If a taxpayer cannot pay off their entire tax debt in a reasonable period of time, they will require a payment plan. And in order to get a payment plan the taxpayer will have to rely upon the collections officer’s good will and cooperation, which is in large part informed by a taxpayer’s prior history of compliance. If the taxpayer had broken a promise previously, they will find that it will be a difficult task to successfully negotiate a payment plan on favourable terms.
In any discussion with a collections officer regarding a payment plan, the collector will request some financial disclosure. What they are generally after is a completed income & expense and completed net worth work sheets which give them an overview of how much money the taxpayer needs to keep in order to pay their bills each month as well as a list of items that the CRA can seize or put liens on if need be. Anything over and above the costs of living (the “surplus income”) is what the CRA will want on a monthly basis. And sometimes collections officers will actually go so far as to critique a taxpayer’s lifestyle, insisting that they drive a less expensive car or eat less expensive food. Their goal is to drive down taxpayer expenses, increase the surplus income (and thus the monthly payment) and close their files sooner. Additionally, when the taxpayer is a business, the collections agent will request three months of bank statements and may ask a business for client lists and accounts receivable listings.
But be careful with the accounts receivable (“A/R”) listings. Once in the hands of the CRA, a simple RTP sent to each of the clients will result in an immediate stoppage of cash flow and will put the business in harm’s way. I have seen businesses die within weeks because of an aggressive collections officer who went to town on my clients’ A/R listing.
And often before the collections officer is even willing to entertain a payment plan, they routinely require that the taxpayer produce rejection letters from their banks indicating that they have been refused for a loan. You see the collector wants to ensure that the taxpayer has no other parties besides the CRA who are willing to finance the tax debt. The problem is that every time the taxpayer applies for and is rejected for a loan, their credit rating suffers. I advise my clients instead, to approach their bank manager for a simple letter which indicates that the bank is not willing to extend credit at this point. Since there is no official credit application there is no hit to a credit rating.
Kinds of Payment Plans
There are three different types of payment plans which can be negotiated with the CRA: those agreed to by the call centre, interim payment plans, and final payment plans.
Final payment plans are what all taxpayers want. They create finality and certainty. But they are difficult to obtain in practice. Collectors will always push to have a debt paid in 30 days. And if they are pushed, they will give up to 3 months, then 6 months. And it is possible to negotiate an interim payment plan for 6 months at a time, over and over, and stretch a debt repayment out over years. And while the collector will generally engage in a series of these interim payment plans, they generally not agree to a final payment plan on the same terms. That is because final payment plans are binding, written agreements with the CRA. They take away a collection officer’s ability to change the terms of the payment plan. They take away the collection officer’s ability to squeeze the taxpayer for extra funds and accelerate the repayment of the debt in cases where they see an increase in the taxpayer’s ability to pay, and in doing so, they take away a little bit of the collector’s soul – a bit of what makes them them.
My advice to clients is to hope for a final payment plan, but to be satisfied with a series of interim payment plans once after another.
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