If I owe taxes to the CRA will it be covered in my bankruptcy or consumer proposal?
Your personal income tax debt will be covered to the date of your bankruptcy. In other words, any personal income tax owed by you, prior to your bankruptcy, will be included in the bankruptcy process.
For those who file a Consumer Proposal, your personal income tax liability will be covered to the end of taxation year prior to the date of your consumer proposal. For example, if you made a consumer proposal on April 15, 2016, your consumer proposal will cover your personal income tax debts up to December 31, 2015. You are responsible to deal with your ongoing personal income tax obligations starting January 1, 2016.
What about GST/HST? If I owe CRA for GST/HST, will this be covered by a bankruptcy or a consumer proposal?
All outstanding GST/HST will be covered up to the date of a consumer proposal or a bankruptcy. It is extremely important that all GST/HST filings are up-to-date.
If I file a consumer proposal or personal bankruptcy, how do I file my tax returns?
In a bankruptcy, your trustee shall prepare and file your personal income tax return for the year of your bankruptcy. There are two returns required to be filed for the year of your bankruptcy. One return is called a Pre-Bankruptcy return. This return covers the reporting period of January 1 to one day before your bankruptcy event. The second return is called a Post-Bankruptcy return, which covers the reporting period from the date of your bankruptcy to December 31. If you were self-employed in the period prior to your bankruptcy, we recommend you have your accountant prepare the returns.
Consumer Proposal debtors can prepare their own, or have their accountant prepare and file the personal income tax return in the normal manner, pursuant to the Income Tax Act.
What should I know about my income tax filings after my bankruptcy or consumer proposal?
For the first year after your bankruptcy, the CRA will not accept your personal income tax return via electronic submission. The CRA will only accept a paper filing the year after your bankruptcy filing. For example: The year of your bankruptcy was 2015. Your 2016 personal income tax return is to be paper filed to Canada Revenue Agency before April 30, 2017.
For Consumer Proposal debtors, you continue filing your tax returns in the usual manner, every year.
Please note the above information is intended for an individual tax payer who has filed or intends to file a Consumer Proposal or a Bankruptcy.
This article has been prepared for the general information of our clients. Specific professional advice should be obtained prior to the implementation of any suggestion contained in this publication.