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BANKRUPTCY AND CRA DEBT STRATEGIES: A COMPREHENSIVE GUIDE ON NAVIGATING DEBT MANAGEMENT AND TAX RELIEF

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bankruptcy and cra debt

bankruptcy and cra debt

Bankruptcy and CRA Debt Introduction

Finance Minister and Deputy Prime Minister Chrystia Freeland introduced the 2024 Federal Budget on April 16. During her presentation in Parliament, she advised that Budget 2024 will include that any capital gain will be taxed from the current 50% to two-thirds. April 30 was the last day for most Canadians to file their 2022 personal income tax return.

At the end of April, Ms. Freeland announced that Budget 2024 would not include the capital gains tax change. Rather, she will ask Parliament to approve a stand-alone Bill which will include the capital gains tax change, no doubt combined with other initiatives such as more Federal money for access to housing, in a crass move to try to score voter points when the Conservatives vote against the Bill because of the tax increase. So income tax owed to the Canada Revenue Agency (“CRA”) is on everyone’s mind.

Canadian entrepreneurs are up in arms over the Budget 2024 capital gains taxation change. People are concerned over the level of taxation disclosed in their personal income tax returns. Some Canadians do not have the money to pay their calculated income tax payable.

This Brandon’s Blog discusses the complex world of Canadian bankruptcy and CRA debt, along with other potential options, to achieve financial stability. I aim to equip people with the necessary knowledge and strategies to make informed choices.

Definition of Bankruptcy and CRA Debt

Bankruptcy is a legal condition where consumers or companies admit they are unable to pay their outstanding debts. The bankruptcy process is a supervision and administration process overseen by a licensed insolvency trustee and the court. Under the bankruptcy legislation, people and businesses can either: (i) restructure to eliminate their debt by only paying a percentage of the amount owing; or (ii) liquidate most of their assets for the proceeds to be paid to the creditors in priority as outlined in the legislation.

CRA debt is one kind of debt that individuals or companies may owe for unpaid taxes, penalties and interest. Understanding the workings of bankruptcy and CRA debt will help people owing taxes they cannot repay make informed decisions on how to deal with their debts to get back to a financially healthy and stress-free life.

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Bankruptcy and CRA Debt: Importance of Debt Management and Tax Relief

Effective debt management and tax relief are crucial aspects of financial stability for individuals facing Canadian bankruptcy and CRA debt. By implementing sound strategies for managing debt and seeking relief from tax obligations, individuals can regain control of their finances and work towards a brighter financial future.

Debt management techniques such as budgeting, debt consolidation, and credit counselling can help individuals navigate the complexities of bankruptcy and CRA debt. Additionally, exploring tax relief solutions such as deductions, payment plans, and professional assistance can alleviate the burden of tax liabilities. Prioritizing debt management and tax relief is key to overcoming financial challenges and achieving long-term financial well-being.

Bankruptcy and CRA Debt: Understanding Bankruptcy in Canada

What is bankruptcy?

Having a solid grasp of how bankruptcy can affect a person is vital for those experiencing financial difficulties. Things such as the different types of bankruptcy, the procedure for initiating bankruptcy proceedings, and the real-life impact it has on a person’s daily life are crucial for anyone considering personal bankruptcy to understand. By examining the intricacies of bankruptcy, I hope you will gain valuable insights into how to effectively navigate this intricate legal process.

Whether contemplating personal or corporate bankruptcy, understanding critical aspects such as which assets can be liquidated by a Trustee, how your debt gets discharged, and creditor negotiations is essential. With the appropriate knowledge and assistance, people can make well-informed choices to manage their debts to head towards a new financial beginning.

Bankruptcy laws in Canada

Bankruptcy laws in Canada are a set of legislation and regulations that govern obtaining bankruptcy protection and the subsequent handling of a person or business’ financial affairs. These laws are designed to provide individuals and companies with a second chance to manage their debts and start afresh.

In Canada, the main governing legislation for bankruptcy is the Bankruptcy and Insolvency Act (BIA), which outlines the procedures and requirements for obtaining relief to restructure debts under either a consumer proposal or a Division I proposal.

If restructuring is not a possibility, the BIA also covers the procedures for what is always the last choice, a liquidating bankruptcy. The BIA also covers the rights and responsibilities of debtors, creditors and insolvency trustees. Additionally, each province has its legislation that may impact the result of bankruptcy under federal laws.

In the case of larger and more intricate corporations, the Companies’ Creditors Arrangement Act (CCAA) presents an additional federal statute to be considered. This legislative provision enables such substantial entities to effectively reorganize their operations and financial matters, thereby ensuring their sustained business activities and provision of employment opportunities for Canadians.

Individuals and businesses alike must gain comprehensive knowledge of these legal frameworks and diligently seek expert counsel before undertaking any bankruptcy-related determinations.

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Bankruptcy and CRA Debt

Overview of the CRA

The CRA is entrusted with the pivotal responsibility of overseeing the execution of tax laws and programs on behalf of the Canadian government at the federal level. From 1867 until 1999, the Department of National Revenue, commonly referred to as Revenue Canada bore the responsibility of overseeing tax services and programs. However, in 1999, a comprehensive reorganization took place, resulting in the establishment of the Canada Customs and Revenue Agency (CCRA).

Subsequently, in 2003, the CCRA underwent further transformation, giving rise to the inception of the Canada Border Services Agency (CBSA), thereby altering the agency’s core focus and subsequently prompting its name change to CRA.

The CRA’s mandate revolves around the proficient and equitable collection of taxes, diligent administration of benefits, and rigorous enforcement of tax laws. Additionally, they extend their services to taxpayers by disseminating pertinent information and offering assistance to ensure that Canadians have accurate comprehension and adherence to tax obligations.

Upholding the utmost integrity of Canada’s tax system while fostering voluntary compliance through educational outreach and enforcement measures remains at the forefront of the agency’s priorities. Backed by a devoted team of professionals and leveraging cutting-edge technology, the CRA is steadfastly committed to delivering superlative and exemplary services to the Canadian populace.

Types of debt owed to the CRA

Unpaid taxes result in individuals or businesses facing substantial CRA debt financial obligations. It is important to understand the ramifications associated with such indebtedness, given that it can give rise to severe repercussions including wage garnishment, bank account freezing, or legal repercussions. To mitigate the weight of this debt and avert penalties, it is always highly recommended to stay current in your obligations to CRA.

