Case Study: The self-employed tax debtor
consumer proposal,  case studies,  income tax

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 about $180,000 in personal income tax.

CRA Garnishment

Well, the Canada Revenue Agency finally got in touch with him and threatened to take drastic action if Don start making his tax payments. They threatened to contact his employer to garnish his earnings and contact his bank to freeze his chequing account to start collecting on the $180,000 in tax debt that he owed.

These were not just idle threats: the Canada Revenue Agency has powers under the Income Tax Act to follow through on their tough talk. They can do these things legally and quickly if a tax debtor doesn’t take any action.

Consumer Proposal For Income Taxes

These threats were enough to compel Don to schedule an appointment with our office to meet with us. We performed an assessment of his financial situation and put together a consumer proposal (i.e., a legal settlement governed by the Bankruptcy and Insolvency Act) that we felt met 2 criteria:

(i) he could afford to make monthly payments towards the consumer proposal after paying his living expenses and saving enough money each month to pay his annual tax bill going forward. To be more precise – he filed his consumer proposal in 2013. Therefore, the proposal would include his income tax debt up to 31 December 2012. However, he would be responsible for his personal income tax debt from 1 January 2013 and onward. Therefore, he would need to save enough money during 2013 to pay his 2013 income tax bill when it is due on 30 April 2014;

(ii) the Canada Revenue Agency will only accept a consumer proposal if they think that a tax debtor is absolutely putting his best foot forward and is maximizing the amount he is able to pay each month towards the proposal. They will review his budget and scrutinize his spending habits in detail. They usually will do this by requesting a meeting with the debtor (called a meeting of creditors). In Don’s case, the CRA representative met with him three times in order to – review the circumstances behind why he fell behind in his income taxes and review 12 months of bank statements in order to review where he was spending his money.

Settlement With CRA

After some negotiating between our office, Don and the CRA representative, were were able to put together a monthly payment plan that was acceptable to all parties. We also worked with Don in putting together a monthly budget so he know how much money he had to sock away in the new chequing account he opened up so that he could pay his tax bill in April 2014.

As of this writing, Don is doing very well and he is grateful that his life is back on track.

© Copyright Fong and Partners Inc 2013.

Victor is the President of Fong and Partners Inc. He is a Licensed Insolvency Trustee and Chartered Professional Accountant. With over 20 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. in 2007 so that he could dedicate his professional life to help people from all walks of life to deal with their debt.