There have been several questions sent in recently by people who have run afoul with CRA. Often the rest of their picture is quite healthy actually. I see this often with realtors and other self employed people who have a breakout year or two, but did not set aside money to pay CRA for when it came time to submit their personal tax returns. Jeff wrote in and asked:

” Hi Ross, it looks like I will have to enter into a Consumer Proposal. The thing is I have R1 credit rating, several major credit cards and a car loan with all payments on time. Zero derogatory information on my credit report. Most of my credit cards will be at $0 balance by the time I file CP. I am in trouble with only one “creditor” – CRA, which is forcing me to do this. How can I keep my credit cards? I read on many blogs that there is no chance of doing so. How would I go about retaining my credit cards?”

I replied ” Thanks for reaching out to me Jeff. You simply don’t turn in your credit cards with $0 balances at the time you enter the CP. I’d also suggest you don’t use them during the  ensuing two months till your CP is approved in court.  Please note you can’t keep, for example, a small TD Visa card with $0 balance if your CP includes another TD loan product of any kind.”

Another reader called yesterday to ask if I could negotiate a settlement with CRA as he has owed $40,000 for a few years and needs the matter settled before he can refinance his mortgage. His credit history is also quite healthy.

Related Article: Second mortgage can fix CRA debt

I asked Ira Smith, founder of Ira Smith Trustee & Receiver Inc., to help explain what can be done in terms of negotiating with CRA. Ira wrote:

” Unfortunately, the CRA collectors do not have any latitude to accept less than full payment; principal tax, interest and penalty.  A collector gets rewarded for closing out files, and there are only two ways that a closeout can happen:  (i) the taxpayer pays in full; or (ii) the taxpayer invokes an insolvency proceeding.

So, in order to pay less than the full amount, a consumer proposal would be in order.  Once the filing is done, the taxpayer’s file is moved from the current collector to someone in the CRA Insolvency Group.  That group has the ability to accept less than full payment.

I am working with a lawyer right now who owes hundreds of thousands of dollars in tax.  For 2 months I have been advising him the only way is through a Proposal.  He has resisted.  Friday he called me to say that CRA took out a federal judgement against him and they sent a garnishee notice to his Firm!

I had also advised him that the CRA Collector can’t agree to less than full payment, but he wanted to try.  So now he has no deal, a memorial (federal judgement) against him and a garnishee against his partnership income.  So now he really has to file.  It will stop the garnishee but since the memorial was taken out before he files, it will probably take priority.

So there you have it Ross.  Your reader can either arrange a second mortgage through you in order to raise the funds to pay off the debt in full (which maybe more than $40,000 when you factor in penalties and interest), or do so for a lesser amount in a consumer proposal.”

Related Article: CRA debt and too much unsecured credit

Tip of the Day

If the bank doesn’t want to speak with you… if alternate lenders are not interested… if all seems hopeless but selling your home isn’t an option… a private mortgage may be your only hope

— Money Matter № 168