Tag: insolvency filing

Categories
Brandon Blog Post

LICENSED INSOLVENCY TRUSTEE VAUGHAN: THE COMPLETE GUIDE FOR YOUR HAPPY DEBT FREE L1FE

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting. Through the use of video meetings, we can help you even if you do not live close to our office in the Jane Street Hwy. 7 area. It is just like we are coming to you!

The bankruptcy trustee in Vaughan: We transformed into a licensed insolvency trustee Vaughan

The bankruptcy trustee in Vaughan went through a metamorphosis similar to a caterpillar becoming a butterfly. The term “bankruptcy trustee” turned into a “licensed insolvency trustee“. The licensed insolvency trustee designation was mandated to all licensed trustees by the Industry Canada Office of the Superintendent of Bankruptcy (OSB). The OSB licenses and supervises the activities of all licensed insolvency trustees across Canada. This includes us as a licensed insolvency trustee Vaughan, Ontario.

The purpose of this Brandon blog is to offer an overview of our role in the Greater Toronto Area with our licensed insolvency trustee Vaughan insolvency trustee firm head office.

The purpose of this Brandon blog is to offer an overview of our role in the Greater Toronto Area with our licensed insolvency trustee Vaughan insolvency trustee firm head office.

Role of a Licensed Insolvency Trustee Vaughan (formerly called Trustee in Bankruptcy Vaughan)

A licensed insolvency trustee Vaughan can fulfill various roles. It all starts with providing a no-cost consultation for a person or company that finds themselves in a troubling financial situation that worries them about their prospects for a bright financial future.

Due to the various roles, a licensed insolvency trustee Vaughan can play, we are also known as “receivers”, “trustee in bankruptcy” or “financial restructuring professionals”. We are appointed when a company or person is financially distressed and either has no other options to get out of financial difficulty and is unable to pay its bills. A licensed insolvency trustee is the only party licensed by the Government of Canada to perform a federal government-approved debt settlement plan, being a consumer proposal consolidation.

As a licensed insolvency trustee Vaughan firm, there are different roles we can play.

licensed insolvency trustee vaughan
licensed insolvency trustee vaughan

Find the right option with the help of a Licensed Insolvency Trustee Vaughan

Personal situation insolvency

For individuals who are insolvent, we can provide and act in the following:

  • A no-cost initial consultation to provide advice about debt relief.
  • Credit counselling. to help with your household budget and determine if you really need one of the available debt relief options.
  • Consumer Proposal – Toronto and GTA – Act as Consumer Proposal Administrator to conduct a Consumer Proposal Process for people who owe $250,000 or less in unsecured debts (not including any debts registered against their home) who wish to eliminate their debt and wish an alternative to bankruptcy so that they can avoid filing bankruptcy. This is a government-approved interest-free debt settlement plan that can be paid over as much as five years.
  • Division I Proposal – Toronto and GTA – This process is not quite as streamlined as a consumer proposal, but it is for people who wish to eliminate their debt while avoiding personal bankruptcy.
  • These 2 proposal remedies are the only accredited government debt relief programs in Canada.
  • Personal bankruptcy – Toronto and GTA – As a licensed insolvency trustee Vaughan, we can of course assist anyone who wishes filing for bankruptcy. In your no-cost consultation with us, we first get to know you and your financial situation in order to determine if you qualify for one of the bankruptcy alternatives. If not, we will discuss the entire bankruptcy process with you, including the cost of bankruptcy. If you wish to proceed, we will accept your assignment in bankruptcy.

All collection activities against you cease when you make an assignment in bankruptcy, or file a debt settlement restructuring proposal. Legal action against you may include wage garnishment, collection calls, or a legal action against you. You get legal protection as a result of the stay of proceedings afforded by an insolvency filing.

The two most common types of debt we encounter in our personal insolvency practice are credit card debt and income tax debt. We have successfully handled for clients serious negotiations with Canada Revenue Agency in order to achieve debt settlement for people with a financial history of income tax debt.

