Can I file a consumer proposal for tax debt?

by Rebecca Martyn on October 21, 2015


“I received some bad tax advice. Will CRA accept a consumer proposal?”

This an all too frequent question emailed to me. Several years ago, I started meeting with people who had fallen victim to improperly prepared tax returns. As result of the penalties and interest charged by Canada Revenue Agency (“CRA”, formerly knows at Revenue Canada), many people found that they could not manage the tax debt owing. Not only did they file their tax returns thinking that they might be getting a large tax refund, they were shocked to see penalty and interest charges. This is all due to the assessing of gross negligence penalties by CRA.

Subsection 163(2) of the Income Tax Act reads in part as follows:

” Every person who, knowingly, or under circumstances amounting to gross negligence, has made or has participated in, assented to or acquiesced in the making of, a false statement or omission in a return, form, certificate, statement or answer (in this section referred to as a “return”) filed or made in respect of a taxation year for the purposes of this Act, is liable to a penalty of the greater of $100 and 50% of the total of … the tax for the year that would be payable by the person under this Act”

I met with many people who have been trying to appeal the penalties and interest, but unfortunately, it seems as though appeals have not been met with success and are being denied.

Now instead of receiving a refund, I have met with people who tens of thousands of dollars. What do they do now?

For many people the route they chose is a consumer proposal. When I first met with people who have been a victim of the tax scheme, there first response is generally skepticism for 2 reasons. I really do understand that. First, they are concerned that if one advisor steered them wrong, they are worried about the next one. But they skepticism is quickly faded when they see I am licensed by the Federal Government. Second, if CRA was not willing to work with them, why would they accept a consumer proposal? It appears that might be the policy of CRA. CRA may have some ability to reduce the penalties and interest, but from what I read in the case above it is a time consuming and expensive process. CRA doesn’t have the ability to reduce the principal balance owing.

My experience dealing with CRA on these matters has been very positive. The look at the entire file closely and want to make sure they are getting the best proposal possible. That means that they expect payments based on your budget and your assets. The good news is that to date, CRA has accepted all of the consumer proposals filed locally by Hoyes, Michalos.

After this initial rush of clients 2 years ago, I would only meet with someone new every few months with these tax issues. About 3 months ago, the rush of people dealing with these issues has started back up. I am not sure if it is due the number of cases that CRA won in court in the past year, or if it is just due to the timing of the appeal process. In any case, all I know is that I am getting a dramatic increase in phone calls with people asking about how to deal with CRA debts, many as a result of reassessments dating back to 2012 and prior.

It is important to make a plan to deal with CRA debts. If you are dealing with tax debts, give me a call or send me an email and I will try and help you make a plan.


Rebecca Martyn is a bankruptcy trustee and consumer proposal administrator responsible for the Hoyes, Michalos & Associates office in Windsor, Ontario.

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