcibly involved them.
CRA has a unique and more complex list of criteria you must fulfill before they will consider your proposal. As a first step, you must first file all outstanding tax returns before making a consumer proposal so it is clear as to how much you actually owe. Once your total tax debt has been determined, the proposal must offer CRA more than what you would be required to make under a bankruptcy. CRA must also believe that you can make the payments agreed upon without missing them or accumulating more debt.
Another factor CRA focuses on in deciding whether to approve your consumer proposal, unlike your creditors, is your ability to demonstrate honourable behavior. CRA does not look kindly upon failing to file taxes year after year. Arguably, they want you to know you had a good reason. Otherwise, your consumer proposal may be quickly rejected.
CRA will require your commitment to paying your taxes going forward. They want assurances that you will be making all required payments from that point forward and continuing down an improved path. CRA will only accept your proposal if they believe that you will continually file and pay your taxes regularly so you do not fall behind again.
Some helpful steps to earn CRA’s trust might be hiring an accountant to help you with your taxes, or agreeing to make installment payments throughout the year to avoid owing when you file taxes next time.
CRA looks at each case differently, either voting in favour of a proposal they consider reasonable or rejecting it and advising you to offer more. CRA will review each consumer proposal and, while it is not guaranteed, many people with tax debt are approved.