Corporate insolvency

For companies, and especially entrepreneurial family businesses that are insolvent, we can provide and act in the following:

  • A no-cost initial consultation to provide advice about debt restructuring options.
  • Restructuring & Turnarounds.
  • Business analysis, business review and monitoring.
  • Receivership – Toronto and GTA – Only a licensed insolvency trustee can act as a receiver on behalf of a secured creditor. As a licensed insolvency trustee Vaughan, we act as a privately-appointed receiver on behalf of a secured creditor. We also act as a court-appointed receiver upon the application to a court by a secured creditor or other stakeholders.
  • Winding-Up and Liquidator – Toronto and GTA – For solvent companies that wish to wind up operations through a legal process, we act as either privately appointed or court-appointed Liquidator.

    licensed insolvency trustee vaughan
    licensed insolvency trustee vaughan

Selecting The Right Licensed Insolvency Trustee in Vaughan

Experience and professionalism

You might not find the expertise to solve your financial difficulties with someone just around the corner. You can start your search for the right Trustee by visiting the website of the Canadian Association of Insolvency and Restructuring Professionals. Both Ira Smith and Brandon Smith are members of the Canadian Insolvency and Restructuring Professional Association. It shows an individual’s commitment to staying up to date with all the latest industry advancements by belonging to this organization. Check the website of the OSB to ensure that the Trustees you are considering are not suspended or under file management by the regulator.

Interacting with them on many levels is essential

As a beginning, they must be able to quickly understand your needs and desires, as well as provide you with a realistic plan that can be followed. If you have issues or concerns, they also need to be available to you. Look for their interest in you. How enthusiastic are they about their industry? Do you really feel their compassion for you? Do you feel you are going to get along on an inter-personal basis with this person?

That’s exactly how you measure enthusiasm. The most effective solutions and suggestions will be offered by a knowledgeable insolvency trustee. You may not find this type of person within walking distance of your home or workplace.

licensed insolvency trustee vaughan
licensed insolvency trustee vaughan

Licensed insolvency trustee Vaughan: Are you able to agree on the same concepts?

It is not a totally free service to engage a professional trustee. The complexity of your situation could affect the bankruptcy cost. Your trust in a bankruptcy trustee is diminished if you feel they view you as just another dollar sign. Look for those who seem to have similar values to you. It may not be the closest to your home to find such a licensed insolvency trustee.

Websites for licensed insolvency trustee Vaughan

Searching for “bankruptcy trustee near me” or “licensed insolvency trustee Vaughan” on a search engine today will bring up various websites to visit. How does the website make you feel? What bankruptcy FAQs do they provide? Can you see pictures of the people you would deal with? From their blog, do they demonstrate that they have a deep knowledge base?

licensed insolvency trustee vaughan
licensed insolvency trustee vaughan

You can meet with more than one Trustee

Unless you sit across the table from him or her, you won’t know which one is the right fit for you. Comparing two bankruptcy trustees is a good idea. You want to be able to compare two or more for your own validation purposes. The one you feel best about is the one to go with. Trust your gut!

3 Best Licensed Insolvency Trustees in Vaughan, ON

Throughout the years my firm has been inspected for 50 points, including reviews, ratings, reputation, history, complaints, satisfaction, trust, cost, and general excellence. The results have allowed us to rank consistently among the top 3 Best Licensed Insolvency Trustees in Vaughan, ON.

Licensed insolvency trustee Vaughan summary

I hope that you found this licensed insolvency trustee Vaughan Brandon Blog helpful in describing our role as debt professionals and my thoughts on how to go about choosing the one you think is the best fit for anyone in a financial crisis. Problems will arise when you are cash-starved and in debt. There are several insolvency processes available to a person or company with too much debt.

If you are concerned because you or your business are dealing with substantial debt challenges, you need debt help and you assume bankruptcy is your only option, call me.

