consumer proposal,  income tax

Does CRA Forgive Tax Debt?

A reader asks:

I feel like I need to reach out and get a little advice, also to just gain a little bit of knowledge regarding debt. I have no idea what I’m doing so please be nice!

I am currently self employed, technically considered a contractor as a tattoo artist at an established shop. We handle all of our payments ourselves, not on payroll. I’ve been doing this for the last 4.5 years. I make on average, $60,000 – $70,000 a year before taxes.

I have neglected filing my taxes since becoming self employed, until this year (stupid, I know) and am now finding myself in quite a troublesome situation. I owe the CRA a LOT of money. Since I was completely ignorant to this situation in the last 4.5 years, I have no money set aside to put towards this debt. I have been very careless in my spending habits so I have basically no savings. I also have about $12,000 in credit card debt that I’ve been trying to pay off for the last 6 years, and I’m hardly making a dent.

My living expenses are quite high due to the city I live in, rent being $2,000/month, food being at least $400/month and add on hydro, gas, phone, subscriptions and what not. I also have a $1500/month rent fee for the tattoo studio I work at. So at the end of the month, I have very little money left over.

I have no idea how to go about paying of this debt, with the amount of money I have left over at the end of each month, it seems I’ll be paying this debt of for a couple decades. Not sure how forgiving the CRA is but seems like the odds aren’t in my favour. I’ve been told to look into filing bankruptcy or a consumer proposal but don’t know much about either. I understand my credit will basically be null and void, I won’t be able to get loans, credit cards or buy a house. Luckily home ownership isn’t and won’t be in the picture for me for at least 5-10 years anyways. I also don’t know if a consumer proposal applies to CRA debts or if it’s just for credit/loan debt so if someone could provide some clarity as to what that entails, the info would be greatly appreciated!

Overall I’m feeling incredibly flustered and stuck. I just want to know what my options are going forward so I can set myself up for a better future. It’s been really frustrating to reflect on how ignorant I’ve been but also very disheartening to realize that there is no education provided to young people on how to manage finances/taxes/debts as young adults.

Again, any information or advice is so incredibly appreciated. I really want to do better going forward and not struggle to get by with the weight of these debts on my back. Thanks for reading!

 

Victor Fong, Licensed Insolvency Trustee responds:

Not sure how forgiving the CRA is but seems like the odds aren’t in my favour. I’ve been told to look into filing bankruptcy or a consumer proposal but don’t know much about either.

CRA does not forgive tax debt. There are circumstances were penalties and interest might be forgiven but it wouldn’t apply to your situation. In any event, you would still need to pay the principal amount of tax debt.

The only want to deal with the principal amount of taxes is through a proceeding under the Bankruptcy and Insolvency Act, such as a personal bankruptcy or a consumer proposal.

I understand my credit will basically be null and void, I won’t be able to get loans, credit cards or buy a house.

Your credit score will take a hit. A bankruptcy will stay on your credit history for 7 years after you’ve been discharged. A consumer proposal will stay on your credit history 6 years after you file your CP or 3 years after it’s paid off, whichever occurs first.

However, you can start rebuilding your credit score with a secured credit card after you’ve been discharged from bankruptcy or after your consumer proposal has been approved by your creditors.

I also don’t know if a consumer proposal applies to CRA debts or if it’s just for credit/loan debt so if someone could provide some clarity as to what that entails, the info would be greatly appreciated!

It does, as I’ve already indicated above.

Make an appointment to see a Licensed Insolvency Trustee who’s licensed in your province. Good luck.

 

Victor is the President of Fong and Partners Inc. He is a Licensed Insolvency Trustee and Chartered Professional Accountant. With many years of experience in the insolvency field, Victor has been involved in both corporate and consumer insolvency engagements. Previously with a large national firm, Victor founded Fong and Partners Inc. so that he could dedicate his professional life to help people from all walks of life to deal with their debt.