Restructuring Using a Proposal or a Bankruptcy

Many licensed insolvency trustees advertise in newspapers and on TV that they can “solve” your debt problems. Except in circumstances where small amounts of debt are involved, they should be hired and only after a proper go forward plan has been worked out. In a tax debt situation, the initial planning team typically includes your accountant and an experienced tax lawyer. This view is confirmed by Bennett, the recognized authority on proposals and bankruptcies. It states.

“A licenced insolvency trustee is a representative of boththe debtor and the creditor. The trustee’s role is to gather in the insolvent person’s assets and then to distribute them to the creditors according to the priorities under the Act.”(Bennett on Bankruptcy 12th Edition, page 68)

It is clear from this definition that if the debtor is seeking impartial advice from a licensed insolvency trustee, since the trustee also acts for your creditors, there is a clear conflict of interest. Also, the more assets the trustee collects for the creditors, the bigger his/her fee. As a result, it is often wise to engage your own counsel to assist in planning for a proposal or bankruptcy. Only afteran acceptable plan is worked out, will it be time to engage an insolvency trustee. Such counsel, who only acts for you, then will make sure your interests are protected.

In both a proposal and a bankruptcy, the objective of the Canada Revenue Agency (CRA), as you would expect, is to achieve maximum recovery of the outstanding tax, interest and penalties. The debtor wants to pay less than the full amount due and achieve maximum flexibility as to repayment. If the debtor is in business, another important object is to ensure future operation of the business. The proposed restructuring may involve a reduction of debt, interest and penalties, deferral of payments, liquidation of assets and whatever else seems to make commercial sense to the debtor and the CRA.

HIGH TAX DEBT AND BANKRUPTCY

As a general rule, unless the discharge is opposed, bankrupts with a personal income tax debt of less than $200,000 are eligible for an automatic discharge nine months after the date of the bankruptcy. Bankrupts with a personal income tax debt of over $200,000 where the tax indebtedness is more than 75% or more of all unsecured, proven claims are not so lucky. They do not get this automatic discharge.

A court hearing will take place, either nine months after the date of bankruptcy if the bankrupt was not required to make surplus income payments, or 21 months after the date of bankruptcy if surplus income payments are being made.

You need a lawyer at the hearing because harsh conditional orders are often imposed.

If the debtor was previously bankrupt, the discharge will not take place for 24 months after the date of bankruptcy if the bankrupt was not required to make surplus income payments or 36 months after date of bankruptcy, if the bankrupt was making surplus income payments.

At the discharge hearing, the judge can either refuse yourdischarge, suspend the discharge or require you, as a condition of being discharged, to pay monies, or comply with other terms.

The Bankruptcy and Insolvency Act requires the court to consider a list of factors, including the circumstances at the time the tax debt was incurred, the efforts, if any, made to pay the tax debt, whether the bankrupt made payments in respect of other debts, while failing to make reasonable efforts to pay the tax debt, and the bankrupt’s financial prospects for the future.

A bankrupt can apply to the court one year after an order is made to review the order, if it can be shown that there is no reasonable possibility of compliance.

Handled properly, the insolvency process can give the debtor a needed leg up. Often a judge will give a tax debtor every opportunity to come forward with a reasonable plan to deal with a reduced portion of the tax debt over time and without interest.

© DioGuardi Law
This article provides only an overview and does not constitute legal advice. You are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained in the context of your particular circumstances.

Brigitte DioGuardi

B.A., LL.B

Brigitte obtained her Law Degree from the University of Sheffield in the United Kingdom. Upon her return, she qualified for the Bar and was called to the Law Society of Ontario (formerly the Law Society of Upper Canada) in 2002. She was also a member of the Bar of British Columbia and headed up the Vancouver office of DioGuardi Tax Law.  Fluently bilingual in English and French, Brigitte has broad experience in the areas of:

  • Tax Law, Civil Assessment Negotiation and Litigation, Criminal Prosecution Defense, Unpayable Tax Debt Solutions, Audits, Tax Amnesty.
  • Corporate and Commercial Law
  • Real Estate
  • Wills and Estates
  • Insolvency and Bankruptcy

Tax Law

​If you are one of thousands of Canadians who have failed to file taxes for several years the answer maybe to seek amnesty. Be aware that failure to file for more than one year if you owe taxes is a criminal offence and you may be criminally prosecuted.