It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties with debt relief options as alternatives to bankruptcy. We can get you the relief you need and so deserve. Our professional advice will create for you a personalized debt-free plan for you or your company during our no-cost initial consultation.

The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people with credit cards maxed out and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do as we know the alternatives to bankruptcy. We help many people and companies stay clear of filing an assignment in bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need to become debt-free, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

licensed insolvency trustee vaughan
licensed insolvency trustee vaughan

Categories
Brandon Blog Post

CANADIAN BUSINESS: WHAT WILL BE THE ULTIMATE BUSINESS IN ONTARIO RECOVERY PROGRAM?

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

Canadian business introduction

In April 2020, a survey of entrepreneurs who own what could be called a small Canadian business across the GTA was conducted. It found that almost two-thirds of them might have to shut down for good as they struggle to stay on top of rent and other bills throughout the COVID-19 pandemic.

In this Brandon’s Blog, I look at entrepreneurs in Canadian business, both small and large, and talk about the one essential ingredient that will determine Canadian business success or failure. This one necessary item may turn out to be the only Canadian business recovery program that will ultimately work.

Canadian business opening-up again

Many are progressively opening up under local, provincial and federal government guidance. They need to navigate a host of constraints, including restrictions on the number of customers at any one time. I have read that many say the restrictions with their added layer of costs may stop them from being profitable. Even though COVID-19 cases appear to be under control in Ontario, companies have actually reopened to dramatically smaller sized groups, imperilling their survival.

To save local Canadian businesses, and the millions they employ, the federal government developed Canada’s COVID-19 Economic Response Plan. The federal assistance programs for Canadian business include:

I have already written about most of these support programs. I have attached relevant links above so that you can read up on the various support programs for Canadian business.

Provincial governments have also stepped up. For example, in Ontario, the Doug Ford Conservative government has implemented:

  1. Interest/penalty relief – Canadian business in Ontario will get five months of interest and fine relief to make payments for taxes administered by the Province. From April 1, 2020 – August 31, 2020, Ontario will not apply any penalty interest on any late-filed returns or incomplete or late tax obligation payments under the Employer Health Tax, Tobacco Tax and Gas Tax obligations. This enhances relief from the federal government on interest and other charges from not remitting the amount owing for corporate income tax.
  2. WSIB payment deferments – Employers can delay WSIB payments for 6 months.
  3. Rent support for local Canadian business – Ontario has partnered with the Government of Canada on the Ontario-Canada emergency commercial rent assistance for small businesses and landlords experiencing financial problems throughout the COVID-19 pandemic.

But there are still Canadian business problems

Despite all these support programs, the Canadian business world still has to figure out how to pay the balance of their rent, utility, insurance as well as a host of various other recurring expenses. While some have had the ability to delay these expenses, they can’t do so for life. Companies will become required to take care of their unmet commitments. They will also have to figure out how they are going to go back to paying all their expenses in full once the support programs end and business has not yet come back to the pre-coronavirus pandemic level.

Some companies may have enough cash savings to ride out the pandemic or can access fresh cash resources from owners. That is both good and bad. Entrepreneurs will take from their retirement savings, and in some cases deplete them, in the hopes of keeping their business alive long enough to survive and once again be profitable. It is highly doubtful that Canadian business will be able to borrow from the Banks as a source of fresh capital under these circumstances.

For a lot of others, the crush of past-due costs will certainly limit and maybe even end their business.

What happens when the government support programs end?

That is a big question that I get asked always. The answer is somewhat obvious: Everyone will have to stand on their own two feet just like they had to before the COVID-19 pandemic. Right now all the Canadian business support programs are all scheduled to end August 31. What will happen then?

My personal belief is that the federal and provincial governments will not be able to end the economic response support programs that soon. Rather, I think they will have to extend all the programs again. They may tweak them to begin the process of weaning Canadian business off of government support. Nevertheless, I feel they will have to be extended.

