Real-life Case – Self-Employed Worker

Other than the lack of work, arrears in income and sales taxes are, in our experience, a self-employed person’s greatest risk.

Initial situation

Cédric is 35 years old and has been self-employed as a graphic designer for 6 years. He files his own tax returns. Because he’s not incorporated, everything goes through the same account. Last month, he received a notice of assessment from Revenu Québec for expenses that were apparently not deductible. The Revenue Agency is claiming himf $23,717, including late penalties and fees. His wife is on preventative leave, pregnant with their second child. This news could not have come at a worse time…


When the government decides to review a business’s expenses with a fine-toothed comb, it’s very common for that business to owe them money. Most of the time, the self-employed worker or their accountant has made some good faith mistakes or incorrectly interpreted tax laws, which are admittedly very complex. As a result, they have an unexpected tax debt and it is usually very difficult to obtain a loan from a financial institution to reimburse this kind of debt. What are the consequences?

The government creates its own laws, so they can easily vote them in their favour. You could dispute your notice of assessment, but the burden of proof is on the taxpayer to show that the notice is wrong. And in the case of sales taxes, you must pay first and then contest said amount in court.

The amount due is confirmed by the notice of assessment and the government can go on to seize your bank account and assets, including your property. It can collect debts in many more efficient ways than the options available to a regular creditor.

With his amount of debt, Cédric couldn’t afford to hire an accountant or a lawyer to dispute the notice of assessment, and even if he could, he wasn’t sure he could win. His bank didn’t want to grant him a loan because the government was involved. Although the government was open to a payment arrangement, it would not give him more than 24 months to repay the amount, with interest of course.

With an interest rate of 7%, his payments would be $1,061 per month, an amount that the business’ revenues would not be able to cover.

Proposed solution

Given the choice between a consumer proposal and bankruptcy, Cédric preferred to make a proposal. Cedric and his counsellor at Jean Fortin agreed that $18,000 over 60 months would be a reasonable offer. First, because it was much higher than what creditors could expect if he filed for bankruptcy. And second, agreed that a monthly payment of $300 was completely feasible.

As soon as a consumer proposal is filed, all legal proceedings and interest charges stop, even for debts owed to the government. In fact, tax debt is treated like any other kind of debt in a consumer proposal or bankruptcy. After filing, there are negotiations between the licensed insolvency trustee and a special government department that deals exclusively with insolvency cases (bankruptcy and proposals).

This is how Cédric avoided seizures and rising fees and rates, and found a compromise that allowed him to keep his business going and, most of all, get peace of mind.


A failure to comply with tax laws always ends up catching up with you, and it can get very expensive. Advice: never ignore tax debt and do not underestimate their efficiency.

Once a legal hypothec has been registered on one of your assets, it cannot be included in a bankruptcy or consumer proposal. You must therefore quickly seek advice from a professional (lawyer, accountant or trustee) as soon as a problem arises with the government to avoid irreversible damages.

**The names have been changed to protect their identity.**