The Canada Revenue Agency (CRA) collects a range of debts from both individuals and businesses. Among these debts, the most prevalent is income tax owed, which represents the unpaid tax on an individual’s or business’s income. Another significant debt includes the Harmonized Sales Tax (HST) or, in provinces without sales tax, the Goods and Services Tax (GST) owed. These taxes apply to most goods and services supplied within Canada. CRA may also assess the individual Directors for GST/HST and employee source deductions not remitted by the corporation.

Furthermore, individuals and businesses may also encounter debts such as payroll remittance, excise tax, and penalties or interest charges resulting from late or erroneous filings. To ensure compliance and avoid further penalties or potential legal consequences, individuals and businesses must promptly and accurately address these debts on time.

Consequences of CRA debt

Noncompliance with the CRA and the resulting indebtedness can lead to serious problems for both individuals and businesses. Failing to pay your tax obligations to the CRA results in penalties, interest charges, and legal repercussions. These ramifications extend beyond mere financial burdens, encompassing wage garnishments, bank account seizures, seizure of amounts owing to the taxpayer from third parties, and property liens.

The CRA can freeze your assets and conduct audits to recover outstanding debts. The detrimental consequences of indebtedness to the CRA can have far-reaching implications, impairing credit ratings and impeding access to loans or mortgages. It is of utmost importance for individuals and businesses to expeditiously address and resolve any outstanding debt owed to the CRA to avert these severe consequences. Retaining a tax professional to assist in dealing with CRA is always advisable.

Bankruptcy and CRA Debt: Exploring CRA Debt Solutions in Canada

Informal Debt Settlements

When you seek an informal debt settlement option with CRA, absent formal insolvency proceedings, you will be disappointed. Without an insolvency proceeding, the CRA representative has no authority to accept anything other than 100 cents on the dollar – payment in full of the assessed tax, penalty and interest.

You can apply for a fairness hearing to see if you can get all or a portion of the penalty and interest eliminated, but the CRA person you speak to can only talk about the full amount that shows up on their computer screen.

Debt Repayment Plans

CRA will enter into a debt repayment plan, but depending on your situation, again, you may be disappointed. Normally, CRA will only agree to have you pay the full tax debt balance, plus penalty and interest, in 12 monthly instalments over the 1 year. That means that you need to repay the full amount in one year.

If you default on even one payment, then the whole deal is off and CRA will pursue you for the full amount to be immediately repaid. For some, this may be just the breathing room they need and they will be able to repay the full amount of the CRA debt over 12 equal monthly payments. But what if you cannot afford to do that?

Bankruptcy as a Debt Relief Option

Bankruptcy presents a potential solution for individuals or businesses grappling with substantial financial difficulties, especially those brought on by owing a substantial amount to CRA. By discharging most unsecured debts and providing a shield against creditors, it offers a pathway to financial renewal.

Nonetheless, it is crucial to approach bankruptcy as a final option due to its enduring impacts on credit rating, employment in areas that require bonding, and today to a much lesser extent, personal standing. Before making a decision, it is advisable to seek guidance from a qualified licensed insolvency trustee to gain a comprehensive understanding of the ramifications and to evaluate alternative strategies such as debt consolidation, a consumer proposal or corporate financial restructuring.

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Bankruptcy and CRA Debt: The Bankruptcy Process in Canada

The bankruptcy process involves a diverse array of stakeholders, each playing a crucial role. Among the key participants are:

  1. The insolvent individual or company, referred to as the debtor, has undergone financial failure and is now also known as the bankrupt.
  2. The licensed insolvency trustee, formerly known as a trustee in bankruptcy, is responsible for managing the bankruptcy proceedings.
  3. The creditors are owed financial obligations by the debtor.
  4. The Office of the Superintendent of Bankruptcy (OSB), holds the mandate to regulate and oversee all administrations governed by the BIA within Canada.

Preparing for Bankruptcy

To prepare for bankruptcy, the debtor, being either the individual or the Director of the company, must make full disclosure to the licensed insolvency trustee about all assets and liabilities and all other information requested by the Trustee. This allows the Trustee to provide the debtor with advice on the realistic available options for the debtor to overcome their debt challenges and hopefully find a solution other than bankruptcy.

The Trustee will want to ensure that the debtor has filed all overdue income tax returns. That way, the debtor, the Trustee and CRA will have a good estimate of all the tax the person owes, subject to review and assessment by CRA of course. At least there will not be any outstanding filings as this can slow down an insolvency process. CRA will want a pause in the insolvency proceedings until they are certain they understand the full amount owed.

If it is decided that an insolvency process is required, such as bankruptcy, then the information also allows the Trustee to prepare all the necessary filing documents.

Filing for Bankruptcy

Filing for bankruptcy is a legal process that allows individuals or businesses to seek relief from overwhelming financial obligations, including CRA debt. It involves filing an assignment in bankruptcy document which is prepared by the Trustee, and reviewed and signed by the debtor. The bankruptcy filing discloses all assets, liabilities, and income and expenses.

Personal bankruptcy can be a complex and emotional decision, but it can provide both a shield against CRA debt collection activities and seizures and simultaneously a fresh start for those individuals struggling with overwhelming debt.

It is crucial to seek the guidance of a licensed insolvency trustee to get the advice necessary to ensure a smooth and successful filing. Bankruptcy is not a decision to be taken lightly, but it can offer a solution to individuals and companies facing insurmountable financial challenges.

Duties and Responsibilities during Bankruptcy

The focus of the BIA in personal bankruptcy is for the honest but unfortunate debtor to a society free of his or her debts. The premise is that the bankrupt, or the officer of the bankrupt corporation, will fulfill their duties with integrity and honesty. The duties are outlined in the OSB’s Directive No. 26. If you are interested, you can read them HERE.

But what if they don’t? What if the individual bankrupt does not fulfill all of their duties and essentially absences themself from the process once they have filed their assignment in bankruptcy? In that case, the Trustee must oppose the bankrupt’s application for discharge and bring the matter to court. With CRA debt, there are times when CRA will automatically oppose a person’s discharge from bankruptcy.

Bankruptcy and CRA Debt Discharge Considerations

Corporations do not receive a bankruptcy discharge; individuals do. When it comes to CRA debt, there are times when CRA automatically opposes a person’s discharge or when a Trustee must.

If an individual filing for bankruptcy has personal income tax debt exceeding $200,000 and if the personal income tax debt accounts for 75% or more of the total unsecured proven claims, they are not eligible for automatic discharge under section 172.1 of the BIA. GST/HST payable is not factored into the determination for high-tax debtors, but taxes on additional income resulting from shareholder loans, draws, or dividends are included in their assessment.

