What is a CRA Consumer Proposal?

The benefits of a tax proposal with a CRA Consumer Proposal can be a real lifesaver…

What are CRA Consumer Proposals? A CRA Proposal is a legal agreement arranged by a Licensed Insolvency Trustee (LIT) between you and the Canada Revenue Agency (CRA).

Consumer Proposals allow you to pay back a portion of your debt over a specific period (up to five years), with the rest being legally forgiven.

A key point is that this method also stops the interest and penalties from growing on your debt.

In our work as Licensed Insolvency Trustees, we often use a few simple bullet points to explain the Consumer Proposal:

• a legal agreement between you and your creditors.
• allowing you to pay back only a portion of your debt.
• the rest of your debt is legally forgiven.
• further interest charges and penalties are stopped

It provides a maximum repayment period of five years.

Now, let’s move onto the question you probably have on your mind: “What is a CRA Consumer Proposal?”

When we talk about a CRA Consumer Proposal, we’re essentially discussing a Consumer Proposal where one or more of your creditors is the Canada Revenue Agency (CRA).

Yes, that’s right, a Consumer Proposal can include tax debt.

Having been an insolvency trustee for many years in Ontario, I’ve seen many cases where individuals are burdened with significant tax debt.

I remember a client, let’s call him John, who came to me with a look of utter despair. He was drowning in credit card debt and also owed a hefty amount to the CRA. We were able to put together a CRA Consumer Proposal for him, effectively dealing with both his credit card and tax debt.

The procedure is mostly similar to a regular Consumer Proposal.

A Licensed Insolvency Trustee, like myself, works with you to develop a proposal outlining how much of your debt you’ll pay back, and over what period.

This proposal is then submitted to your creditors, including the CRA.

In my experience, one key difference when dealing with CRA is that they typically require all tax returns to be filed up to date before considering a proposal. This is an essential factor to remember when working on a CRA Consumer Proposal.

The benefits of a CRA Consumer Proposal can be a real lifesaver.

Some of the benefits include:

• You are protected from any collection actions from the CRA (they can’t garnish your wages or freeze your bank accounts).
• It halts further interest charges on your tax debt.
• It allows you to pay a fraction of your tax debt, and
  • the remaining balance is legally forgiven.

John, the client I mentioned earlier, found significant relief in these benefits. After his CRA Consumer Proposal was accepted, he went from feeling like he was drowning to having a structured, manageable path to becoming debt-free.

Now that we’ve gone over the basics, it’s time to delve a bit deeper.

Many questions and considerations can arise when thinking about a CRA Consumer Proposal. Having seen these questions firsthand in my Ontario practice, I am going to address a few crucial ones here.

Not everyone is eligible to file a Consumer Proposal.

To qualify, you must:

• Residents of Canada: with unsecured debt of less than $250,000 (not including mortgages on their principal residence)
• Financially insolvent: meaning that their debts are greater than their assets and they are unable to pay their debts as they become due.
• Have a source of income
• Must not have filed a consumer proposal or bankruptcy in the last six years.

Remember, it’s always best to consult with our Insolvency Trustees to determine your eligibility.

In a CRA Consumer Proposal, the role of a Licensed Insolvency Trustee is vital.

As an LIT myself, my primary role is to act as a mediator between you and your creditors, including the CRA.

We ensure that your proposal is fair, manageable, and follows all legal requirements.

No financial solution is without its potential risks or consequences, and a CRA Consumer Proposal is no exception. Some potential challenges could include:

• The CRA may reject the proposal if it feels the offered amount is too low.
• It will affect your credit rating, which can make it harder to get loans or credit in the future.
• If you miss three payments, your proposal could be annulled, meaning your creditors could take action to collect the full amount owed.

One particular client, Emily, was initially worried about these potential downsides. However, after careful discussion and analysis of her financial situation, we concluded that the benefits of filing a CRA Consumer Proposal far outweighed the risks in her case.

Now, you might be wondering what life looks like after filing a CRA Consumer Proposal.

The good news is that after you’ve completed the payments under your proposal, you will be legally released from the debts included in the proposal. This includes your tax debts!

In my years as a trustee, I’ve seen many relieved faces when clients realize they’re finally debt-free. Like John, Emily was able to regain control of her financial life and move forward, free from the burden of unmanageable debt.

Filing a CRA Consumer Proposal can often seem like a daunting process. However, as a Licensed Insolvency Trustee, I’ve witnessed first-hand how it can serve as a beacon of hope for those drowning in debt.

Remember, the journey to financial recovery begins with understanding your options. A CRA Consumer Proposal is one such option, a lifeline that can pull you out of the depths of debt and into financial solvency.

If you’re facing financial hardships and tax debts, don’t hesitate to seek help. Reach out and give us a call, explore your options, and start your journey toward financial recovery.

Debt does not have to define your life. As both John and Emily have shown, there’s a way out, a path forward, and a brighter financial future ahead.