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WHEN FAMILY DISPUTES PUT WILLS AND EXECUTORS AT ODDS: OUR COMPLETE GUIDE ON YOUR RIGHTS WHEN THINGS GO WRONG

wills and executors
wills and executors

wills and executors

Wills and Executors: Introduction

Losing a parent hurts deeply. During this difficult time, families should unite to honour their loved one and handle their affairs. But what happens when the person named in the will to manage everything – the executor – isn’t doing their job properly?

If you’re worried about how an executor is handling your parent’s will, you’re not alone. While your parent chose this person in their will, that appointment isn’t permanent, especially if the executor is causing harm to beneficiaries like you.

Wills and Executors Real-Life Example: When Executors Go Wrong

A recent court case, Spellman v. Spellman, 2025 ONSC 1187 (CanLII), shows just how serious these situations can become. In this case, a brother named as executor mishandled his father’s estate so badly that his sister had to take him to court. This Ontario case highlights the problems that can arise with wills and executors, and the legal remedies available.

In this comprehensive guide, we’ll explore everything you need to know about wills and executors in Ontario, including what happens when things go wrong.

wills and executors
wills and executors

Understanding Wills and Executors

Definition and Purpose

A will is a legal document that outlines how you want your property distributed after death. In Ontario, wills are governed by the Succession Law Reform Act, R.S.O. 1990, c. S.26. The primary purpose of a will is to ensure your wishes are followed, to name an executor to manage your estate, and to potentially appoint guardians for minor children.

Ontario law recognizes three types of wills: formal wills (typed and signed with witnesses), holograph wills (entirely handwritten and signed by the testator), and international wills (for those with assets in multiple countries). Each must meet specific requirements to be valid under Ontario law.

Key Elements of a Will

For a will to be legally valid in Ontario, it must contain certain elements:

  1. Testamentary intent – clear indication that this document is intended to be your will
  2. Testator information – your full name and declaration that this is your last will
  3. Revocation clause – cancelling any previous wills
  4. Executor appointment – naming the person(s) who will administer your estate
  5. Distribution of assets – specific instructions for who gets what
  6. Signatures – yours and those of two witnesses (except for holograph wills)

Ontario law requires that the testator (the person making the will) be at least 18 years old and of “sound mind,” meaning they understand what a will does, what assets they own, who their potential beneficiaries are, and how these elements connect in the will.

Common Misconceptions

Many Ontario residents hold misconceptions about wills and executors that can lead to problems:

Misconception #1: Verbal promises count as much as written instructions. In Ontario, verbal promises about inheritance hold no legal weight against written instructions in a valid will. Always ensure important wishes are properly documented.

Misconception #2: The oldest child automatically becomes the executor. There is no legal requirement that the oldest child (or any family member) must be the executor. This is entirely the testator’s choice.

Misconception #3: Executors can do whatever they want. Executors in Ontario have a fiduciary duty to act in the best interests of all beneficiaries and follow the will’s instructions. They can be held personally liable for breaches of this duty.

Misconception #4: A will cannot be challenged. Ontario’s Succession Law Reform Act allows wills to be challenged on several grounds, including improper execution, lack of testamentary capacity, undue influence, or fraud.

Wills and Executors: Role of an Executor

Definition and Responsibilities

An executor (also called an estate trustee in Ontario) is the person named in a will to administer the deceased’s estate. Their legal duties under Ontario law include:

  • Locating the original will and filing it with the Superior Court of Justice for probate
  • Arranging the funeral according to the will’s instructions
  • Notify all beneficiaries named in the will
  • Creating an inventory of all assets and liabilities
  • Protecting the estate assets until distribution
  • Filing final tax returns and obtaining tax clearance from the Canada Revenue Agency
  • Distributing the assets according to the will’s instructions
  • Providing a detailed accounting of all financial transactions to beneficiaries

The Ontario Trustee Act, R.S.O. 1990, c. T.23 sets out the standard of care required: executors must exercise the care, skill, diligence and judgment that a prudent investor would exercise in making investments.

Steps to Take After Death

When serving as an executor in Ontario, these are the immediate steps to take after someone dies:

  1. Secure the original will – You’ll need this to apply for the Certificate of Appointment of Estate Trustee (probate).
  2. Register the death – Obtain a death certificate from the funeral director, which you’ll need for multiple purposes.
  3. Notify relevant parties – This includes Service Canada (for CPP/OAS benefits), banks, insurance companies, and the Canada Revenue Agency.
  4. Apply for probate – In Ontario, this is called a Certificate of Appointment of Estate Trustee. This application goes to the Superior Court of Justice and includes filing an Estate Information Return with the Ministry of Finance within 180 days.
  5. Place a Notice to Creditors – This protects the Estate Trustee from personal liability for unknown debts. Historically, it was published in local newspapers. More recently, advertising for creditors on the NoticeConnect online portal has replaced publishing a notice in the local newspaper.

The Ontario Estate Administration Tax (EAT), formerly called probate fees, must be paid based on the estate’s value. Current rates are $15 per $1,000 for estates over $50,000, with the first $50,000 taxed at $250.