For high-tax debtors seeking discharge, the licensed insolvency trustee will present the bankrupt’s discharge application to the court for a hearing, which the individual must attend. The court’s considerations and the type of discharge order granted for high-tax debtors differ from those in cases of bankruptcy filed by non-high-tax debtors. To avoid this scenario, a high-tax debtor should consider filing an alternative to bankruptcy, such as a restructuring proposal.

Dealing with Bankruptcy and CRA Debt

Outstanding Tax Returns

Unremitted Canadian tax filings mean tax returns that are either outstanding or incomplete within the specified filing deadlines for Canadian taxpayers. Such delinquent filings will incur penalties and interest charges, requiring individuals and companies to prioritize their tax responsibilities with utmost care. It becomes the duty of each taxpayer to ensure the prompt and accurate submission of their tax returns, to avoid negative repercussions.

Tax accountants and lawyers help their clients in fulfilling their tax obligations. Timely resolution of outstanding Canadian tax returns is essential to sustain compliance and avert any future complexities.

As stated above, any person or company contemplating either trying to reach an accommodation from CRA or invoking an insolvency process to deal with their CRA debt must bring all their filings up to date.

Bankruptcy and CRA Debt: Discharge in Bankruptcy

I discussed the issues for an individual high-tax debtor trying to get their discharge from bankruptcy. The Trustee must bring the application to court. At the discharge hearing, subject to any other problematic issues with the debtor’s conduct before or during the bankruptcy administration, CRA will send a lawyer from the Department of Justice to the discharge hearing to request a condition be placed on the bankrupt before they can obtain their discharge.

The condition that the CRA will request is that the debtor pay 25% of the total proven CRA debt to obtain their bankruptcy discharge. Even if the person is not a high-tax debtor, there may be other reasons why CRA will oppose the person’s discharge from bankruptcy. If the CRA file is replete with instances of failed promises, ignoring the CRA representative requests over some time and general “trouble-making” by the taxpayer, the CRA will oppose the discharge.

These are all considerations that a person must discuss with the licensed insolvency trustee up front to end up using a process that is most advantageous to the taxpayer in eliminating their CRA debt.

Rebuilding Your Finances After a Canadian Bankruptcy Discharge

Reestablishing your financial standing following a Canadian bankruptcy discharge may seem like a challenging endeavour. However, with strategic planning and commitment, it is feasible to recover from financial setbacks. The initial step involves developing a budget and adhering to it meticulously, guaranteeing that essential expenses are met while unnecessary spending is curtailed.

Next, it is important to start rebuilding credit in a few different ways:

  1. Obtain a secured credit card. Not the drug store variety, but the kind where you put down a cash security deposit and then you are given a credit card limit equal to your cash deposit. When you make your credit card payments, it gets reported to the credit bureaus. If you make your payments when due, over time, this will increase your credit score.
  2. Take out a small 1 year RRSP loan and pay it off on time. This will also improve your credit score on your credit report.
  3. The two Canadian credit bureaus, Equifax and TransUnion, are now beginning to track residential rent payments. If you are a renter and you make your rent payments on time, this too will increase your credit score.

It is also recommended to seek guidance from a financial advisor or credit counsellor to develop a solid financial plan. With patience and discipline, it is possible to rebuild your finances and secure a brighter financial future.

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Bankruptcy and CRA Debt FAQs

Here are the most frequently asked questions and the answers regarding bankruptcy and CRA debt:

  1. Is it possible to file for bankruptcy solely for CRA debt?

When initiating bankruptcy proceedings, it is imperative to include all debts owed. Notably, CRA debt related to income taxes and Director liabilities is treated comparably to other unsecured debts within the scope of bankruptcy proceedings.

  1. What happens to my CRA debt in bankruptcy?

In bankruptcy, CRA debt is included as part of your unsecured debts (the exception being a proprietorship or partnership debt for unremitted HST or employee source deductions). Keep in mind that the CRA may oppose your discharge and the court may make a condition of you paying a portion of the CRA debt to obtain your discharge from bankruptcy.

  1. How does bankruptcy affect my tax refunds?

Tax refunds may be affected in bankruptcy. It’s important to consult with a professional to understand the specific impact on your tax refunds.

  1. Can I include tax debt in a consumer proposal?

Yes, tax debt can be included in a consumer proposal. A consumer proposal offers a structured repayment plan to creditors, including the CRA. It can be a more favourable option than bankruptcy for negotiating repayment terms with the CRA.

  1. What if my tax debt exceeds $200,000 and makes up over 75% of my unsecured debt?

Individuals with personal tax debt exceeding $200,000, constituting over 75% of their total unsecured debts, may not qualify for automatic discharge in bankruptcy proceedings. In such instances, a bankruptcy court hearing will be convened, and potential conditions for discharge may be mandated, such as contributing a specified amount to the bankruptcy estate.

Bankruptcy and CRA Debt Conclusion

I hope you have enjoyed this bankruptcy and CRA debt Brandon’s Blog. Hopefully, you have better insight now into the ways of dealing with CRA debt and what some viable options are.

Do you or your company have too much debt? Are you or your company in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt.

You are worried because you are facing significant financial challenges. It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief freedom.

The stress placed upon you is huge. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we take the load off of your shoulders and devise a plan, we know that we can help you.

We know that people facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team.

That is why we can develop a restructuring process as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

Call us now for a free consultation. We will get you or your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.

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Brandon Blog Post

UNDISCHARGED BANKRUPTS: WHAT ALARMING RESTRICTIONS ARE PLACED ON CANADIAN UNDISCHARGED BANKRUPTS?

undischarged bankrupts
undischarged bankrupts

Undischarged bankrupts: Declaring bankruptcy may not make all of your debts disappear

What? I thought the point of filing bankruptcy was to make all of a person’s debts go away.

For many years, people have used debt repayment strategies such as the debt snowball, debt avalanche and debt stacking to pay off their credit card debts and other unsecured liabilities. Each strategy has its own set of pros and cons in attempting to straighten out your financial affairs.

If you’re struggling with too much debt and you feel your financial affairs are in a mess, you can always try financial restructuring. This involves working with a licensed insolvency trustee to reorganize your finances. It is a sensible next step people take when they’re trying to get their debt under control.

Deciding to file for bankruptcy is never very easy, however, it may be the most effective choice for getting a fresh start to straighten out your financial affairs. If a do-it-yourself or restructuring method is not an option for someone after that bankruptcy will certainly be the required action.

Nobody likes to think of the possibility of personal bankruptcy, yet it is essential to understand the procedure. In this Brandon’s Blog post, I’ll discuss the insolvency process, what limitations are placed on individuals that have actually filed for bankruptcy and are still undischarged bankrupts, and also when in bankruptcy is the time financial obligations are gotten rid of.

