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CANADA REVENUE AGENCY AND PROPOSALS

September 5, 2017

Is the CRA too aggressive and adversarial with consumer debtors?

The Canada Revenue Agency is notorious for asking for additional (enforcement) clauses to be added to proposals to “require” debtors to stay on top of current filing and remittances throughout the life of the proposal.  They have even taken this notion a step further at times by demanding that certain debts (such as outstanding source deductions) be treated with a preference and additional funds be added to the proposal.

But bearing in mind the intent of the Bankruptcy and Insolvency Act which is to provide “an honest debtor with relief from the burden of debt” so is their position reasonable?   At one point the Bankruptcy Court ruled that the CRA cannot simply expect that every proposal put before them contain such clauses.  The court appeared to feel that to do so is tantamount to re-writing the Bankruptcy legislation to provide the CRA with special privileges.

Still some trustees will put such clauses into a proposal to the CRA as a default term.  The impact of enforcement clauses on the trustee and the proponent can be quite severe – the proponent may find themselves effectively in tax purgatory while the trustee is encumbered with the extra duties of monitoring the tax paying proponent for compliance and default.

By contrast bankruptcy proceedings require no such clauses and to that extent at least may have an advantage over proposals when dealing with the CRA at the negotiating table.