CRA debt settlement: how to negotiate

Posted on 4 June 2024

Written by Samantha Galea

Dealing with tax debt owed to the Canada Revenue Agency (CRA) can be a daunting prospect for both individuals and businesses alike. While all types of debt can feel overwhelming and scary, many Canadians would argue that tax debt is some of the most nerve wracking debt. This is because of the unrivalled powers of the CRA – it’s able to take action against debtors without having to go to court beforehand, and often without warning. Tax debt is never ignored or written off, and the consequences of not repaying your tax debt can lead to actions like wage garnishment, bank account freezes, and even a lien on your property. With the right guidance and strategy, however, negotiating a CRA debt settlement is not only possible but can also lead to a path towards financial stability. In this article, we’ll share expert tips and insights on how to effectively negotiate CRA debt settlement.

What is CRA debt?

Before delving into negotiation strategies, it’s crucial to understand the nature of CRA debt. CRA debt refers to money owed to the CRA by individuals or businesses due to unpaid taxes, penalties, or interest. This debt can arise from various sources, such as unfiled tax returns, underreported income, or errors in tax calculations. No matter which form it takes, CRA debt can accrue quickly and become overwhelming if left unchecked. Ignoring CRA debt can lead to severe consequences, including garnished wages, bank account seizures, and legal action. This makes proactive management and negotiation essential to resolving CRA debt issues. Resolving CRA debt typically involves communication with the CRA, negotiation of payment arrangements, and ensuring compliance with tax laws to prevent further accrual of debt and potential legal consequences.

How to negotiate CRA debt settlement

There are a few steps we recommend taking when it comes to achieving a CRA debt settlement:

Have your documentation ready

The first step in negotiating CRA debt settlement is to gather all relevant documentation relating to your debt. This includes tax returns, notices of assessment, and any correspondence received from the CRA. Having a clear understanding of the amount owed, the reasons for the debt, and any supporting documentation will strengthen your position during negotiations.

Review your financial situation

Next, it’s crucial to assess your financial situation thoroughly. This involves calculating your income, expenses, assets, and liabilities to determine your ability to repay your debt. Be prepared to provide detailed financial statements and supporting documentation to support your assessment. Understanding your financial capabilities will help you to negotiate a realistic settlement arrangement with the CRA.

Request a payment plan

Although the CRA won’t likely be open to reducing the amount of outstanding taxes you might owe, they’re open to helping you divide the owed sum into more manageable instalments. By requesting a payment plan from the CRA, you can gradually repay your entire balance over a specified period, typically up to a year. Do note, however, that interest will continue to accrue until the balance is cleared, potentially resulting in significant additional costs depending on the amount owed. Failure to stick to your payment plan may also prompt the CRA to initiate collection actions.

Seek support from a Licensed Insolvency Trustee

A Licensed Insolvency Trustee is the only professional in Canada legally able to file all forms of debt relief. This makes them well placed to review your financial circumstances and advise you on the best pathway to financial freedom. Licensed Insolvency Trustees can help you to stop collections from the CRA once and for all. Two ways to achieve this are via a consumer proposal and bankruptcy. A consumer proposal is a bankruptcy alternative that enables you to reduce your debts by up to 80% while keeping your assets including your home and car. Your Licensed Insolvency Trustee will work with the CRA and any other creditors you may have to negotiate a debt settlement on your behalf. At Spergel, the ‘get rid of debt’ people, we have a 99% acceptance rate on any consumer proposals we file. If a consumer proposal isn’t the right pathway for you, bankruptcy may be a good option for you. As tax debt is an unsecured debt, it can be written off. A reputable Licensed Insolvency Trustee will help you to understand your debt relief options, and help you to make a decision on the right pathway for you.

Remain persistent and flexible

Any kind of negotiation with the CRA requires an element of patience, persistence, and flexibility. It’s essential to maintain open communication with CRA representatives, respond promptly to requests for information, and be willing to negotiate terms that are mutually beneficial. Although it’s easy to avoid calls from the CRA – especially when you don’t have the funds to pay them – it can make the situation worse. While reaching a settlement may take time and effort, staying committed to the process and remaining flexible in your approach will ultimately lead to a successful outcome.

CRA debt settlement: FAQs

Here are some of the most commonly asked questions we receive about securing a CRA debt settlement:

Will the CRA forgive debt?

The CRA may consider forgiving or cancelling a debt under certain circumstances, such as financial hardship, serious illness, or other exceptional situations. Debt forgiveness, however, is not guaranteed and typically requires a formal application process where you provide detailed information about your financial situation and reasons for seeking forgiveness. The CRA will assess each case individually and may grant partial or full forgiveness based on their discretion and the merits of the case. It’s important to communicate openly with the CRA, provide accurate information, and follow their instructions throughout the forgiveness application process.

Does Canada have a debt forgiveness program?

Yes, Canada does have debt forgiveness programs available for certain types of debts, such as student loans or taxes owed to the CRA. For example, the CRA may consider forgiving or cancelling tax debt under specific circumstances, such as financial hardship or significant financial loss. Additionally, there are programs like the Repayment Assistance Plan (RAP) for student loans, which can provide relief by reducing or eliminating monthly payments based on income and family size. Eligibility criteria and application processes vary, however, depending on the type of debt and the specific program. It’s essential for individuals facing financial difficulties to explore available options and, if applicable, seek guidance from relevant government agencies or Licensed Insolvency Trustees to determine the best course of action.

Can you negotiate a settlement with CRA?

While the CRA typically does not engage in direct negotiations for settling tax debts, there are still avenues for resolving outstanding balances. The CRA may allow you to arrange a payment plan to repay the debt over time in manageable instalments. Additionally, in certain circumstances, you may be eligible for the Taxpayer Relief Program, where the CRA may waive penalties or interest, or consider a compromise on the amount owed due to financial hardship or extraordinary circumstances. It’s essential to communicate openly with the CRA, provide accurate information, and explore the available options to address your tax debt effectively.

Negotiating CRA debt settlement can be a challenging but manageable process with the right approach and guidance. With Spergel, the ‘get rid of debt’ people, you can navigate the complexities of CRA debt negotiation with confidence. Our experienced Licensed Insolvency Trustees help individuals to secure favourable settlement outcomes and embark on a path towards financial stability and peace of mind. Book your free consultation today.

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Samantha Galea

Samantha Galea is a Chartered Insolvency and Restructuring Professional and LIT (Licensed Insolvency Trustee) who started working with Spergel as a summer student in 2010. With her socio-political background, Samantha is committed to breaking the stigma associated with bankruptcy so that individuals and families can properly understand all of their options on their path to debt freedom. She is also our resident expert on student debt and collection agencies, as well as the manager of our Brampton office. Outside of work, Samantha is an avid reader of historical non-fiction and world traveler.

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