The CRA Voluntary Disclosure Program allows taxpayers to come forward and obtain immunity from prosecution and most civil penalties, provided certain conditions are met.

We specialize in lawyer-negotiated tax debt settlements and tax amnesties with federal and provincial tax authorities, offering taxpayers a much-needed resource for the resolution of situations that all too often put personal and financial lives at risk. We stand as your protector, defender, and advocate to ensure that you the taxpayer, receive the best treatment possible. 

We offer solutions for tax problems such as:

  • Unreported income
  • Unfiled tax returns
  • Payment arrangements
  • Unpayable tax debt
  • Tax dispute litigation
  • Criminal tax defense

Wills, Estates & Trusts

​We offer the following will, estate and trust services for individuals and business-owners:

  • Wills
  • Preparation of trust agreements
  • Powers of attorney
  • Estate administration
  • Probate
  • Representation in estate driven litigation
  • We currently offer a special time limited package for one will and two powers of attorney (property and personal care) for $295 plus HST

Real Estate

We can assist you with all your real estate needs including:

  • Drafting agreements
  • Purchases and Sales
  • Title transfers
  • Leases

Tax Debt Relief

With the coronavirus pandemic leaving many in a precarious and dire financial situation, it is essential that you protect yourself financially. If you have a large, unpayable tax bill, we can help. We act in the best interest of the tax debtor. Unlike us, insolvency trustees represent not only you but your creditors (ie- the tax collector). The more tax you pay, the more trustees earn. Our goal through leveraged negotiations, is to reduce your tax debt.

Please consult our blog post Protecting Your Assets from Creditors for more information.

Business & Tax Planning

If you do not already have a certified financial planner, we can provide one or more highly qualified people who can work closely with us to assist you with such matters as:

  • Resident and non-resident corporate restructuring
  • Optimum use of holding corporations
  • Continuity and succession planning
  • Tax-free transfers
  • Losses and ABIL planning
  • Making interest tax deductible
  • Small business planning

Corporate & Commercial Law

We have represented business clients for the last 50 plus years and have supported their legal requirements on an on-going basis by offering the following services:

  • Incorporations and corporate governance
  • Corporate reorganizations and transactions for the directors and shareholders
  • Negotiation and drafting of agreements, professional corporations, minute book maintenance

Brigitte DioGuardi

B.A., LL.B

Brigitte obtained her Law Degree from the University of Sheffield in the United Kingdom. Upon her return, she qualified for the Bar and was called to the Law Society of Ontario (formerly the Law Society of Upper Canada) in 2002. She was also a member of the Bar of British Columbia and headed up the Vancouver office of DioGuardi Tax Law.  Fluently bilingual in English and French, Brigitte has broad experience in the areas of:

  • Tax Law, Civil Assessment Negotiation and Litigation, Criminal Prosecution Defense, Unpayable Tax Debt Solutions, Audits, Tax Amnesty.
  • Corporate and Commercial Law
  • Real Estate
  • Wills and Estates
  • Insolvency and Bankruptcy

Joyce Bruno

EXECUTIVE LEGAL ASSISTANT

Joyce Bruno has worked as executive legal assistant to Paul Dioguardi for 35 years and continues to offer her expertise and experience to the Dioguardi Law firm. Joyce’s role has evolved over the years and has acquired and developed many skills. She is an invaluable asset in case management and ensures the smooth running of our office.

Paul DioGuardi

B.A., LL.B, Queen’s Counsel

Paul obtained his Law Degree from Queen’s University in 1964.  He is a member of the Bars of Ontario, British Columbia and the Turks and Caicos Islands, a British tax free territory in the West Indies. He has over 50 years of experience and was trained at the Ottawa head offices of Revenue Canada and the Tax Litigation Section at the Department of Justice. Paul has had and continues with an extensive career in various areas of law such as:

  • Tax Law, Civil Assessment Negotiation and Litigation, Criminal Prosecution Defense, Unpayable Tax Debt Solutions, Audits, Tax Amnesty.
  • Corporate and Commercial Law
  • Real Estate
  • Wills and Estates
  • Insolvency and Bankruptcy