Managing and Protecting Estate Assets

Ontario law places strict requirements on executors regarding estate assets:

  • Estate account – Open a separate estate bank account for all financial transactions
  • Asset security – Ensure valuable property is secured, insured, and maintained
  • Prudent investments – Follow the “prudent investor rule” for any investments
  • Record keeping – Maintain detailed records of all transactions
  • Asset valuation – Obtain professional appraisals of significant assets

In the Spellman case, the executor failed to properly manage and account for estate assets, which directly violated Ontario’s Trustee Act. This resulted in significant financial penalties against the executor.

wills and executors
wills and executors

Wills and Executors: Choosing an Executor

Personal vs. Professional Executor

Ontario law allows you to name either personal connections (family/friends) or professionals (lawyers/trust companies/Smith Estate Trustee Ontario) as executors:

Personal Executors:

  • Cost-effective (may serve without compensation)
  • Familiar with family dynamics
  • May have personal knowledge of your wishes

Professional Executors:

  • Experienced in estate administration
  • Objective third party in family conflicts
  • Knowledge of tax and legal requirements
  • Continuity (won’t die or become incapacitated)

The complexity of your estate, family relationships, and the competence of potential personal executors should guide this decision.

Factors to Consider

When choosing an executor for your Ontario will, consider:

  1. Financial capability – The executor should understand basic financial matters and be capable of working with professionals when needed.
  2. Trustworthiness – Ontario law holds executors to a high fiduciary standard; choose someone with impeccable integrity.
  3. Availability – The role typically requires 1-2 years of active involvement.
  4. Location – While non-residents can serve as executors in Ontario, they face additional requirements and may need to post a bond.
  5. Personal qualities – Organization, attention to detail, and communication skills are essential.
  6. Age and health – Choose someone likely to outlive you and be physically and mentally capable of serving.

Ontario allows for alternate executors to be named in case your first choice is unable or unwilling to serve.

Implications of Multiple Executors

Ontario wills can name multiple executors who must act jointly unless the will specifies otherwise. Potential benefits include:

  • Shared workload and responsibility
  • Complementary skills and knowledge
  • Checks and balances in decision-making

However, this arrangement can also create challenges:

  • Decision gridlock if executors disagree
  • Increased administration time and costs
  • Communication difficulties

If you choose multiple executors in Ontario, the will should specify whether they must act jointly (all decisions require unanimous agreement) or severally (each can act independently).

Wills and Executors: Executor Compensation

Standard Practices

In Ontario, executors are entitled to “fair and reasonable compensation” for their services, even if the will doesn’t mention compensation. The Trustee Act doesn’t specify exact amounts, but Ontario courts have established guidelines:

  • 2.5% of capital receipts
  • 2.5% of capital disbursements
  • 2.5% of revenue receipts
  • 2.5% of revenue disbursements
  • An annual care and management fee of 0.4% of the average gross value

The total typically ranges from 3-5% of the estate value, depending on complexity, time involved, results achieved, and executor expertise.

How Compensation is Determined

Ontario courts consider these factors when assessing appropriate executor compensation:

  1. Size of the estate – Larger estates may justify higher percentage fees
  2. Time spent – Detailed time records strengthen compensation claims
  3. Complexity – Business assets, litigation, or tax complications may justify higher fees
  4. Skill and expertise required and applied
  5. Success in administering the estate efficiently

Executors should keep detailed records of their activities and time spent, as this documentation is critical if compensation is challenged.

Handling Disputes over Fees

Disputes over executor compensation are common in Ontario. If beneficiaries object to proposed fees, these are the typical steps:

  1. The executor “passes their accounts” by filing a formal accounting with the court
  2. Beneficiaries can file objections to specific items or overall compensation
  3. A hearing is held before a judge, who makes the final determination

In contentious cases like Spellman v. Spellman, the court can even deny compensation entirely if the executor has breached their fiduciary duties or mismanaged the estate.

wills and executors
wills and executors

Legal Considerations for Wills and Executors

Jurisdictional Differences

While this guide focuses on Ontario law, executors should be aware that different provinces have varying rules.

  • Ontario’s Estate Administration Tax is higher than some provinces but allows for multiple will strategies to reduce taxes
  • Quebec uses civil law rather than common law, with notarial wills being the norm
  • British Columbia has specific rules regarding will variation claims
  • Alberta has different probate fee structures

If the deceased owned property in multiple provinces or countries, executors may need to apply for probate in each jurisdiction, significantly complicating the process.

Executors and Beneficiaries

Ontario law creates a special relationship between executors and beneficiaries:

  1. Fiduciary duty – Executors must put beneficiaries’ interests first
  2. Duty to inform – Beneficiaries have a right to basic information about the estate
  3. Impartiality – Executors must treat all beneficiaries fairly
  4. No self-dealing – Executors cannot purchase estate assets without court approval

When executors are also beneficiaries (common in family situations), they must be especially careful to separate their interests from their executor duties. The Spellman case demonstrates how severely Ontario courts view executor self-dealing.

