We are in uncertain times with the COVID-19 pandemic and the significant financial burden it is placing on many Canadian households.  Our government has stepped up with benefit programs to assist with cash flow, and Canada Revenue Agency (CRA) is refraining from new collection proceedings to collect tax debt. The tax filing deadline and payment due date have also been extended.  If your wages or pension is currently being garnished for a prior CRA tax debt, this relief will not assist you in meeting your monthly living expenses.  You may need to look at filing a personal assignment in bankruptcy or a consumer proposal in order to stop the garnishment.

Many debtors mistakenly believe that tax debt cannot be included in a bankruptcy or consumer proposal.  I spoke with a taxpayer yesterday that personally owes significant HST and source deductions due to a director’s liability for a failed corporation that was unable to pay the debts.  He was pleasantly surprised that a personal bankruptcy can give him a fresh start from traditional bank debt, suppliers and his director’s liability for HST and source deductions.

Some things to know about bankruptcy and tax debt:

  • Filing a personal bankruptcy will stop a garnishment of wages and pension
  • CRA doesn’t take it personally that you included them as a creditor in your bankruptcy (many people are afraid of including tax debt)
  • CRA has the right to set-off refunds/quarterly GST rebates against prior tax debt. A bankruptcy will provide a cut-off date and you will be entitled to tax refunds and GST in the future.
  • If CRA has registered a lien on any of your assets – the lien will remain (which is why it is always best to address the issue before it gets to this stage)
  • Personal income tax, HST, and source deductions can all be discharged by a bankruptcy
  • The trustee will typically file your pre and post-bankruptcy income tax returns in the year of bankruptcy to ensure you continue to be compliant with CRA’s requirements
  • The trustee will review your monthly income and expenses and provide advice on allocating funds in your monthly budget to pay your future taxes
  • If your personal income tax debt is greater than $200,000 and 75% of your proven creditors, you will have to attend a discharge hearing

At Fresh Start Now, Taylor Leibow Insolvency Trustees are here to provide a detailed analysis of your financial situation, explore solutions and fully explain the process and implications.  We are ready to talk when you are.

By Kathy Lenart – Insolvency Partner, Licensed Insolvency Trustee
CPA, CA, CIRP
Member and Secretary of the Ontario Association of Insolvency and Restructuring Professionals (OAIRP)
Canadian Association of Insolvency and Restructuring Professionals (CAIRP)