I think the extension will come with stark warnings. I believe the government would not want to extend for more than 90 days, but Christmas will still come in December. Pandemic or no pandemic. Nobody will want to shut off the tap before Christmas. So, that means an extension until the end of the calendar year 2020. With it, the governments will have to warn everyone to get their houses in order now because for certain there will be no more support programs after December 31.

I don’t have any inside information. I am just guessing. But to me, that seems the most realistic to still help Canadian business because entrepreneurs and workers are still all scared. At the same time, the governments’ exit strategy time clock begins ticking. Everyone will have a fair warning.

There is one precious commodity Canadian business will need when the support programs stop

Please humour me. Let us just say you find my prediction to be a reasonable one. On January 1, 2021, Canadian business is not all of a sudden flush with cash. They have survived. Entrepreneurs will still be scared. They certainly will not hire everyone back with an uncertain economic climate. All of the creditors of the businesses will start demanding payment in full. They have been patient and understanding. But now, all business debts will be demanded.

What is the one commodity Canadian business will desperately need? Cash is an obvious one but, no more is coming. Not from the government, the Banks or investors. Entrepreneurs are already tapped out having used personal savings to keep their businesses afloat. The most precious commodity Canadian business will need is TIME. Time to gear up again. Time to get back on their feet and bring in some cash. The Courts will have reopened. Creditors will begin to sue. There will be no more “time-outs” built into our Canadian economic system.

How will businesses get the time they need?

Bankruptcy protection will very likely be the answer

Breathing time that briefly ices up the need to pay off old debt while letting Canadian business function and have the time to find a strategy to keep going. In most cases, that will only be able to happen with a bankruptcy protection insolvency filing.

While bankruptcy is only thought of with going out of business, there are two Canadian federal statutes that allow viable businesses to develop a restructuring plan to lead them back to success. The trouble is that bankruptcy laws don’t give sufficient time to do this while there is still a pandemic. Ongoing COVID-19 health problems will likely suppress the Canadian economy in 2021.

Some out-of-the-box thinking and creativity are going to have to go into bankruptcy restructuring. It will be incumbent on licensed insolvency trustees (formerly called bankruptcy trustees), insolvency lawyers and the courts to recognize viable businesses that deserve to survive. This will be the case even if the processes being recommended are a bit unorthodox. These times are unorthodox and the solutions will have to fit the realities of our time.

I have previously written many blogs on how the two Canadian insolvency statutes can be used to allow Canadian business to restructure. The two statutes are:

For the purpose of this blog, I won’t repeat what I have previously written about corporate restructuring under either the BIA or CCAA. For this blog, what you need to know is that CCAA proceedings are for companies with $5 million or more of debt. BIA proceedings are for those companies with $4,999,999 of debt or less. Both statutes allow for bankruptcy protection filing. They are the Canadian equivalent to Chapter 11 bankruptcy protection in the United States.

How will bankruptcy protections help Canadian business?

For numerous companies battling the consequences of COVID-19, the main issue will not be a massive backlog of debt. It will be the inability to pay off the debt fast due to an absence of immediate profits. Cash will be needed to carry on business and make commitments on a go-forward basis. Given enough time, Canadian business will be able to repay its debts which accrued during the coronavirus shutdown. Unfortunately, the time Canadian business will need will be much longer than how much longer creditors will be willing to wait.

This is where bankruptcy protection filing, under either the BIA or CCAA comes in. First, under a bankruptcy protection filing, there is an automatic stay of proceedings. Creditors will not be able to start or continue collection efforts. This includes repossession by secured creditors or beginning or continuing legal proceedings.