Corporate Trustees as Executors

Ontario allows trust companies to serve as executors. Advantages include:

  • Professional expertise in estate administration
  • Continuity (no risk of death or incapacity)
  • Objectivity in family disagreements
  • Infrastructure for record-keeping and reporting

However, corporate executors charge professional fees (typically 3-5% of the estate) and may lack personal knowledge of family dynamics. They’re usually most appropriate for complex or high-value estates or when no suitable individual is available.

Smith Estate Trustee Ontario acts as an independent court-appointed estate trustee. We act impartially as an officer of the court, while being sensitive to the family dynamics.

Wills and Executors: Will Disputes and Resolutions

Common Causes for Disputes

Ontario courts frequently see these common triggers for will disputes:

  1. Validity challenges – Claims that the will wasn’t properly executed, the testator lacked capacity, or was unduly influenced
  2. Executor misconduct – Similar to the Spellman case, where the executor breached their fiduciary duties
  3. Interpretation issues – Unclear or ambiguous language in the will
  4. Dependent support claims – Under Ontario’s Succession Law Reform Act, dependents can claim adequate support if the will doesn’t provide for them
  5. Family law claims – Surviving spouses have special rights under the Family Law Act, R.S.O. 1990, c. F.3

The Ontario Limitations Act, 2002, S.O. 2002, c. 24, Sched. B generally provides a two-year window for most estate-related claims.

Legal Recourse and Mediation

When disputes arise over wills and executors in Ontario, these resolution options exist:

  1. Negotiation – Often the first step, with beneficiaries and executors attempting to resolve issues directly
  2. Mediation – A neutral third party helps facilitate a voluntary resolution (mandatory in some Ontario jurisdictions before court proceedings)
  3. Court applications – Formal proceedings where a judge makes a binding decision
  4. Passing of accounts – A specific court process where executors present a detailed accounting for approval

Ontario courts have broad powers to:

  • Remove and replace problematic executors
  • Order the return of misappropriated assets
  • Interpret ambiguous will provisions
  • Award compensation for damages caused by executor misconduct
wills and executors
wills and executors

Wills and Executors: When No Executor is Named

Appointment of Administrator

If someone dies without naming an executor in their will (or dies without a will), the Ontario Superior Court of Justice can appoint an administrator. The Estates Act establishes this priority order:

  1. Spouse
  2. Children
  3. Grandchildren
  4. Parents
  5. Siblings
  6. Next of kin

The appointed administrator has essentially the same duties and powers as an executor, but typically must post a bond unless the court waives this requirement.

Legal Process and Challenges

The process for appointing an administrator in Ontario involves:

  1. Filing an Application for Certificate of Appointment of Estate Trustee Without a Will (if no will exists) or With a Will (if there’s a will but no named executor)
  2. Providing notice to all interested parties
  3. Paying the required Estate Administration Tax
  4. Posting a bond, in many cases

Challenges in administrator appointments often include:

  • Competing applications from multiple family members
  • Disputes over who is best suited to serve
  • Difficulties in obtaining the required bond
  • Family conflicts that make administration difficult

Smith Estate Trustee Ontario acts many times as a court-appointed administrator where a person dies intestate (without a will).

Wills and Executors: Renouncing Executorship

Reasons for Renunciation

Ontario law allows named executors to decline the role, provided they haven’t “intermeddled” in the estate. Common reasons include:

  1. Health issues – Physical or mental health challenges that make the role difficult
  2. Distance – Living far from where the estate needs to be administered
  3. Time constraints – Inability to devote necessary time to executor duties
  4. Complexity – Feeling unequipped to handle a complex estate
  5. Family conflict – Wanting to avoid being caught in family disputes

In the Spellman case, Dawn initially renounced her right to be an administrator, showing that this is sometimes done to facilitate the process—though in this case, it unfortunately led to problems.

To properly renounce in Ontario, the executor must file a Renunciation of Prior Right to a Certificate of Appointment of Estate Trustee (Form 74.18) with the court before taking any actions that would constitute accepting the role.

Smith Estate Trustee Ontario also acts in situations where the named executor(s) renounces their role.

wills and executors
wills and executors

Frequently Asked Questions About Wills and Executors in Ontario

What is a will in Ontario, and what key elements must it contain to be legally valid?

A will in Ontario is a legal document that outlines how you want your property distributed after death. Under the Succession Law Reform Act, a valid will must include:

  • Clear indication that it’s intended to be your will (testamentary intent)
  • Your full name and a declaration that this is your last will
  • A statement cancelling any previous wills (revocation clause)
  • Appointment of an executor to manage your estate
  • Instructions for distributing your assets
  • Your signature and those of two witnesses (except for holograph wills)

To create a valid will, you must be at least 18 years old and of “sound mind,” meaning you understand what a will does, what you own, who your potential beneficiaries are, and how these connect in your will.

What are some common misconceptions about wills and executors in Ontario?

