April can be a very stressful time if you know you will owe taxes when you file your personal income tax return but do not have the funds available to pay the debt. Personal tax returns are due on May 2nd this year, and you should always file on time to avoid penalties, even if you can’t pay the amount owing in full.  

couple doing taxes

Canada Revenue Agency (“CRA”) will work with a taxpayer in accepting monthly payments to settle the debt in full, with interest, within a reasonable time period. CRA provides tips on paying taxes on their website at https://www.canada.ca/en/revenue-agency/news/newsroom/tax-tips/tax-tips-2022/find-help-cannot-pay-your-taxes.html. 

We caution that avoiding communication with CRA and not paying your taxes could result in them taking enhanced collection proceedings by immediately garnishing your income or registering a lien on your property.  

Many people are not aware that personal income tax, HST and director’s liability for HST and source deductions from a business are debts that can be included in a bankruptcy or consumer proposal. Some other facts about CRA and bankruptcy that you may not be aware of are:

  • Filing a personal bankruptcy will stop a garnishment of your wages or pension.
  • A bankruptcy provides a cut-off date that will enable you to receive tax refunds and GST in a future year.
  • Your trustee will file your pre and post-bankruptcy income tax return in the year of bankruptcy to ensure you continue to be compliant with CRA’s requirements. Any taxes owing right up to the bankruptcy date are discharged in the bankruptcy, giving you a fresh start moving forward. 
  • If CRA has registered a lien on your assets, a bankruptcy will not discharge this debt unless you give up the asset. Always consult a trustee before it gets to this stage if you are struggling to pay tax debt. 
  • 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, but this debt can still be discharged.
  • Two counselling sessions will provide you guidance on budgeting for taxes from future income.

If you are struggling with paying your tax debt and unable to resolve it on your own, contact a Licensed Insolvency Trustee for a free assessment to discuss solutions. Taylor Leibow is currently offering virtual and in-person consultations at your convenience. 

Kathy portraitBy 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)