Undischarged bankrupts: How bankruptcies work in Canada

The Canadian bankruptcy legislation is designed to help insolvent and not viable companies, or insolvent, honest but unfortunate people, obtain relief. Subject to trust claimants’ rights and the rights of secured creditors, the company or person is assigning all of their unencumbered assets to the licensed insolvency trustee.

After going through bankruptcy and being discharged, most of your debts will be gone. There are a few exceptions, but for the most part, you will be relieved of a great financial burden.

undischarged bankrupts
undischarged bankrupts

Undischarged bankrupts: Are there any debts not forgiven when I get my discharge from bankruptcy?

It’s crucial to remember that once undischarged bankrupts are released from bankruptcy, they are no longer responsible for the financial obligations they had at the time of bankruptcy. The discharge is a key part of this process, and it helps to give individual bankrupts a fresh start.

A bankruptcy discharge provides relief from most debts, except for:

  • support payments for a former spouse or your children;
  • penalties and fines assessed by the court;
  • any financial debts resulting from fraud or fraudulent breach of trust; and
  • student loans within the last seven years before your date of bankruptcy while you were a part-time or full-time student.

Additionally, the debts owing to secured creditors holding valid security fall outside of the bankruptcy process. Those secured loans must stay current or else the secured creditor can look to the default provisions of its loan in order to preserve their rights to collect.

Problems for undischarged bankrupts – What are the consequences of a bankrupt not being discharged?

The implications of not being discharged from bankruptcy are significant for undischarged bankrupts.

Being unable to obtain credit

If you are bankrupt (i.e., not discharged from bankruptcy), you may only borrow $1,000 or less without informing the lender (e.g., credit card company) that you are an undischarged bankrupt. If you fail to do this, it is an offence under the Bankruptcy and Insolvency Act Canada (BIA) and you could be fined and/or imprisoned.

Being unable to work in certain jobs or professions

Undischarged bankrupts in Canada, will not be able to work in certain jobs or professions. Examples are:

  • If possible employment requires you to pass a security clearance, you may not be able to pass it. If you cannot pass, then you will not be hired.
  • As someone who is not yet discharged from bankruptcy, you are not able to serve as a Director of a company.
  • You cannot operate a trust account so that is a problem for certain professions such as real estate brokerage or lawyer.
  • If you’re bankrupt and haven’t been discharged, you won’t be able to get bonded. So any jobs that require that are out of the question.

How long the information lasts on your credit report

The six to seven years AFTER your bankruptcy discharge that your bankruptcy information stays on your credit file is like a stain that just won’t come out. For undischarged bankrupts, the clock hasn’t even started ticking yet. Your credit score is negatively affected for anyone who goes bankrupt, especially for undischarged bankrupts.

Being subject to certain restrictions in relation to their property and finances

While you are an undischarged bankrupt, your property and finances are in play.

While you are an undischarged bankrupt, your property and finances are up for grabs! You cannot have any assets other than those allowed for by the exemptions allowed in the province where you live. So if you acquire any before your discharge from bankruptcy, they belong to your licensed insolvency trustee!

The most often cited examples are things that are out of your control, such as a windfall, like winning the lottery or getting an inheritance.

An undischarged bankrupt may be subject to having to make surplus income payments to their licensed insolvency trustee. The Office of the Superintendent of Bankruptcy Canada sets a minimum threshold in bankruptcy proceedings based on the person’s family income and the number of people in the household. That minimum threshold is essentially the Canadian poverty line. Any monthly income earned by an undischarged bankrupt above that minimum threshold set is subject to surplus income payments.

Essentially, one-half of the person’s monthly income, net of income tax, above the minimum, must be paid over. A licensed insolvency trustee administering the personal bankruptcy must recalculate the person’s obligation to pay, up or down, as the person’s income changes. The longer you remain an undischarged bankrupt, the longer your ability to keep all that you earn is restricted.

undischarged bankrupts
undischarged bankrupts

What is the meaning of undischarged bankrupts?

As soon as you declare personal bankruptcy, the individual bankrupt’s status is that of an undischarged bankrupt. People that have actually not yet gotten their discharge from personal bankruptcy are called undischarged bankrupts.

How does an individual bankrupt person get their discharge? By completing all of the required duties, including making full disclosure of all assets and liabilities to the licensed insolvency trustee and delivering non-exempt assets to the Trustee. You are expected to attend the two mandatory counselling sessions and any other meetings that may be called.

You are entitled to an automatic discharge after 9 months if you are a first-time bankrupt and do not need to pay surplus income. This assumes that you have met all of your obligations as an undischarged bankrupt, fully cooperated with the licensed insolvency trustee and that no creditor is opposing your discharge.

If you are a first-time bankrupt and subject to surplus income, you must pay it for 21 months before you are entitled to a discharge. Longer timelines apply if you are a second or more time bankrupt.

Suppose the Trustee has evidence that the bankrupt has not been forthcoming and cooperative, or has committed one or more bankruptcy offences. In that case, the Trustee needs to oppose the bankrupt’s application for discharge. Such undischarged bankrupts are not entitled to an automatic discharge. Unsecured creditors who have filed a proof of claim in the person’s bankruptcy on account of their unsecured liabilities may also object.

If your income tax debt is equal to or more than $200,000 and 75% or more of your total debt, you are not entitled to an automatic discharge either. If you have been bankrupt before, the Office of the Superintendent of Bankruptcy Canada may object. This would happen if they believe the person is abusing the Canadian bankruptcy system.

If you’re a secured creditor, you’re usually not affected by bankruptcy. That’s because bankruptcy is designed to help unsecured creditors with unsecured liabilities, not creditors who have a security interest in some or all of the bankrupt debtor’s assets. Secured creditors have the right to enforce their security, take possession of the asset(s) covered under the security, sell the asset(s) and get paid back all or a portion of their secured debt. Secured creditors who are not repaid in full after the sale of the secured asset(s), can file a claim in the person’s bankruptcy as an unsecured creditor for the unpaid unsecured liabilities.

Undischarged Bankrupts in Canada – Your Options

The Trustee is only responsible for filing an undischarged bankrupt’s application for discharge once in the bankruptcy proceedings. The system requires that the Trustee make the first application on their behalf. It is ultimately the responsibility of the bankrupt person to ensure that their application is filed.

If either the Trustee or one or more unsecured creditors oppose your application for discharge, the matter will need to go to a hearing in bankruptcy court. This will essentially put a hold on the bankruptcy proceedings until the court hearing.