Several misunderstandings can lead to problems with wills and executors:

  • Verbal promises don’t count: In Ontario, what you’ve written in your will overrules any verbal promises you made about inheritance.
  • No automatic executor: The oldest child or any specific family member doesn’t automatically become the executor – this choice belongs solely to the person making the will.
  • Executors have limits: Executors must follow the will’s instructions and act in all beneficiaries’ best interests, facing personal liability if they don’t.
  • Wills can be challenged: Under the Succession Law Reform Act, wills can be contested for reasons like improper execution, lack of mental capacity, undue influence, or fraud.

What responsibilities do executors have after someone passes away?

Executors in Ontario (also called estate trustees) must:

  • Locate the original will and file for probate with the Superior Court of Justice
  • Arrange the funeral according to the will’s instructions
  • Notify all beneficiaries named in the will
  • Create a complete inventory of all assets and debts
  • Protect estate assets until they’re distributed
  • File final tax returns and get clearance from the Canada Revenue Agency
  • Distribute assets according to the will’s instructions
  • Provide beneficiaries with detailed financial accounting

Ontario’s Trustee Act requires executors to follow the “prudent investor rule” when managing estate investments.

What immediate steps should an executor take after someone dies?

If you’re serving as an executor in Ontario, take these steps right away:

  1. Secure the original will for your probate application
  2. Get a death certificate from the funeral director
  3. Notify important organizations like Service Canada, banks, insurance companies, and the Canada Revenue Agency
  4. Apply for probate (Certificate of Appointment of Estate Trustee) with the Superior Court of Justice
  5. File an Estate Information Return with the Ministry of Finance within 180 days
  6. Place a Notice to Creditors in local newspapers to protect yourself from unknown debts
  7. Pay the Estate Administration Tax based on the estate’s value

How are executors compensated, and what can beneficiaries do if they disagree with the fees?

Ontario executors are entitled to “fair and reasonable compensation,” typically based on court guidelines:

  • 2.5% of capital receipts
  • 2.5% of capital disbursements
  • 2.5% of revenue receipts
  • 2.5% of revenue disbursements
  • 0.4% annual care and management fee based on average gross value

Total compensation usually ranges from 3-5% of the estate’s value, depending on factors like size, time spent, complexity, skill required, and success in administration.

If beneficiaries dispute these fees, the executor must “pass their accounts” by filing a formal accounting with the court. Beneficiaries can then object, leading to a hearing where a judge makes the final decision. In cases of executor misconduct, as seen in the Spellman case, the court may deny compensation entirely.

What’s the difference between choosing a personal executor versus a professional executor?

When choosing between personal and professional executors for your Ontario will, consider:

Personal Executors (family/friends):

  • More cost-effective (may serve without compensation)
  • Better understanding of family dynamics
  • Personal knowledge of your wishes

Professional Executors (lawyers/trust companies):

  • Experience in estate administration
  • Objectivity during family conflicts
  • Knowledge of tax and legal requirements
  • Continuity (won’t die or become incapacitated)

Your decision should be based on your estate’s complexity, family relationships, and the capabilities of potential personal executors.

What legal options do beneficiaries have if an executor isn’t doing their job properly?

If you’re concerned about executor misconduct in Ontario, as illustrated in the Spellman v. Spellman case, you can:

  1. Try negotiation or mediation first
  2. If unsuccessful, apply to the court for:
    • Removal and replacement of the executor
    • Return of misappropriated assets
    • Interpretation of unclear will provisions
    • Compensation for damages caused by executor misconduct

Ontario courts take executor misconduct seriously, as shown in the Spellman case, and will intervene to protect beneficiaries’ interests when necessary.

What happens if someone dies without a will or without naming an executor?

If someone dies without a will (intestate) or without naming an executor in Ontario, the Superior Court of Justice will appoint an administrator. The Estates Act establishes this order of priority:

  1. Spouse
  2. Children
  3. Grandchildren
  4. Parents
  5. Siblings
  6. Next of kin

The appointment process requires:

  • Filing an Application for Certificate of Appointment of Estate Trustee
  • Notifying all interested parties
  • Paying the Estate Administration Tax
  • Usually, posting a bond

Complications can arise from competing applications, disputes over who is most suitable, difficulties obtaining a bond, or existing family conflicts. Once appointed, the administrator has duties similar to an executor’s.

Wills and Executors: Protecting Your Rights Under Wills and Against Problem Executors

Family disputes over wills and executors create tremendous stress during an already difficult time. The Spellman case shows just how serious the consequences can be when executors neglect their duties.

While a will names a specific person as executor, Ontario courts have the power to remove and replace executors who breach their responsibilities. If you’re facing challenges with an executor who isn’t fulfilling their duties under a will, remember that legal options exist to protect your inheritance.

Whether you’re planning your estate, serving as an executor, or dealing with concerns about an existing executor, understanding Ontario’s laws on wills and executors is essential. Seek professional legal advice promptly to understand your specific situation and determine the best way forward for your family and your loved one’s legacy.

Wills and Executors: Seeking Professional Estate Trustee Solutions

When facing the complexities of estate administration or concerns about existing executors, professional expertise can make all the difference. Smith Estate Trustee Ontario, a specialized division of Ira Smith Trustee & Receiver Inc., offers independent court-appointed Estate Trustee services tailored to challenging situations. Our experienced team understands the intricacies of Ontario estate law and provides impartial administration when family disputes arise, when no suitable executor is available, or when professional oversight is needed.

