Can a Consumer Proposal Help With Tax Debt?
Our Financial Experts Explain Consumer Proposals and Tax Debt
Do you owe a tax debt to the Canada Revenue Agency (CRA)? Whether you’re an individual or a business owner, you may be looking for a way to help you resolve debts you cannot pay. Making a consumer proposal could be the solution.
The team at J. Bottom & Associates Ltd. can help you navigate the consumer proposal process quickly and effectively. We offer several financial relief solutions to debtors in New Westminster, North Vancouver, and Port Coquitlam, BC. With over 55 years of combined experience, you can place your confidence in our financial trustees to provide simple, accurate, and actionable solutions to help you overcome your financial burdens. Call us today for a free consultation, and we’ll cover the consumer proposal process in greater depth.
Debt Forgiveness Options in Canada
While gradually paying off debt is the traditional way to decrease the amount you owe, Canadians have two debt forgiveness options—make a consumer proposal or file for personal bankruptcy. The information here explains how a consumer proposal can help with tax debt.
Types of Tax Debt That Can be Forgiven
Filing a consumer proposal can settle the following CRA-related debts at a reduced amount and without interest:
- Income tax debt
- GST/HST Credit and Canada Child Benefit overpayments
- Business GST/HST debt
- Unpaid source deductions (this liability may be treated differently than other CRA debts)
- Interest and penalties accrued on the above debts
Debt Consolidation with a Consumer Proposal
A consumer proposal is an offer debtors make to their creditors to pay back a percentage of their debts over a period of up to five years. Only a Licensed Insolvency Trustee—which is a debt professional endorsed, regulated, and authorized by the federal government—can prepare and negotiate the terms of the offer.
Virtually all consumer debt can be consolidated using a consumer proposal, including the CRA-related debts outlined above, student loans, credit cards, and lines of credit. Here are some important facts about consumer proposals:
- Consumer proposals are the only solution in Canada to avoid personal bankruptcy while still settling CRA debts and not paying the full amount you owe.
- Filing a consumer proposal halts interest from accruing and removes bank account freezes and garnishments, whether pending or already in place.
- Making a consumer proposal sometimes prevents liens on your residence or other personal property.
Filing a Consumer Proposal If You Haven’t Filed Your Taxes
Not filing your taxes to avoid additional tax debt is not a wise strategy. CRA is a powerful creditor, so if you fall behind on your taxes, the agency may freeze your bank account, start a wage garnishment, or implement extreme measures to collect what you owe. CRA may also arbitrarily assess your tax returns, creating debt for unfiled returns based on their review of your finances.
Here’s what you need to know about filing a consumer proposal if you haven’t filed your taxes:
- If you owe a balance that you are unable to pay and are behind on your most recent tax returns, you must file them for CRA to determine the precise amount you owe and have any chance of the agency voting in favour of accepting your consumer proposal.
- Even if you do not owe a balance, your tax returns must be up to date before you can make a consumer proposal.
- If you regularly owe money on your tax returns, your Licensed Insolvency Trustee will include a clause in your offer. This allows you to consolidate your debt up to the day you begin your consumer proposal, even if the return is not yet due, giving you a completely fresh start.
- Once your creditors have accepted your consumer proposal, you should resume filing and paying your taxes like usual.
- If you are entitled to a tax refund, you will receive this as you normally do.
Contact J. Bottom & Associates Ltd. for Debt Relief in BC
Consumer proposals are a popular alternative to bankruptcy because they provide debt relief without needing to sell your assets. However, if you have a large amount of debt, a low income, and monthly rent instead of mortgage payments, bankruptcy could be the better option.
Get in touch with J. Bottom & Associates Ltd. for more information about your CRA debt relief options. As a Licensed Insolvency Trustee with offices in New Westminster, North Vancouver, and Port Coquitlam, we can help you navigate your choices and make the best decision for your financial situation. Contact us today to get started with a free consultation.