Does a Proposal Filing Affect a Tax Debtor’s rights to object, appeal or request relief?

Tax lawyers and accountants know well that often times individuals and businesses are required to object, appeal or request relief in order to correct an error made by the Canada Revenue Agency (“CRA”) and/or to reduce interest and penalties which were assessed unfairly or inappropriately. Unfortunately, these processes can take time to work their way through the CRA and, in the meantime, the CRA, depending on the circumstance and type of debt, is free to pursue its enforcement activities (i.e. wage garnishments, registration of liens on real property, enhanced garnishments sent to customers, etc.). One tool in the tax lawyer/accountants tool box is to advise their client to file a proposal under the Bankruptcy and Insolvency Act while simultaneously continuing the objection, appeal or relief request. The proposal automatically “stays” (i.e. prevents) the CRA for continuing any further enforcement activities while not prejudicing the Debtor’s right to continue their objection, appeal or relief request. Set out below is one such scenario where this method was utilized.

The Debtor, who was assessed to owe approximately $350,000 in personal income tax, contacted our office and advised us that the CRA collector was trying to seize his RRSP, which amounted to a fairly sizable sum.  In fact, the financial institution where the RRSP was being held froze the account and it was understood that a bailiff was in the process of seizing the funds. It should be noted that the Debtor did not have the available cash to pay the assessed amount owing to the CRA. The Debtor was working with his accountant to correct what he viewed as several erroneous reassessments.  The concern of both the Debtor and the accountant was whether the filing of the proposal would affect his ability to continue to “fight” the assessment. Nothing prevents the Debtor from filing a proposal and continuing their “fight” with the CRA to correct a mistake or obtain various other relief. Many of our clients file proposals to obtain protection from the CRA’s enforcement methods while pursuing other legal mean to reduce or eliminate the assessed amount of debt.

In summary, the benefits of filing a proposal while contesting a CRA tax (re)assessment are, among other things, that: (1) interest and penalties stop accruing on the day the proposal is filed; (2) CRA is legally prevented from commencing or continuing any further enforcement activities against the Debtor; and, (3) any “success” on the objection, appeal or relief request will reduce CRA’s claim in the proposal dollar for dollar.