Alberta CRA – Get the Facts Before Negotiating a Payment Plan

Perhaps you have heard or read somewhere that it is possible to negotiate a payment plan for your Alberta CRA income tax debt. While this is true, it is not easy and there are several facts you need to know before attempting any negotiation with the CRA. Let’s look at some of them.

First, you need to know your tax debt may be lower than you think.

Canadians everywhere are making tough choices about which bills get paid each month, as there is simply not enough money to go around. CRA debt is easy to put off and leave at the bottom of the list. Many don’t file returns at all and many more who do simply don’t get help with their returns or put much effort into ensuring it is accurate.

Then along comes an overdue tax bill from the CRA. Is the amount they claim you owe correct? In far more cases than you would imagine, it is not. The CRA knows nothing about your life. They know nothing about the things you do that might lead to tax deductions.

So the first thing you need to know is dig into your financial information and your tax returns. You may be able to learn some of what you need to know searching the Internet, but nothing beats getting help from a tax professional. Can’t afford one? Check with legal aid clinics in your area for help. Some provide free or low cost advice on tax issues. They also can steer you towards other agencies that might be able to help.

Second, you need to know the CRA does not negotiate with credit counseling agencies working on your behalf.

Surely you have seen television commercials for credit counseling services touting debt reduction of 40%, 50% or more. In some cases these plans can work with unsecured creditors like your credit card accounts, but your Alberta CRA debt is not negotiable with these plans. CRA will not work with credit counselors on reduced debt settlement plans anywhere in Canada.

So the second thing you need to know is, don’t waste your time looking for a credit counselor to negotiate your CRA debt.

Third, you need to know when negotiating payment plans directly with the taxpayer, the CRA rarely, if ever, accepts a plan that cannot be completed within one year.

The CRA will negotiate directly with taxpayers. If you’re strapped for cash every month you will obviously be interested in negotiating a settlement allowing you to make the smallest payments possible over the longest period of time.

You need to know your proposed settlement can’t last more than one year. If you look at the situation from the CRA’s point of view, why would they accept a settlement that pushes repayment into a new tax year? Taxpayers in trouble are often in no position to pay back old tax debt while keeping current with present tax obligations.

Fourth, you need to know the CRA expects repayment of the entire amount owed to them in payment plans proposed by taxpayers.

Although the CRA will negotiate with you, your settlement proposal must be for the full amount of what you owe. They will accept a reduced amount if your revised tax filings justify it. Beyond that they won’t reduce your debt by one penny. To do so would be patently unfair to Canadians who are able to pay their tax debt in full. To negotiate further reductions, there is another option which we will discuss in a moment.

Fifth, you need to know the total payoff amount in a directly negotiated repayment will include interest charges and penalties assessed against the declining balance of tax debt.

If your total Alberta CRA debt is currently at $24,000 and you propose a settlement of monthly payments of $2,000 you won’t be able to cover the debt. Interest and penalties continue to accrue even while you are repaying the debt. However, there is a way to get rid of all your accrued interest charges and penalties. If your financial difficulties are due to job loss, income loss due to an illness, or you have been the victim of a natural disaster, you can file an appeal with the Fair Practices Commission of the CRA. They have the power to waive interest and penalties.

Sixth, you need to know the CRA will expect assurances that you can complete the plan and stay out of tax debt in the coming year.

Your proposed settlement plan must be realistic and you will have to prove to the CRA that you can complete the plan. You’ll have to provide verifiable proof of income. You will have to provide documentation of expenses as well. A proposed settlement that leaves a taxpayer with zero or even negative cash on hand at the end of each month will not be accepted. In addition, tax debt is an annual obligation and the CRA is not interested in settling past tax debt with payments so large they will inhibit the taxpayer’s ability to meet their tax obligations in the upcoming year.

Seventh, you need to know a final option for negotiating a repayment plan with the CRA is filing a consumer proposal through a licensed bankruptcy trustee.

If your Alberta CRA debt is too large to be realistically paid back within a one year time frame, a consumer proposal is your last choice for negotiating a settlement. Consumer Proposals were added to the Bankruptcy and Insolvency Act (BIA) as an alternative to bankruptcy.

You need to know not everyone qualifies for one. To determine if you qualify you need to consult with a bankruptcy trustee licensed in Alberta. If it is a viable option for you, the trustee will file and manage the proposal process for you. Proposals must include all your unsecured debt, not just your CRA debt, and they do have a negative impact on your credit rating.

Proposals call for the trustee to negotiate reductions in your total unsecured debt sufficient to allow repayment with single affordable monthly payments over a five year period. While the CRA is required by law to consider the proposal, they can object if they feel the proposal is unrealistic or if they feel you are capable of paying more of your tax debt than the reduced amount set forth in the proposal. If CRA objects, a meeting will be called between you and your trustee and the CRA, where a final negotiated settlement of your Alberta CRA debt is often reached.

About Shawn Stack

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