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Yes. While the Canada Revenue Agency (CRA) would ideally prefer to receive the full amount of taxes owed, it may accept less if your financial assessment shows that you are honestly unable to service your debts, including taxes.
There is some confusion about negotiating with the Canada Revenue Agency on tax debt. As an individual or business, you can approach them directly, but they will NOT reduce the taxes you owe or remove the penalties and interest that they are legally required to add to your debt. Taxpayers may apply to the Canada Revenue Agency for fairness and equity in the hopes of alleviating some of the tax, penalty, or interest burden.
A bankruptcy trustee, an officer of the Court, can approach the CRA as part of a consumer proposal or bankruptcy filing and legally negotiate a reduction or an outright removal of the need to pay outstanding taxes and penalties.
In order to include tax debt on a consumer proposal, you must be up-to-date on your tax filing. This is for your own benefit, as any years that you have not filed returns for will not be included in the forgiveness process and will remain as full debts if you are audited. The minimum terms that the CRA will require in order to accept your consumer proposal are:
- Prior to the date of acceptance of the proposal, ALL tax returns must be filed and up to date.
- During the time period of the proposal when you are making payments, required tax returns must be filed, and taxes that are owed on these returns must be paid. The proposal only reduces taxes owed prior to the filing date.
- If you are owed tax refunds for the years prior to or the same year as in which your trustee filed your proposal, those refunds must be applied to any outstanding tax debt.
Once your trustee has filed a consumer proposal, the CRA reviews your financial picture to see how much of your tax debt they feel you should be able to pay back, based on their own factors. If your situation meets their practical criteria, and they see no indication that your insolvency is a strategic move to avoid debt or that you have been living extravagantly while making no attempt to pay taxes, they are often willing to reduce the amount of taxes you must pay back.
On the other hand, if they feel that you have deliberately not paid taxes and that your proposal is primarily an attempt to avoid what is owed to the CRA, they may refuse the proposal and force bankruptcy. They may then choose to oppose the discharge of your bankruptcy filing, so that any taxes owed after your assets have been used to pay your debts will remain as an obligation for a Court determined period of time.
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