Other benefits of a bankruptcy protection filing for Canadian business will be:

  1. Buying some time to come up with a restructuring plan to keep viable businesses in operation.
  2. Saving jobs through restructuring rather than liquidating the assets of many companies.
  3. Allowing for the sale of entire business units to be integrated into other healthier companies in order for businesses to survive, albeit in a different legal format.
  4. To allow for the sale of redundant assets to raise much-needed cash.
  5. Get out of onerous equipment, IP or premises leases/contracts that need to be jettisoned or else a restructuring is not possible.
  6. Stopping secured lenders from calling a default on loan facilities due to either cash or non-cash impairment charges leading to going concern worries.
  7. Obtain operating capital by way of a new debtor-in-possession loan credit facility for restructuring. Most companies outside of a formal restructuring will be unable to borrow any more money as I have already mentioned. However, in a BIA or CCAA Canadian business restructuring, the court can approve emergency funding and raise that operating loan to the top of the pile by giving it a priority secured loan position.
  8. Stopping Canada Revenue Agency (CRA) from starting or continuing garnishee tactics, general collection efforts and especially placing liens on business property for unpaid taxes.
  9. To allow companies to restructure their debt and clean up their balance sheets in a post lockdown economy.

The biggest resource Canadian business will need is also going to be its largest enemy

So as you can see, I believe that the most important resource that Canadian business will need to survive will not be cash. It will be time. Creditors will no longer want to give businesses more time to repay. Companies will need more time to get back on their feet when the COVID-19 Economic Response Plan support programs end.

The only way I can see that truly happening while allowing for proper restructuring of viable businesses will be under bankruptcy protection filings. Those businesses that are not viable, by definition, will fall by the wayside causing more harm to many good people.

So this why I say formal bankruptcy protection proceedings to allow viable businesses to restructure will be the ultimate business recovery program in a post-lockdown Canada.

Canadian business summary

I hope you have found this Canadian business Brandon’s Blog interesting and helpful. 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.

Income, revenue and cash flow shortages are critical issues facing entrepreneurs, their companies and individual Canadians. This is especially true these days.

If anyone needs our assistance for debt relief Canada COVID-19, 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 Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

canadian business
canadian business
Categories
Brandon Blog Post

DO YOU INHERIT DEBT IN CANADA: CRA SAYS YES TO PROPERTY TRANSFERS

Introduction

When conversations of financial obligations happen, people usually joke around and state they’ll finally be without debt upon their death. Many people who come to me for their no-cost consultation also ask, do you inherit debt in Canada? A recent decision of the Tax Court of Canada inspired me to write this Brandon’s Blog to discuss the issue.

What happens to debt when you die in Canada?

In general, what happens to debt when you die in Canada is that your Executor or Executrix (in Ontario it is called an Estate Trustee) needs to understand all of the deceased’s assets and liabilities. The Estate Trustee needs to make sure that all debts are paid off before making any distribution to the beneficiaries. Unless you have co-signed for or guaranteed someone else’s loan, you are not responsible for your spouse’s or parent’s debts upon their death. There at generally two exceptions.

The first is credit card debt where usually a spouse has a supplementary credit card on the same account. In that case, you need to look at the credit card agreement because the supplementary cardholder might be responsible for the debt. So if there are insufficient assets in the estate to pay off the credit card debt, the supplementary cardholder may have to.

Section 160(1) of the Income Tax Act (Canada)

Section 160(1) of the Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.)) (Income Tax Act), and its equivalent, S. 325 of the Excise Tax Act (Canada), can be utilized by the Canada Revenue Agency (CRA) to assess tax obligation liability to those who received a transfer of property from persons with tax obligations at the time of the transfer. This indicates if a person offers you something of value (virtually anything), while they have a tax debt, the CRA can and will certainly pursue you. CRA’s view is that the original tax obligation debtor ought to have sold whatever was transferred, and the funds used to pay off the tax debt.

This section of the Income Tax Act (or Excise Tax Act) especially comes into play during irathe administration of a deceased Estate or in an insolvency filing.

The Court decision, released on February 10, 2020, highlights this issue that death is no excuse when it comes time to pay the taxman!

The Court case facts

The CRA assessed the two daughters of the deceased father $96,640.96 each under section 160(1) of the Income Tax Act in respect of a transfer of property from their father prior to his death. Each daughter has appealed the assessments to the Tax Court of Canada. The two appeals were heard together as the evidence and facts were identical.

