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Is some debt good for my company?
Lifestyle Debt Debt Solutions
Whether operating a small business, or large enterprise, there is a lot at stake for Canadian entrepreneurs.
Owing Canada Revenue Agency (CRA) money can be overwhelming — especially because the government has greater powers to collect outstanding debts compared to other creditors.
The bad news is many of the rumours you may have heard are true: CRA can charge highly punitive penalties, withhold certain government benefits (e.g., child tax benefit, employment insurance, Canada Pension Plan, etc.) freeze your accounts, and garnish wages without a court order.
The good news is there are several ways to permanently overcome debts owing to CRA, including proceedings under the Bankruptcy and Insolvency Act (BIA) such as Bankruptcy and Consumer Proposal.
To follow is some information regarding your options for paying your tax debt, the powers of CRA to collect, and what to do when you simply cannot pay the debt owing.
So, you’ve just discovered you owe funds to CRA — take one of the following steps as soon as possible:
For personal income tax debt, this deadline is April 30* of the following year (e.g., debts that surface in on your income taxes 2022 must be paid by April 30, 2023).
*Note: Although self-employed individuals do not have to file personal tax returns until June 15, outstanding taxes are still due by April 30.
If you cannot reach a mutually agreeable solution, consult a Licensed Insolvency Trustee as soon as possible to begin considering alternative options.
*Note: The current interest rate set by law at the time of writing is five percent annually (compounded daily), effective from January 1 to March 31, 2022.
CRA takes tax debt seriously. They have a large team and extensive resources at their disposal and will use a wide range of tactics to recover any outstanding taxes. Following is a general outline of what you can expect if you miss the April 30 payment deadline.
Before starting legal action*, CRA must:
*Note: CRA will normally not generally start legal action until 90 days after the mailing date of the notice of assessment or reassessment — nor will it typically withdraw legal action once it has started.
The RTP instructs the third party to redirect the funds — including up to 50 percent of your wages if you’re employed or 100 percent of your wages if you’re a subcontractor — to CRA. CRA will apply any funds received to your debt. CRA can send an RTP without a court order, in most cases through its authority under section 224 of the Income Tax Act or section 317 of the Excise Tax Act.
In some instances — such as in the case of debts that are at risk of not being collected (in jeopardy) — the CRA may advise you verbally that the debt has been certified in Federal Court.
If the CRA sells your assets, the proceeds will be used to pay:
You will still have to pay any remaining tax debt not covered by the proceeds of the asset sale.
A Licensed Insolvency Trustee (LIT) is a federally regulated financial professional and is the only professional in Canada who is licensed and legally able to administer Bankruptcies and Consumer Proposals in Canada.
Bankruptcy and Consumer Proposals are legal proceedings under the BIA and are the only two debt solutions which can address debts owning to CRA. One of the most significant benefits of these solutions — aside from providing a clear and legally-binding path to debt relief — is a stay of proceedings. The stay of proceedings helps you in the following ways:
The stay of proceedings will remain in place until your debt is eliminated, provided you continue to fulfill your duties in a Bankruptcy or Consumer Proposal.
MNP offers a free, no-obligation initial assessment to all Canadian residents who are struggling with unmanageable debt. During this session, we will review your financial situation and budget, discuss your challenges and goals in depth, and discuss all the potential options to address your debt. You will ultimately make the decision on the path you take to a financial fresh start.
If you decide to pursue a Bankruptcy or Consumer Proposal:
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