As the Spellman case demonstrates, proper estate administration requires knowledge, integrity, and dedication to fiduciary duty. Whether you’re planning your estate, dealing with executor concerns, or need a professional trustee appointed by the court, Smith Estate Trustee Ontario delivers the expertise and objectivity your family deserves during difficult times.

Contact us today to learn how our professional Estate Trustee services can bring peace of mind and proper administration to complex estate matters.

The information provided in this blog is intended for educational purposes only. It is not intended to constitute legal, financial, or professional advice. Readers are encouraged to seek professional advice regarding their specific situations. The content should not be relied upon as a substitute for professional guidance or consultation. The authors, Ira Smith Trustee & Receiver Inc. and Smith Estate Trustee Ontario, and any contributors do not assume any liability for any loss or damage.

wills and executors
wills and executors
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Brandon Blog Post

CONSUMER PROPOSAL CRA: OUR COMPLETE GUIDE TO GET YOU OUT OF TERRIBLE TAX DEBT

consumer proposal CRA to eliminate debt
consumer proposal CRA

Consumer Proposal CRA: Introduction

Very soon we will all start receiving our slips to prepare our 2024 income tax return. Tax season can be a stressful time, especially when you realize you owe money to the Canada Revenue Agency (CRA). It can feel like a huge weight on your shoulders, and sometimes it might feel like you’re drowning in debt. If you’re in this position, it can be hard to know where to turn, and it may feel like your finances have reached a tipping point. You’re not alone, and there are options to help you regain control. One of these options is a consumer proposal CRA to eliminate your tax debt.

As a Licensed Insolvency Trustee (LIT), I help people explore their options for managing debt, and I’m here to explain how it can work for you to eliminate your financial difficulties, especially when dealing with the CRA.

Understanding a Consumer Proposal CRA

A consumer proposal is like a formal legal agreement between you and the people you owe money to (your creditors). It is a debt management plan to legally reduce the amount of debt you have to pay back [1]. It’s a way to combine all your unsecured debts into one monthly payment, making it more manageable.

Think of it as a new arrangement that gives you a chance to repay your debts – or a portion of them – on terms that are more reasonable for you. This is a federally regulated debt reduction program [4] managed by a Licensed Insolvency Trustee. With a consumer proposal, you often end up paying back significantly less than what you originally owed. A great benefit is that interest doesn’t keep adding up, which can save you a lot of money in the long run.

consumer proposal CRA to eliminate debt
consumer proposal CRA

How a Consumer Proposal CRA Helps with CRA Tax Debt

You might be surprised to hear that income tax debt is actually considered an unsecured debt, just like credit card debt and other consumer debts. This means that even though is can be called a government debt, it can be included in a consumer proposal CRA debt. One of the biggest advantages of filing a consumer proposal is that it immediately stops the CRA from taking further action to collect the debt.

This includes things like garnishing your wages, freezing your bank account or constantly calling you for payment. With this tool, instead of having lots of individual payments to different creditors, you make one single monthly payment to the LIT, making it much easier to manage your finances. The periodic payments are structured and typically spread out over a specific period of time of no more than five years . It also gives you legal protection from your creditors.

CRA Requirements and Considerations for a Consumer Proposal CRA

The CRA has specific requirements when it comes to consumer proposals. It is essential that all your tax returns are up to date before you file. This means that even if the CRA has made an estimate of what you owe because you haven’t filed (called a notional assessment), you still need to file proper tax returns. You must also be prepared to file your future tax returns and pay your taxes on time during the period of the proposal.

You can include an estimate for the income tax you owe for the current year, up to the date you file the proposal. The CRA will look at your past earnings to make sure that the income you report is accurate. The CRA will also check to make sure that your proposal offers fair and reasonable terms, and that you are not trying to pay as little as possible. It’s important to know that the CRA will only be able to reduce your tax debt through a formal insolvency proceeding and will not accept other informal types of debt settlements.

consumer proposal CRA to eliminate debt
consumer proposal CRA

Benefits of a Consumer Proposal CRA

Filing a consumer proposal has several advantages:

  • It reduces your overall debt: You could end up paying significantly less than the total amount you owe.
  • It protects you from collection actions: A consumer proposal CRA means that they have to stop contacting you and cannot take further legal action against you.
  • It consolidates your payments: You make one single monthly payment instead of multiple payments to different unsecured creditors.
  • It stops interest: Interest on your debt will stop accumulating.
  • It offers flexible payment terms: You can discuss a payment plan that works best for you.
  • It can save you significant money: Many people save a considerable amount of money when they use a consumer proposal CRA.

Is a Consumer Proposal CRA Right for You?

It’s important to know that it is not right for everyone. To qualify, your total unsecured debt must be less than $250,000, not including your mortgage. Unsecured debts are things like credit cards and other consumer debt not secured by a specific asset. Secured debts, such as mortgages and car loans, are not included. The best thing to do is to think about your personal circumstances and get advice from a LIT. A LIT can help you figure out if it is the best option for you.

