income tax
Income tax related posts from an insolvency perspective, focusing on personal bankruptcy and consumer proposals in particular.
20 Year Old Considering Personal Bankruptcy
A reader asks: I messed up big time but I’ve learned a lot of lessons. I earned just a hair shy of $200,000 in my first year as a real estate agent at 20 years old. I was way too immature to have that kind of money, and blew most of it without saving. I invested my tax savings in growing my team which I thought would have been an easy pay back. Lost it all. No worries though just sell more houses. Depression strikes, mother gets very sick, I took on an expensive apartment and car. Not emotionally mature enough to handle these things like an adult yet. Hemorrhaging…
My Husband Lied About $350,000 of CRA Debt. What Now?
A READER ASKS: Hello, we are 37 F+M married in Ontario for 17 years. Teenage kids. I make $70k in a government job with pension. He owns a contracting business that he opened about 15 years ago. We are well known. He is very successful with several great employees and we get a lot of business. After expenses and wages he might clear $100k. We have $109,000 in the bank combined, today. Through our entire relationship he has paid for everything in cash. Even multiple vehicles. Trips. He saves for what he wants and buys it. He has never had a credit card. All our finances are separate and we…
Income taxes and the “honest but unfortunate debtor”
A bankrupt debtor who was ordered by the Court to pay $35,000 to the Canada Revenue Agency, which was the major creditor in her bankruptcy because of unpaid income taxes. At issue in this court case was whether the bankrupt in question was “an honest but unfortunate debtor”. Diewold (Re), 2018 SKQB 149 The Debtor—a 64 year old pensioner with no available surplus income—owes the Government of Canada a debt of $263,817.16 for personal income tax. The income tax debt makes up over 99% of the unsecured proven claims in the bankruptcy. The Canada Revenue Agency (“CRA”) opposed the Debtor’s bankruptcy discharge. The Trustee reported that the Debtor has assets…
Case Study: The self-employed tax debtor
Self Employed With Tax Debt To CRA Don (not his real name) was in a real pickle. He was a gentleman in his late 50s supporting a family of three, consisting of his stay at home wife and young niece. He was the sole income earner in the household, which was stressful enough, but he also was in trouble with the Canada Revenue Agency. You see, Don was a self-employed consultant in the construction industry. Although he earned very good money (almost $120,000 per year), he hadn’t put any money away in the last few years to pay his annual tax bill to the Taxman. As a result, he owed…
How CRA collects income tax debt
The Canada Revenue Agency (“CRA”) has significant powers under the Income Tax Act (“ITA”) to collect personal income tax debt. This post examines the collection procedures most commonly used. Charge over real property Under Section 223 of the ITA, the CRA can register a lien over a debtors home (or any other real estate owned by the debtor). It does so through the following steps: The Ministry of Revenue issues a certificate which certifies an amount owing by the tax debtor This certificate is registered with the Federal Court and when so registered, it has the same effect as if the certificate were a judgment obtained against the debtor for…
Bankruptcy and personal income tax debt
Despite beliefs to the contrary, personal income tax debt is treated no differently than most other types of debt under Canadian bankruptcy law. However, this statement comes with a caveat, which we’ll examine later later in this post. Here is a typical scenario that I’ve come across frequently: The debtor is self-employed and for one reason or another, has not filed personal income tax returns for a number of years; She eventually has her earnings garnished by the Canada Revenue Agency. She calls CRA to find out what’s going on, and is told that they performed an arbitrary assessment of the income taxes that she owes, since she never filed…
What is a Division I Proposal?
What is the difference between a Division 1 proposal and a consumer proposal? Consumer Proposal Vs Division I Proposal The consumer proposal process is used where a debtor’s liabilities do not exceed $250,000 (this threshold excludes mortgage debt on a residential home). In summary, the process in such circumstances is as follows: The proposal is filed with the Office of the Superintendent of Bankruptcy (“OSB”). Upon filing, a stay of proceedings is immediately in effect whereby the debtor becomes creditor-proof. The proposal is sent to creditors for review. The creditors are deemed to have accepted the proposal if no objections are received from them within 45 days after the filing…
When you owe taxes to the Canada Revenue Agency
Yes, you owe income tax debt to the Taxman: sometimes it feel like you’re working for no one but him; especially if you are a high income earner. Therefore, it’s no surprise that income tax payers: Find ways to shelter their income. For many self-employed individuals, particularly some professionals, they do this by investing in tax shelters. However, when one’s tax shelters get disallowed by Canada Revenue Agency and a reassessment is issued, what can be done if the tax bill can’t be paid? Fail to remit income tax installments altogether, and end up with significant penalties and interest. When the assessment or reassessment comes in, some tax debtors are…