Undischarged bankrupts are never sure what to do next. This is understandable, so, here are a few options to consider:

1. Contact your Trustee – They’ll be able to help you understand your options and what’s best for your situation. You’ll need to speak to your licensed insolvency trustee to find out why they’re opposing your discharge. It might be something as simple as not having had your second counselling session yet, or forgetting to give the Trustee some information or a document.

If the Trustee or creditor opposes your discharge for any reason, it may be more difficult to remedy the situation, but the best place to start is by talking to the Trustee and getting a copy of any notice of opposition filed.

This way, undischarged bankrupts can understand the issues preventing them from getting an automatic discharge from bankruptcy.

2. Get in touch with a bankruptcy lawyer – They can give you more specific advice about your options and what might be the best course of action for you. Undischarged bankruptcy may need to retain a bankruptcy lawyer for advice and representation in court.

3. File a consumer proposal – this is another option that might be available to you, depending on your circumstances. A consumer proposal filed by a bankrupt person that makes a sufficient offer to the unsecured creditors that is accepted and fully performed acts to annul the person’s bankruptcy. By doing this, the need for a bankruptcy discharge hearing is eliminated.

undischarged bankrupts
undischarged bankrupts

You owe money—The 5 types of bankruptcy discharges available to undischarged bankrupts

Automatic discharge from bankruptcy –

After you file for bankruptcy, you will be automatically discharged nine months later from your bankruptcy proceedings if:

  • this is the first time you were ever bankrupt;
  • unless your trustee, creditors, or the Office of the Superintendent of Bankruptcy oppose it;
  • you have gone to your 2 mandatory counselling sessions;
  • your income tax debt is less than $200,000 and less than 75% of your total debt; and
  • you have not been told to pay surplus income to the bankruptcy estate.

If you do have to make payments, and you qualify for an automatic discharge, you will get it after 21 months of payments.

If this is your 2nd bankruptcy, after 24 months of bankruptcy, you may be eligible for an automatic discharge if you don’t have to make payments of surplus income.

If you need to pay surplus income and are bankrupt for the second time, you must pay this money to your Trustee for 36 months. After that, you qualify to be automatically discharged.

If you do not get an automatic discharge, then you are required to attend a bankruptcy court hearing to consider all the evidence to decide what type of discharge you are entitled to. The court has various options available.

Absolute order of discharge –

As part of the bankruptcy proceedings, there are many factors the bankruptcy court will consider when you apply for discharge. Some of these may include:

  • What was your conduct before and during bankruptcy, as set out in the Trustee’s Section 170 Report?
  • Did you attend the financial counselling sessions and pay any required surplus income to the Trustee for your creditors as agreed?
  • How much do you earn annually?
  • Do you have any assets that are exempt from seizure (such as RRSPs)?
  • Do you have just one creditor, such as the Canada Revenue Agency or a litigation creditor?

The court will issue an absolute order of discharge if it is satisfied that there are no factors that would disqualify you from receiving your bankruptcy discharge immediately.

Conditional order of discharge –

If the court feels that your discharge should be conditional on you meeting certain conditions to obtain an absolute discharge, the court will order a conditional discharge.

This usually involves paying a certain amount of money over a set period of time. The court may also impose other conditions. Once you’ve met all the conditions, you’ll be given an absolute discharge.

Suspended order of discharge –

A suspended discharge is one that delays the absolute discharge to a later date. It can also be combined with a conditional order of discharge.

Refused discharge –

If the evidence demonstrates that the bankrupt individual is taking advantage of the bankruptcy process, has not worked cooperatively with the licensed insolvency trustee, or their conduct is deemed unacceptable, the court can refuse to grant a discharge.

In this instance, undischarged bankrupts must take measures to improve the situation before being able to apply again to court to hear the bankrupt’s application for discharge.

Undischarged bankrupts summary

I hope you enjoyed this Brandon’s Blog on undischarged bankrupts. Are you in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt. You are worried because you are facing significant financial challenges.

It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief freedom.

The stress placed upon you is huge. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. We know that we can help you the way we take the load off of your shoulders and devise a debt settlement plan.

We realize that people and businesses in financial difficulty need practical advice and a workable solution in an easy-to-understand financial plan. The Ira Smith Team knows that not everyone has to file for bankruptcy in Canada. Most of our clients never do, as we are familiar with alternatives to bankruptcy. We assist many people in finding the relief they need.

Call or email us. We can tailor a new debt restructuring procedure specifically for you, based on your unique economic situation and needs. If any of this sounds familiar to you and you’re serious about finding a solution, let us know.

Call us now for a no-cost initial consultation.

undischarged bankrupts
undischarged bankrupts
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Brandon Blog Post

THE GREAT UNTOLD STORY ON MY CRA ACCOUNT BUSINESS UPDATED RULES THAT YOU MUST READ

my cra account business

The Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Stay healthy, well balanced and safe and secure everyone.

If you would prefer to listen to the audio version of this My CRA Account Business Brandon’s Blog, please scroll to the bottom and click play on the podcast.

My CRA account business introduction

On May 28, 2020, Canada Revenue Agency (CRA) made an announcement concerning the CRA and COVID-19 collections, audit, objections and appeals procedures. It looks like they are starting to slowly open up again. So, it appears that the time-out honeymoon for my CRA account business for business and personal income tax matters is over and there will now be new rules.

In this Brandon’s Blog, I will describe them for you.

Collection on brand-new financial debts

Collections activities on brand-new debts will be put on hold up until additional notification, and also versatile settlement arrangements will be readily available. If you cannot pay your taxes, child and family benefit overpayments, Canada student loans, or other federal government program overpayments completely, payment arrangements are offered.

Collection officers will certainly attend to pre-existing cases individually. CRA says it will do so in a way to prevent financial difficulty. I think the fact that either you or your company owes CRA money that you cannot pay, that in itself spells financial difficulty!

My CRA account business audits returning

The CRA is returning to a complete function of their audit group. They say that they are adjusting their methods given the health as well as economic impacts of COVID-19. They will be focusing as a priority on:

  • higher dollar audits first;
  • audits close to the conclusion;
  • those with a calculated significance to the Government of Canada, provinces and other taxation stakeholders;
  • initiatives to combat scams and other criminal activity; and
  • CRA will for now continue to recognize electronic signatures as having met the signature requirements of the Income Tax Act, as a temporary administrative measure.

The CRA statement said that they are developing new methods of interacting with taxpayers. CRA will function with taxpayers and my CRA account business to establish steps and methods to adapt to the present truth. For instance, one new way is that they are now going to supply taxpayers with the alternative to send requested details via electronic mail.

Some vital adjustments will be given using added time and in advance consultation on requests to supply the CRA with information and access. Public health regulations will certainly be followed. Added practical steps will be expanded both in terms of timing or other aspects of any CRA request.

