CRA’s Proposal Policy in Chaos.
Many of the CRA (formally Revenue Canada) offices have recently advised trustees that CRA’s new policy on Proposals is that they will vote “NO” to accepting a proposal unless it calls for payment to CRA of 100 cents on the dollar.
Many trustees are now refusing to process proposals where the CRA debt is significant enough that a NO vote by CRA will cause the proposal to fail.
The trustee on line discussion group has been burning up with comments. Some trustees are saying that that is really not CRA’s position; it is just a negotiating position with their opening position being that they want 100 cents on the dollar and that CRA will vote to accept proposals from “honest but unfortunate” debtors but that conversely, CRA will vote against acceptance of a proposal where the debtor’s history demonstrates a continued history of disregarding their tax responsibilities.
We state on the BankruptcyCanada.com website the following:
It is our experience that CRA will support a Proposal so long as it has merit.
An October, 2004 Bulletin from the Canadian Association of Insolvency and Restructuring Professional (CAIRP) reported on a meeting with senior officials of CRA and the CRA policy regarding Proposals as follows:
• CRA will either reject or accept proposals based on common sense and a practical assessment of what the debtor can pay.
• The only exception to this policy is in the case of a strategic insolvency or the debtor has been supporting an extravagant lifestyle and has made no attempt to meet his or her tax obligations. In this case, CRA may opt for a more punitive route by bankrupting the debtor, even if the proposal appears to be more favourable, and opposing the bankrupt’s discharge to attempt to obtain a higher recovery.
It appears that the above policy is in jeopardy or at the very least CRA management is not communicating its proposal policy to its offices in a clear and coherent way.
This writer, and I am sure every trustee in Canada, knows of instances where CRA has voted against proposals to “punish” the person and then not followed up by opposing the bankrupt’s discharge. All this accomplishes is leaving “money on the table” that should be in the tax coffers and harming CRA’s credibility.
CRA should clarify its proposal policy immediately or else be faced with the following ramifications:
• Possibly Judicial Scrutiny: The Bankruptcy and Insolvency Act, is a federal law designed to provide relief for debtors, while on the other hand the same federal government under the guise of “policy” is denying the relief available under the Act to some debtors by making arbitrary and moral decisions as a creditor.
• Costing the tax payer money: CRA’s “100 percent” policy is costing the tax payer money. As stated above there are many instances where CRA has voted against proposals to “punish” the person and then not followed up by opposing the bankrupt’s discharge.
• Harming CRA’s Credibility: The inconsistency in the policy; not following up a “NO” vote with an opposition to the bankrupt’s discharge and making moral rather than business decisions on the merits of a proposal all harm CRA’s credibility.
• Undermining the Integrity of the Bankruptcy and Insolvency Act: The proposal process as set out in the Bankruptcy and Insolvency Act assumes creditors will act in a sensible business like way to maximize their collections when voting on proposals. CRA’s arbitrary and inconsistent policy and its attempt to impose its morality on debtors all go to undermine the integrity of the Act.
The Canadian Association of Insolvency and Restructuring Professional (CAIRP), are trying to set up meetings with CRA officials to clarify CRA’s proposal policy. The result of that meeting will be posted on this website.