Documentation Required for Submission

If you’re considering this option, here are the steps to take:

  • Gather your financial information: Make a list of all your assets, and your debts. You should also be able to list your monthly income and expenses – in other words, your monthly budget, on an after tax basis.

Assessment of Your Financial Situation

  • Consult with a Licensed Insolvency Trustee: A LIT will review your information, discuss options with you and guide you through the recommended process.
  • Create a proposal: If the proposal route is right for you, you will work with your LIT to develop the proposal for your unsecuted creditors.

A LIT will explain how a consumer proposal CRA could affect your finances and help you decide if it’s right for you. It’s best to contact a LIT early so that you can address any issues before they become worse.

consumer proposal CRA to eliminate debt
consumer proposal CRA

Frequently Asked Questions about Consumer Proposals and CRA Debt

What exactly is a consumer proposal and how does it work?

A consumer proposal CRA is a legally binding agreement between you and your creditors (those you owe money to). It’s a formal debt reduction program, regulated by the federal government and administered by a LIT. Essentially, you offer your creditors a revised repayment plan, typically over a specific period of time up to five years.

This usually involves paying back a portion of your total debt, often significantly less than the original amount owed, and importantly, interest on your debts stops accruing. This creates a structured repayment plan, with one single monthly payment, and offers a way to manage your unsecured debts.

Can I include my Canada Revenue Agency (CRA) tax debt in a consumer proposal?

Yes, absolutely. Income tax debt owed to the CRA is considered an unsecured debt, just like credit card debt or bank loans. This means it can be included in a consumer proposal. A consumer proposal will protect you from further collection actions by the CRA, such as wage garnishments, court actions and persistent collection calls. The CRA will deal with tax debt through a formal consumer proposal and will not consider informal debt settlements.

What are the key benefits of using a consumer proposal to manage CRA debt?

There are several advantages. Firstly, you can significantly reduce the overall amount of tax debt you have to repay. Secondly, it provides legal protection from collection actions by the CRA. Also, it consolidates all your debt payments into one manageable monthly payment. Critically, interest stops accumulating on the included debts, which can save you a lot of money over time. Finally, the process allows for flexible payment terms, which are negotiated with your creditors via an LIT.

What are the CRA’s specific requirements for accepting a consumer proposal?

The CRA has a few key requirements. First, you must have all of your past tax returns. This is crucial, and even if the CRA has estimated your taxes via a notional assessment, you will still need to file your proper tax returns to get all tax filings up to date.

Second, you must agree to file future tax returns and pay your taxes on time during the course of the proposal. You can also include an estimate for the income tax you owe for the current tax year up to the date you file the proposal, even though that tax filing is not due yet. The CRA will also review your income and expenses, to ensure the proposal is offering fair and reasonable terms and that you are not trying to minimize payment.

What types of debts can be included in a consumer proposal, and what debts are excluded?

A consumer proposal is primarily designed for unsecured debts. These are debts not linked to an asset, such as credit cards, bank loans, payday loans, and CRA income tax debt. Secured debts such as mortgages and car loans, are not included in consumer proposals. Also, some debts cannot be discharged through a consumer proposal. These typically include child support, spousal support and any court-ordered fines or penalties.

How do I know if a consumer proposal is the right solution for me?

A consumer proposal is not for everyone. To be eligible, your total unsecured debt must be less than $250,000 (excluding your mortgage). The best way to determine if it’s right for you is to assess your individual circumstances and consult with a Licensed Insolvency Trustee (LIT). An LIT can assess your financial situation, review all your options and advise you if a consumer proposal is the best choice for you and what your proposal payments may be. It is beneficial to seek help early before debt problems become worse.

What are the first steps I should take if I’m considering a consumer proposal?

First, gather all your financial information: income statements, a comprehensive list of all your debts and your monthly expenses. Then, consult with a Licensed Insolvency Trustee (LIT). They will explain the process, assess your eligibility and help you develop a consumer proposal for your creditors. It’s important to address debt issues promptly and with a professional, rather than ignoring them, to prevent further issues developing.

Will a consumer proposal CRA completely eliminate my debt?

A consumer proposal does not eliminate all debts entirely. It eliminates or reduces the unsecured debts it includes; any secured debts such as a mortgage, and non-dischargeable debts, like child support, will still need to be paid. The proposal offers a structured way to repay a significant portion, or all of the unsecured debts included in it, and a reduction of the overall debt burden. Remember that the key goal is to agree a manageable repayment plan that is affordable.

Conclusion: Navigating the Consumer Proposal CRA Process

Dealing with CRA debt can feel overwhelming and scary, but a consumer proposal CRA can be a way to find your path to financial freedom. It’s important to seek help rather than ignore the problem. Taking action early can prevent things from spiralling out of control. Contact a Licensed Insolvency Trustee today to start exploring your options and take that first step towards a more secure financial future.