Requirements for Information (RFI) provided before March 16 and due after that day will be reviewed. Taxpayers as well as 3rd parties, including financial institutions, will be gotten in touch with where the CRA continues to need the information in the RFI.

The CRA is looking at new measures to catch people making unsupported claims for pandemic emergency benefits.

My CRA account business objections, appeals and taxpayer relief

CRA says that Canadians’ entitlement to benefits and credits are essential to continue to be provided throughout COVID-19. There should not be any delays with the handling of these objections.

For objections related to various other tax obligation matters submitted on personal or business income tax matters, the CRA is presently holding these accounts in abeyance. No collection activity will be taken with respect to these accounts right now. For objections that are due between March 18 and June 30, 2020, CRA has extended the due date to June 30, 2020.

The Canada Revenue Agency extended some of the filing deadlines for individuals, corporations and trusts in a move to help taxpayers and tax preparers dealing with the COVID-19 pandemic. Any money owed to the Canada Revenue Agency can be deferred until September 1st, 2020, with no penalties or interest payable.

Taxpayers that are unable to file a return or make a payment by the tax-filing and payment deadlines as a result of COVID-19 can request the cancellation of penalty as well as interest charged to their account. Penalty and interest will certainly not be charged if the new due dates that the federal government has introduced to tax-filing and payments are met.

As soon as CRA service operations begin again, the Taxpayer Relief Program will review claims associated with COVID-19 on a top priority basis.

Suspending individual (T1) validation and review

Some review of income tax returns was launched prior to the COVID-19 pandemic. Taxpayers might have been contacted to provide more details in connection with amounts declared. If Canadians have gotten any CRA correspondence that provides a timeline for action or submission of information or backup documents, that is currently on hold. You don’t yet need to respond.

CRA does remind everyone that t is necessary to keep in mind that, although assessments have been delayed, it does not avoid future actions or evaluations from being finished. Taxpayers will need to keep their information and documentation, in case they are chosen for review in the future.

My CRA account business summary

I hope you found this my CRA account business information helpful. It appears that right now CRA is still in “stand down” mode. However, the recent announcement that I described shows that they are letting Canadian taxpayers know that soon, they will start getting back to business.

The Ira Smith Team family hopes that you and your family members are remaining secure, healthy and well-balanced. Our hearts go out to every person that has been affected either via misfortune or inconvenience.

We all must help each other to stop the spread of the coronavirus. Social distancing and self-quarantining are sacrifices that are not optional. Families are literally separated from each other. We look forward to the time when life can return to something near to typical and we can all be together once again.

Ira Smith Trustee & Receiver Inc. has constantly used clean, safe and secure ways in our professional firm and we continue to do so.

Revenue and cash flow shortages are critical issues facing entrepreneurs and their companies and businesses. This is especially true these days.

If anyone needs our assistance for debt relief Canada COVID, or you just need some answers for questions that are bothering you, feel confident that Ira or Brandon can still assist you. Telephone consultations and/or virtual conferences are readily available for anyone feeling the need to discuss their personal or company situation.

The Ira Smith Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Stay healthy, well balanced and safe and secure everyone.

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Brandon Blog Post

Debt problems: 8 Mistakes To Avoid When You Are Having Money Problems

debt problemsIntroduction

I have advised many entrepreneurs and non-business people who have debt problems. Many times, there are things they have done before coming to see me for a no-cost consultation that I wished they had not done. So, I thought I would discuss the 8 mistakes to avoid when you are having money problems.

1. Using money from your RRSP to pay debts

This can be a costly error. Using retirement funds to pay off debts can hurt you in numerous ways. The vast majority of retirement accounts are exempt. This means your creditors cannot get at them and you won’t lose them if you file for a consumer proposal or for bankruptcy (“an insolvency filing”).

Using retirement money to pay debts that can be discharged in an insolvency filing, like credit card and income tax debt, rarely makes sense. If you make an insolvency filing, you can eliminate the debt without spending any of your retirement funds. Using retirement funds to pay debt jeopardizes your future when you will be in more need of the funds due to lack of other income.

The withdrawal from the RRSP counts as income on which you will owe taxes and possibly even an early withdrawal penalty. Depending on how large the amount is, the added income and related income tax debt could affect the nature of your insolvency filing, the total amount you will still have to pay and provide problems with your discharge from bankruptcy.

2. Paying unsecured debts like credit cards, income tax and personal instead of secured debts like mortgages and car loans

Some creditors are so aggressive and sometimes predatory that they make you think that you must pay off their debts immediately or suffer severe consequences. Frightened by these tactics you may be tempted to pay their unsecured loans first and leave a secured loan unpaid. This creates multiple problems.

The two most common types of property subject to a security interest are probably the two most important things you own: your home and your car. A car loan creditor can repossess a car after one missed payment. If that occurs, you will lose your car and you will be responsible for any deficiency amount you still owe on your car loan after the car is auctioned off usually for significantly less than it is worth.

While a mortgage lender may not be able to kick you out of your home as quickly, arrears, a higher arrears rate of interest that kicks in upon default and late fees can significantly increase what you owe and make it very difficult to catch up. As a general rule, you should prefer to pay your secured creditors so you can keep your car and home, as opposed to paying unsecured creditors who don’t have near the recourse that a secured creditor has. This assumes that you will be able to afford the car and mortgage payments after we help you eliminate your debts and balance your budget.

In addition, if you decide to make an insolvency filing, the money paid to your unsecured creditors might as well have been thrown in the trash. Meanwhile, you will still have to catch up on your secured debts if you want to keep the property.

Finally, you might have to explain to the licensed insolvency trustee why you were able to pay certain creditors, but not others, so close to the filing. Such payments may be considered preferences that the trustee can force the creditor to return in a bankruptcy. It is always better to avoid such a problem and keep your secured debts current, even if you have to neglect the unsecured ones.

3. Maintaining accounts at a bank or other financial institution where you owe money

Almost every bank and financial institution will require you to sign an agreement authorizing the bank to automatically garnish your account if you miss a payment owed to it. In other words, if you have your mortgage and a savings account at the same bank and you miss a mortgage payment, the bank can take it from your savings account. This is called a setoff.

You should transfer your accounts, other than for the one account need to pay your monthly loan payment, to another institution where you don’t owe money to avoid this situation. You can keep a minimum amount in that one account and replenish it monthly so you can’t lose much in case of a setoff.

4. Using a second mortgage or home equity line of credit to pay off credit cards or other unsecured debt

As mentioned previously, credit card and other unsecured debt can be discharged in an insolvency filing. If you don’t make your mortgage payments, you could lose your home.