The agreed statement of facts was:

  1. The father was the annuitant of a Franklin Templeton Investments life income fund (the Income Fund) and prior to his death, he designated each of his daughters as his irrevocable beneficiaries under the Income Fund.
  2. In his last will and testament, he named his daughters as Estate trustees and beneficiaries of his estate.
  3. The father died on June 8, 2011.
  4. On or about July 26, 2011, $96,640.96 was transferred to each of the daughters.
  5. Each of the daughters received the $96,640.96 distribution on July 26, 2011, in satisfaction of their beneficial interest following the father’s death.
  6. The daughters provided no consideration in regard to the transfer of the $96,640.96.
  7. On July 3, 2015, the Minister of Revenue assessed each of the daughters $96,640.96 on the basis of subsection 160( 1) of the Income Tax Act.
  8. The father had an outstanding tax liability of not less than $96,640.96 with respect to his 2011 taxation year.

Tax liability re property transferred not at arms’ length

Section 160(1) of the Income Tax Act reads as follows:

“Tax liability re property transferred not at arm’s length

160 (1) Where a person has, on or after May 1, 1951, transferred property, either directly or indirectly, by means of a trust or by any other means whatever, to

(a) the person’s spouse or common-law partner or a person who has since become the person’s spouse or common-law partner,

(b) a person who was under 18 years of age, or

(c) a person with whom the person was not dealing at arm’s length,

the following rules apply:

(d) the transferee and transferor are jointly and severally, or solidarily, liable to pay a part of the transferor’s tax under this Part for each taxation year equal to the amount by which the tax for the year is greater than it would have been if it were not for the operation of sections 74.1 to 75.1 of this Act and section 74 of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, in respect of any income from, or gain from the disposition of, the property so transferred or property substituted for it, and

(e) the transferee and transferor are jointly and severally, or solidarily, liable to pay under this Act an amount equal to the lesser of

(i) the amount, if any, by which the fair market value of the property at the time it was transferred exceeds the fair market value at that time of the consideration given for the property, and

(ii) the total of all amounts each of which is an amount that the transferor is liable to pay under this Act (including, for greater certainty, an amount that the transferor is liable to pay under this section, regardless of whether the Minister has made an assessment under subsection (2) for that amount) in or in respect of the taxation year in which the property was transferred or any preceding taxation year,

but nothing in this subsection limits the liability of the transferor under any other provision of this Act or of the transferee for the interest that the transferee is liable to pay under this Act on an assessment in respect of the amount that the transferee is liable to pay because of this subsection.”

When identifying the applicability of section 160, you need to also consider the interpretation of arm’s length in subsection 251(1) and the interpretation of related persons in subsection 251( 2 ). Subsection 251(1) defines related persons not dealing with each other at arm’s length.

It likewise considers a taxpayer and certain trusts not to deal at arm’s length. Finally, it offers that, in any other case, it is an inquiry of fact whether individuals not related to each other are, at a certain time, dealing with each other at arm’s length.

Paragraph 251(2)(a) of the Income Tax Act provides that, for the objectives of the Income Tax Act, related persons or persons related to each other are individuals linked by blood relation, marital relationship, common-law or adoption. Paragraph 251(6)(a) specifies that, for the purposes of the Income Tax Act, individuals are connected by blood relationship if one is the child or various other offspring of the other or one is the sibling of the other.

The Federal Court of Appeal

The Federal Court of Appeal had already determined that the following 4 standards must be used when taking into consideration subsection 160(1):

  1. The transferor needs to be liable to pay tax at the time of transfer;
  2. There need to be a transfer of property, either straight or indirectly, through a trust or any other method;
  3. The transferee must either be:
  • The transferor’s spouse or common-law relationship at the time of transfer or a person who has since come to be the person’s spouse or common-law partner;
  • A person who was under 18 years of age at the time of transfer; or
  • An individual with whom the transferor was not dealing at arm’s length.