I hope you enjoyed this consumer proposal CRA Brandon’s Blog. 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 someone with 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 debt relief options to get you out of your debt troubles while avoiding the bankruptcy process. We can get you debt relief freedom using processes that are a bankruptcy alternative.

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 about 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.

The information provided in this Brandon’s Blog is intended for educational purposes only. It is not intended to constitute legal, financial, or professional advice. Readers are encouraged to seek professional advice regarding their specific situations. The content of this Brandon’s Blog should not be relied upon as a substitute for professional guidance or consultation. The author, Ira Smith Trustee & Receiver Inc. as well as any contributors to this Brandon’s Blog, do not assume any liability for any loss or damage.

consumer proposal CRA to eliminate debt
consumer proposal CRA
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TO CALCULATE HST IS EASY: PAYING IT AND SOLVING OTHER GIGANTIC COVID-19 BUSINESS DEBT PROBLEMS ARE NOT

calculate hst
calculate hst

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.

If you would prefer to listen to the audio version of this Brandon Blog, please scroll to the very bottom of the page and click play on the podcast.

Calculate HST and Canadian small business

I read two business reports this week, one from the Canadian Federation of Independent Businesses (CFIB) and one from the Canada Revenue Agency (CRA). They both contain troubling information. The combined effect is bad news.

CRA reports that businesses owe $14.3-billion in unpaid sales tax. CFIB estimates that small businesses in Canada owe a collective $139 billion in debt due to the COVID-19 pandemic as of August 2021.

Almost three-quarters of small businesses that took on debt expect it to take more than a year to repay. For businesses in the hospitality sector, the number jumps to 87 percent, with most saying it will take longer than two years to pay it off. Nearly a quarter worried about ever being able to pay off their debts.

These two reports clearly illustrate that one of the debts Canadian business owners have amassed is collected but unremitted Harmonized Sales Tax (HST). This Brandon Blog will not only describe how to calculate HST but also explain what will happen if you do not pay it over to CRA.

Calculate HST Amounts in Sales and Purchase Documents

You must register for GST/HST if you bill more than $30,000 per year. You do not need to register if you don’t exceed this amount. The HST calculation varies according to the province or territory you operate in. Several provinces have harmonized their provincial sales tax with the Goods and Services Tax (GST) and charge HST on taxable goods and services. GST and provincial sales tax have to be charged in provinces with PST; GST is calculated on the price of each taxable sale of goods or services before PST is added.

HST is calculated on the revenue from each taxable sale that is collectible or collected. The HST on each taxable supply produces an input tax credit that can then be deducted from the HST owing. HST on taxable sales less input tax credits from taxable supplies is the net amount of HST due or refund for the period. Your HST return may need to be filed annually, quarterly, or monthly, depending on how large your business is as measured by total sales and therefore sales taxes also.

CRA has created an HST calculator to help you calculate HST.

calculate hst
calculate hst

Calculate HST is just one part of small business debt and the COVID-19 impact

In their August 2021 research study, the CFIB uncovered a variety of issues that show the Canadian small business sector is struggling. They found:

  1. It is estimated that 71% of Canadian small business owners have taken on new debt loads to deal with the effects of the COVID-19 pandemic.
  2. CFIB estimates that total Canadian small business debt loads related to the coronavirus is around $139 billion, and 76% of businesses that took on debt said it would take them more than one year to repay it.
  3. Governments should continue business relief measures as government support is winding down since Canadian small businesses are carrying such a burden and are having difficulty regaining their footing. Rent assistance is one such support program.
  4. Only 39% of small businesses in Canada are currently making sales they consider to be normal for this time of year, despite recent improvements. Most continue to experience declines in revenue.
  5. About 17% of small businesses in Canada have sales that are half or less of what they should be.
  6. Four in five businesses are using one or more sources of funding to cope with COVID-19.
  7. In the arts, recreation & information, and hospitality sectors, 9 of 10 businesses are using some federal, provincial, or other funding to cope with COVID-19.
  8. In three out of five cases, government relief programs replace less than 30 percent of the COVID-19 shortfall.
  9. Scaling back federal relief programs comes too quickly for most business owners.
  10. According to half of the entrepreneurs, repaying their debt is the biggest challenge their business faces on the road to recovery.

Now for the CRA news release that has to do not only with how to calculate HST, but who is and is not paying their HST.

How to calculate HST is only the first part: Businesses owe $14.3-billion in unpaid sales tax, Canada Revenue Agency says

The number of companies falling behind on federal sales tax remittance indicates financial distress, as companies battle the pandemic and supply chain issues. In March 2020, when pandemic restrictions began, the nation owed $11.5 billion in GST and HST to the government. By September 2021, it owed $14.3 billion, an increase of 24 percent over that amount.

As of 2020-21, the CRA has received about 500,000 fewer sales tax returns than the year prior. There were approximately 105,000 fewer sales tax filers, the agency reports. Despite the fact that so many businesses are still operating at some level, they are not even bothering to file their tax returns.

Most businesses file their HST returns on either a once-a-year reporting period or on a quarterly reporting period. Some larger companies report and remit monthly. Quarterly remitters with annual taxable income between $1.5 million and $6 million showed the largest drop in returns by reporting period.