If the amount you borrow against your home doesn’t get you out of debt, you may have no choice but to end up not being able to afford the higher payments, in bankruptcy, having wasted money that could have been used elsewhere. To make matters worse, you have allowed a second lien against your home, which increases your monthly expenses and the length of time before you are able to pay your home off. In addition, the second mortgage, is a secured debt, will not be dischargeable in an insolvency filing and you may end up losing your home.

Don’t fall for the advertisements that suggest you consolidate your debts with a home equity loan. This strategy only makes sense after you have seen a licensed credit counsellor and have created and understood your balanced budget. The licensed insolvency trustees at Ira Smith Trustee & Receiver Inc. are also licensed, credit counsellors.

5. Not filing your tax returns

If you do not file your tax returns on time, you will have an issue if you make an insolvency filing. Your case will not be closed and your debts will not be discharged until you file your missing income tax returns with the Canada Revenue Agency (“CRA”) and they have a chance to review it. The CRA will not allow you to get through the insolvency filing without ensuring your returns have been filed.

It will also be impossible for us to properly advise you on whether you can avoid bankruptcy through a consumer proposal because will not know the total amount you owe to CRA. You always need to bring your income tax filings current BEFORE making an insolvency filing. Better not to have this problem delay a filing when you really need to protect yourself immediately at that time.

6. Telling a creditor that you intend to pay

When you have debt problems, it is always best not to say anything to a creditor than to promise the creditor that you will pay. Once you tell creditors to expect money, their harassment will grow every day they don’t receive the promised money.

7. Making a written promise to pay or making a partial payment on an old debt

Creditors are barred from collecting a debt once the limitation period has run. The limitation period on a particular unsecured debt incurred in Ontario is 2 years. Making a written promise to pay or making a partial payment on the debt (no matter how small) may reset the clock on the creditor’s ability to take legal action.

8. Ignoring pending lawsuits

Pending lawsuits on debts is an obvious sign that you have debt problems. Ignoring pending lawsuits is a huge mistake as these lawsuits lead to judgments. Upon receiving a judgment, the creditor will be able to garnish your wages and freeze your bank accounts.

If you are sued on a debt, it’s wise to at least consult a lawyer. You may have legal defenses. It is normally best to make an insolvency filing either before or immediately upon a judgment being made against you. That way, the creditor who received the judgment cannot enforce against your wages or bank accounts. You are protected in an insolvency filing by an automatic stay of proceedings.

Debt problems summary

I hope you found this Brandon’s Blog, What is a Consumer Proposal, helpful. Sometimes things are too far gone and more drastic and immediate triage action is required.

Do you have too much debt? Are you in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt. You are worried because you are facing significant financial challenges.

It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief freedom.

The stress placed upon you is huge. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we take the load off of your shoulders and devise a debt settlement plan, we know that we can help you.

We know that people facing financial problems need realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team. That is why we can develop a restructuring process as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

Call us now for a free consultation. We will get you or your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.

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Brandon Blog Post

ARE BANKRUPTCY FEES TAX DEDUCTIBLE? IT DEPENDS WHO YOU ARE!#

are bankruptcy fees tax deductible
are bankruptcy fees tax deductible

Are bankruptcy fees tax deductible: If you would like a free copy of our eBook: “Cost of Claiming Bankruptcy in Canada” – please CLICK HERE

Are bankruptcy fees tax deductible: Introduction

We are often asked the question “are bankruptcy fees tax deductible?”. This vlog attempts to answer that question for the various types of Canadian insolvency proceedings.

I caution that we are not income tax advisors; I am a licensed insolvency trustee. This vlog does not attempt to and does not replace expert income tax advice. If you have a specific situation, you should get advice from your professional income tax advisor.

Are bankruptcy fees tax deductible: What does Canada Revenue Agency say?

Costs incurred in a bankruptcy filing can be categorized as either: (i) incurred for the purpose of gaining or producing income from a business or property or; (ii) incurred for capital or non-income earning reasons. Another way of saying it is a taxpayer cannot deduct personal expenses but can deduct those categorized as business expenses. So are bankruptcy fees tax deductible? It depends on who you are.

Are bankruptcy fees tax deductible: Personal bankruptcy and (consumer) proposal restructuring

If you are the individual person who has too much debt and either restructures under one of the proposal provisions to avoid bankruptcy, or goes bankrupt, then your real obligation is not to pay professional fees. Rather, you are making payments to the licensed insolvency trustee in a restructuring to settle all of your debts or you have given up your non-exempt assets and may also be paying part of your monthly income as surplus income to your licensed insolvency trustee.

Under either scenario, the licensed insolvency trustee obtains their fee under the Bankruptcy and Insolvency Act (BIA). You as the individual debtor are not paying bankruptcy expenses to earn income. Therefore you are not entitled to any tax deduction for the amounts and property given to the licensed insolvency trustee.

are bankruptcy fees tax deductible
are bankruptcy fees tax deductible

Are bankruptcy fees tax deductible: Corporate restructuring

Corporations attempt to restructure under either the proposal provisions of the BIA or the restructuring provisions of the Companies’ Creditors Arrangement Act (CCAA) for the purpose of avoiding bankruptcy and the end of its business. The purpose of the restructuring attempt is to stay an active corporation, preserving jobs, continuing to earn income and pay income tax. In this case, professional fees paid to legal and financial advisors would be tax deductible for the company restructuring.

As this vlog is only to answer the questions are professional fees tax deductible, I am not addressing the issue of the income tax treatment of the corporate debt forgiven in a successful restructuring. That is where I turn to professional tax advisors for the answer.

Are bankruptcy fees tax deductible: Corporate bankruptcy

In a corporate bankruptcy, the bankruptcy corporation’s assets would be taken over by the licensed insolvency trustee handling the bankruptcy, subject to the interests of the secured creditor(s) and trust claimants, if any. Therefore, there are no fees paid by the bankrupt corporation for the purpose of earning income. Hence, there is no tax deduction for professional fees to be taken on the bankrupt corporation’s final income tax return.

Are bankruptcy fees tax deductible: Receivership and secured creditors

Receivership is a remedy for secured creditors to enforce security. The secured creditor whose loan is in default, when in a place to enforce its security, appoints a receiver to take possession of the assets, formulate a plan to maximize the sale value, sell the assets and remit the proceeds to the appointing secured creditor, up to the amount outstanding under the security. The company in receivership does not incur professional fees, but the secured creditor does; to both legal counsel and to the receiver. Those professional fees incurred in the normal business of the lender are therefore tax deductible.