4. The fair market value of the property transferred needs to be greater than the true value of the consideration given by the transferee.

The position of the parties

CRA’s position was that this was a transfer of property from the father to the daughters prior to his death at a time when he had an outstanding income tax liability.

The daughters stated that they accept that three of the four criteria set out by the Federal Court of Appeal have been satisfied. Particularly, the Appellants agree that their father indirectly transferred the property to each of them, that he owed income tax relating to the tax year in which the transfer took place or a previous tax year and that no consideration was paid by the daughters.

Accordingly, both CRA and the daughters agreed that the only issue before the Court to determine is whether the father and his daughters were dealing with each other at arms’ length.

The daughters’ position was that at the time of the actual cash transfer their father was dead. He did not exist, and for that reason, he was not a related individual within the meaning of Subsection 251(6), and therefore was not in blood relation with them.

CRA’s position was simple. First, the time of the transfer was not when the investment firm paid the cash to the daughters. Rather, it was when the father designated them as irrevocable beneficiaries. Second, the father and his daughters were related not by contract, but by blood. So, even death cannot take away that relationship.

The Court’s decision

The Court agreed totally with CRA’s position, upheld the assessments against each of the daughters and dismissed the appeals. They were found to have received the transfer of the property for no consideration at a time when the father owed income tax of a greater amount. The daughters were each liable to pay the amount of $96,640.96 to CRA. So in this case, if the daughters were asked do you inherit debt in Canada, they would have to answer a resounding YES.

Insolvent and alive

I also come across this issue when providing a no-cost consultation to an insolvent person wanting to know their options. Whenever they disclose that they have an income tax debt, I ask about transfers between the person and his or her spouse or children. I do this to see if there are may section 160(1) transfer of property issues.

If there are, an insolvency filing will merely highlight the transfer issue to CRA. When they get notice of the consumer proposal or the bankruptcy, they start their deep-dive investigation into the affairs of the bankrupt. As a licensed insolvency trustee (formerly called a bankruptcy trustee), I also have to advise the creditors of any issues like a transfer between related parties for no or little consideration. Once CRA determines a transfer took place between blood relations for little or no value being given or paid, they will assess the spouse or child under section 160(1) of the Income Tax Act. The outcome will be the same as in this Court case.

Do you inherit debt in Canada summary

So alive or dead, transfers of property between blood relatives for little or no value is always troublesome when it comes to income tax debt outstanding at the time, insolvency and death. I hope you enjoyed this do you inherit debt in Canada Brandon’s Blog and that you have a better understanding that it is possible.

I am finding that I am getting involved more often in deceased estate matters. My involvement is in advising people who are the Estate Trustee of an insolvent estate. I also have acted as the licensed insolvency trustee of a bankrupt deceased estate.

That work has now naturally led to obtaining assignments where my skill set as a licensed insolvency trustee comes in handy in a deceased estate. Two examples are having acted as the Estate Asset Manager in selling off assets in an estate and as acting as an Estate Trustee where there is no bankruptcy involved.

Because of that work, Ira Smith Trustee & Receiver Inc. has opened up a new business division called Smith Estate Trustee Ontario. In that business, as Estate Trustee, we offer options for the complicated estate concerns. We end the discomfort and irritations the stakeholders are experiencing. We use the experience and integrity that we have built up over the years, with compassion, to help the parties navigate the messy estate issues. We strive for a win for all beneficiaries, adding value by reaching the settlements and distributions they were unable to accomplish by themselves.

We provide a full range of services to provide solutions for the complex Estate issues to end the pain and frustration the stakeholders are experiencing. We apply our expertise and creative thinking to take care of all details to end your pain and achieve the goals of the beneficiaries and other stakeholders. Contact Smith Estate Trustee Ontario today for your free consultation.do you inherit debt in canada

Categories
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.

Call a Trustee Now!