Therefore, it is clear that Canadian businesses are using the tax amounts collected as another source of financing since the pandemic hit. There is no mention of HST in the CFIB study. HST collected but not remitted was not even considered as a source of financing, which it is.

calculate hst
calculate hst

Calculate HST but if you don’t pay, it is a deemed trust

Regardless of the business legal structure, the GST/HST amounts you collect from your customers are considered a deemed trust in favour of the federal government. In an operating business, it takes precedence over whatever debts you owe to other creditors, including secured creditors. The CRA can still get payment from your bank even if the bank does not lend money to you. They can go to the bank where you keep your business funds and get payment there. All that is explained in my blog post about Canada v. Toronto-Dominion Bank.

However, the CRA has the following options:

  • garnish bank accounts, accounts receivable, and all other sources of income;
  • confiscate and sell assets; and
  • pursue other legal remedies.

In my experience, CRA does not typically seize and sell assets. Instead, they pursue garnishments. As in the TD Bank case, they can also just go to whichever of the financial institutions the business banks with and demand the HST funds that have been deposited. When a company owns real property, they may get a judgment from a federal court without notifying the owner, and register that judgment against the title to the real property. Upon refinancing or selling the property, the business owner is required to repay the judgment, plus interest.

Calculate HST: Are HST and COVID debt crushing the life out of your business?

In an environment hamstrung by manufacturing and shipping backlogs, businesses may experience supply shortages and higher delivery costs. Even though paying your bills may be the most emotionally satisfying course of action, it may not be the most practical.

It’s better for your business and your employees if you seek professional advice if you believe that you cannot make next month’s payroll. The following issues cannot be ignored: lenders demanding loan repayment, landlords threatening to end your lease or seize your assets as payment, suppliers cutting off credit or halting deliveries.

The first thing I do as a licensed insolvency trustee is to determine what stage of the business the company is at. The stage the business is at is crucial for me to understand. The choices are:

  1. Solvent and viable.
  2. Solvent but not viable.
  3. Insolvent and viable.
  4. Insolvent and not viable.

The business can probably restructure with some simple changes to its operations if it is solvent and viable. Insolvent companies that are still viable may be restructured under the provisions of the Bankruptcy and Insolvency Act or the Companies’ Creditors Arrangement Act.

The business can be liquidated or sold if it is not viable, but it is solvent. If it is insolvent and not viable, we are probably looking at bankruptcy or receivership.

A deep dive is required to find out what the correct answer is. For sure I would need to calculate HST collected but unremitted, as that is a deemed trust claim, apart from one exception I describe below.

calculate hst
calculate hst

Calculate HST: What happens to the deemed trust claim in a bankruptcy?

The Excise Tax Act (ETA) defines GST/HST as a deemed trust claim. Under the ETA, a deemed trust claim will include amounts for GST/HST that was collected by the business but not paid to the CRA. There is only one exception. A bankruptcy of the business will rearrange the priorities. In a bankruptcy, the deemed trust GST/HST claim becomes an ordinary unsecured claim. There is no statutory authority for this same outcome in a BIA restructuring Proposal. However, sometimes, as an administrative issue, CRA will allow this treatment also.

According to one school of thought, unremitted amounts included in deposits or loan repayments to a financial institution before bankruptcy continue to be deemed trust claims. Nonetheless, the Supreme Court of Canada clarified GST/HST deemed trusts and secured creditors’ responsibilities for funds received.

The Callidus Capital Corporation v Her Majesty the Queen decision was reversed by the Supreme Court of Canada in 2018. For secured creditors, the decision that the deemed trust provisions of the ETA become inoperative on bankruptcy, and therefore secured creditors are not liable to account for proceeds received from a debtor pre-bankruptcy, is significant.

Calculate HST: GST/HST liability For directors

ETA section 323 increases the CRA‘s power to collect unremitted GST/HST when efforts to collect against corporations prove futile. As a result of the failure of the corporation to remit GST/HST, its directors will be liable for any tax the corporation should have remitted. The directors are jointly and severally liable for the corporation’s unremitted GST/HST.

CRA has the right to look to the directors whether the corporation is in bankruptcy or not. When we calculate HST and discover a company owes net HST, there is another downside to bankruptcy. CRA may now want to claim on the directors sooner because of the HST liability becoming unsecured.

calculate hst
calculate hst

Calculate HST summary

I hope you now see why I feel the combination of the CFIB survey results and the announcement from CRA spells upcoming trouble for Canadian businesses. I also hope you found this calculate HST Brandon Blog post informative. Are you worried because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option? If it is too much debt for any reason, 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 while avoiding bankruptcy. We can get you the relief you need and so deserve.

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 and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Even though we are licensed insolvency trustees, we have found that not everyone has to file bankruptcy in Canada. The majority of our clients never do. We help many people and companies stay clear of 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, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation. We will get you or your business back up driving to healthy and balanced trouble-free operations and get rid of the discomfort factors in your life, Starting Over, Starting Now.

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.

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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!