I will leave the topic of the income tax consequences for a secured creditor who suffers a shortfall when realizing upon assets covered by its security to the professional tax advisors.

are bankruptcy fees tax deductible
are bankruptcy fees tax deductible

Are bankruptcy fees tax deductible: Purchaser of assets

Many times in corporate restructuring, the restructuring plan calls for the sale of assets. In both bankruptcy and receivership, the assets will be sold. The purchaser of assets will in such cases be a corporation. That purchaser corporation will need insolvency and income tax professional advisors in structuring and paying for the asset purchase. Those professional fees are tax deductible to the purchaser.

Are bankruptcy fees tax deductible: Unsecured creditors

In any of the insolvency processes discussed in this vlog, there will certainly be many unsecured creditors. The major unsecured creditors, especially in corporate insolvency proceedings will want to consult with professional advisors as to their rights and remedies when faced with an insolvent debtor.

Sometimes unsecured creditors make an application to Court to have a Bankruptcy Order made against a debtor. Both legal and trustee advice is necessary.

In either case, the professional fees are paid in the normal course of business and will be tax-deductible.

Are bankruptcy fees tax deductible: Do you need insolvency advice?

If you need insolvency advice, either because you or your company have too much debt, or one of your major customers are experiencing financial problems, the professional fees may very well be tax deductible. The Ira Smith Team acts on behalf of both debtors and creditors. We have successfully restructured many people and corporations, thereby allowing them to avoid bankruptcy. We have also acted on behalf of both secured and unsecured creditors both in an advisory role and an enforcement role.

Contact a debt expert – a professional trustee – who can help get you on solid financial footing Starting Over, Starting Now. Ira Smith Trustee & Receiver Inc. can help keep you from financial ruin with immediate action and the right plan. Call us today for a free, no-obligation consultation.

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Brandon Blog Post

VAUGHAN BANKRUPTCY TRUSTEE WARNS OF DANGERS IN TAKING FREE TAX ADVICE

Vaughan bankruptcy trustee, bankruptcy, trustee, tax season scams, income tax, income tax debt, Canada Revenue Agency, CRA, tax advice, tax professional, tax, starting over starting now, frequently asked bankruptcy questionsAs a Vaughan bankruptcy trustee, we always warn our clients that this time of year can be dangerous. In our last blog we warned you about tax season scams. This week your Vaughan bankruptcy trustee is warning you about the dangers of taking free tax advice. There are many places to get free tax advice, and quite frankly all of them are dubious. Unless the person giving the advice is a trained and licensed financial services professional, the only thing you should do with free tax advice is ignore it, or you could find yourself in a worse financial and legal position than you started in.

It seems that everyone is looking ways to avoid paying income tax. As we discussed in a previous blog The Tax Lawyer; Even A High Profile Tax Fighting Lawyer Has To Pay His Income Tax, there is no miracle cure or quick fix when you owe money to the Canada Revenue Agency (CRA). Yet that doesn’t stop people from posting all sorts of questions on the Internet looking for free advice. The problem is when you post questions in online forums and chat rooms you have no idea who is answering your question and giving you advice. As a Vaughan bankruptcy trustee, many times we are shocked to see the kind of advice is being posted on the Internet also about frequently asked bankruptcy questions.

Although we do not provide income tax advice, as a Vaughan bankruptcy trustee, we do set filters to obtain postings having to do with income tax debt; many questions and answers regarding income tax are posted. The Internet allows for anonymity and the person who has identified himself/herself as a tax professional may in reality be a teenager having some fun. Or worse, perhaps it is a scammer or malware malcontent collecting email addresses! Although the Internet can be a valuable resource, online forums and chat rooms are not the places to seek tax advice. The same applies to well meaning friends, family and colleagues unless they are trained financial services professionals.

Seek financial advice from a trained, experienced, licensed professional ONLY! If you’re experiencing financial difficulties for any reason including monies owed to the CRA contact your Vaughan bankruptcy trustee, Inc. today. Starting Over, Starting Now you can put your financial difficulties behind you.

 

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CRA: TAX RETURN FILED BUT NO MONEY TO PAY?

proposal, income tax, income tax debt, tax debt, CRA, Canada Revenue Agency, trustee, trustees, tax lawyer, consumer proposal, bankruptcy, bankruptcy alternatives, taxes in CanadaWill CRA be looking for you? June 17TH was the deadline for self-employed individuals in Canada to file their 2013 income tax and benefit return. You filed your return on time to avoid a late-filing penalty on amounts owing, and gasped when you saw how much money you owe the CRA. How are you going to pay your tax bill? The CRA is not known as a charitable organization and they have the power to withhold HST/GST and child tax credits, seize money in your bank account and garnish your wages. To add insult to injury the CRA can also continue to charge penalties and interest on the money you owe until your debt is paid in full. You need a plan and you need one now.

I’m sure you’ve been bombarded by the scare tactic radio ads that are flooding the air waves by a prominent tax lawyer. He’d like you to believe that he and only he can deal with the CRA and solve your tax problem; but, that simply isn’t true. Trustees are experts in solving debt issues and what you need is a professional, licensed trustee. Your trustee will present you with bankruptcy alternatives, one of which is a consumer proposal.

What is a proposal? In a proposal your trustee will work with you to determine how much you can afford to pay each month. Your trustee will then negotiate with your creditors, including the CRA, for you to pay a portion of your unsecured debt over a maximum of 5 years at a monthly rate that is affordable to you. Over 66 2/3% of your creditors ($ value, in addition to a majority in number) have to agree to accept the proposal. If your total debt, including income tax debt, is less than $250,000, then you can consider a streamlined proposal process, which is called a consumer proposal.

Will the CRA agree to a consumer proposal? Recent statistics from the CRA estimate there is currently about $8 billion in unpaid taxes in Canada. The reason that consumer proposals are almost always accepted is that they produce a better rate of recovery on your debts than if you’d filed for bankruptcy. For your consumer proposal the CRA will require that:

  • all outstanding tax returns are filed with CRA before they will accept the proposal
  • you have sufficient income to meet the payments in the proposal
  • you agree to make installments on your current year taxes, so that you don’t fall behind again on your taxes

Are you a good candidate for a consumer proposal? If you’re a business owner with a good cash flow and after coming up with all the deductions possible to give to your accountant you still had a large profit leading to the surprise income tax debt, you’re are a good candidate for a consumer proposal. We can also let you know why negotiating a reduction in your debt through a consumer proposal is better than a bankruptcy.

Don’t let tax debt paralyze you! Contact Ira Smith Trustee & Receiver Inc. today. We’ll create a solid financial plan for you so that you can be Starting Over, Starting Now.

Call a Trustee Now!