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The CRA and bankruptcy in Alberta

You owe the CRA (Canada Revenue Agency) what can you do?

1. You can negotiate payment terms with the CRA

If you owe taxes that cannot repay, one option is to explain your financial situation to CRA in efforts to negotiate a payment plan that you can afford. Note: Even if the CRA agrees to these terms, you will still be charged penalties and interest until your debt is paid in full.

If you are unable to successfully negotiate terms, the CRA may take further action against you to collect the money owing this may include withholding tax refunds and GST credits, garnisheeing your wages or accounts receivables, or taking funds from your bank account and place a lien on your home or other real property. Since the CRA doesn't have to go through the normal Courts process, they can implement these steps very quickly.

2. Filing a proposal with the CRA

Filing a proposal stops both collection action and interest and penalties. Normally a proposal is for less that 100% of the debt you owe. However, CRA has specific criteria regarding proposals.

A proposal under the Bankruptcy & Insolvency Act (BIA) allows you to negotiate a settlement of your tax debt obligations without having to file for bankruptcy. There are certain requirements that must be completed in order to file a proposal. For a proposal to be accepted, your creditors must receive a better financial settlement than they would otherwise likely receive if you were to file bankruptcy.

In a proposal, the CRA may accept less than the full amount of the tax debt owing.

To file a proposal you must first contact a Licensed Insolvency Trustee.

3. Bankruptcy

If it is not possible to negotiate a tax debt settlement or to make an acceptable proposal to deal with your tax debts, filing bankruptcy might be the only option to eliminate your tax debt(s). Upon your discharge from bankruptcy, all debts for income tax and GST that were included are legally extinguished.

It is a common misconception that personal income tax debt is not discharged by bankruptcy. This is not true; personal income taxes are covered by bankruptcy.

The CRA has advised that they will honour provincial exemptions on assets in bankruptcy.

Income Tax Debt Greater than $200,000

Your Licensed Insolvency Trustee must legally oppose your discharge from bankruptcy if you have $200,000 or more of personal income tax debt and your personal income tax debt comprises 75% or more of your total unsecured debts. You will be required to appear in bankruptcy court to determine the outcome of your bankruptcy discharge.

We can help

Our Licensed Insolvency Trustees (formerly called Trustee in Bankruptcy or Bankruptcy Trustee) and Estate Managers believe everyone deserves a financial fresh start, while being treated with dignity and respect. We have offices conveniently located in Calgary, Edmonton, throughout Alberta, and across Canada.

To speak to someone now call us at 310-8888 for a free, no obligation, confidential consultation.

Contact us for a free consultation

If you have any questions about dealing with tax debt, tax debt settlement, and dealing with the CRA, contact us toll free in Alberta at 310-8888 for a free consultation.

 

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