Self Employed? Is a CRA Garnishment Going to Your Clients?

Anyone who is self-employed knows the many challenges that come with owning a business – and one of the greatest is dealing with the many complexities that come with the intricate tax process in Canada. Because of these complexities, many self-employed individuals find themselves owing money to the Canada Revenue Agency (CRA), for numerous reasons, and if unable to pay, face strict enforcement actions as a result. One of the most common of these is a CRA garnishment of your receivables.

Here are some numerical facts when it comes to a CRA garnishment:

The CRA can garnish up to:

·        100% of subcontracted income

·        100% of other income like pension

·        100% of self-employed income

If you are self-employed, the CRA can send a notice to your clients to direct your receivables to the CRA. This can cause significant financial hardship and stress, as well as the negative impact it can have on your client relationships.

So, can you stop a CRA garnishment? It is difficult, but you do have options.

1.     You can try to get the CRA to agree to stop, but know that the chances of this happening are slim to none. As far as the CRA is concerned, you owe the money and their job is to retrieve it. Also important to remember, in the process of trying to cooperate, many who attempt to negotiate divulge information to the CRA that can cause even more problems; providing financial disclosure can prompt further enforcement action, a frozen bank account or a property lien for example. This option should be avoided at all costs!

2.     Consumer proposal. By entering into a consumer proposal you can immediately stop a garnishment – with the added benefits of stopping interest and likely reducing the size of your overall debt. However, there are a few caveats:

o   If you have other creditors they will be included in the proposal too.

o   If the CRA is your majority creditor, they have to agree to the proposal (if they don’t respond within 45 days they are deemed to have agreed).

o   If you own a home and the CRA has a lien on it, this greatly complicates things.

3.     Bankruptcy. Like a consumer proposal, this would immediately stop a garnishment, and is likely to stop interest and perhaps reduce the size of your overall debt. Things to keep in mind:

o   You have to report income and your financial circumstances to a trustee every month – if your financial situation improves you will have extra repayment added which has to be paid before you can get discharged.

o   Your payment to the trustee depends on your income and can change if there is an increase in income.

o   If you own a home and the CRA has a lien on it, this greatly complicates things.

If you are suffering from a CRA garnishment of your receivables, there are options to have the garnishment lifted while keeping yourself protected from further enforcement action. DebtCare has the tools and experience to help. Contact us today by calling 1-888-890-0888.