Tax Returns & Bankruptcy
Generally speaking, bankruptcy Trustees will inform you that it is prudent to file all tax returns prior to continuing with any bankruptcy proceedings.
However, if you wish to know whether you must legally do so, there are some essential things of which to be aware.
The first is that filing your annual income tax return is your legal responsibility pursuant to the Income Tax Act.
Whereas under bankruptcy legislation there is no requirement for filing, it is still your onus to take care of any and all outstanding returns.
Many wonder why Trustees make it necessary to file.
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Basically, it is so that you can have your bankruptcy discharged.
The Bankruptcy and Insolvency Act doesn’t actually compel you to file your income tax return for the year preceding your bankruptcy filing or for the year of the filing itself.
The issue, when it comes to Trustees telling you to file these returns, relates mainly to those with a history of failure to file returns.
This can result in a Trustee feeling as though you don’t file them during your bankruptcy proceedings.
Since failing any of your responsibilities in a bankruptcy means you won’t be discharged, it is essential to take the responsibility seriously.
In order to gain the cooperation of the CRA while you are in a state of bankruptcy, it helps to have your tax filing completely up to date.
If the Canada Revenue Agency sees that you haven’t filed your returns regularly, you can be at risk for tax debts where the CRA may be a main creditor.
In the event that you have unfiled returns prior to your bankruptcy filings, you are much more likely to have to deal with a Meeting of Creditors.
During this arrangement, they can compel you to file any outstanding returns in order to understand what you actually owe.
Basically, this puts a pause on your bankruptcy proceedings until you actually file the outstanding returns.
Therefore, while you don’t actually have to file the returns pursuant to the law, your Trustee will likely request you do so prior to declaring bankruptcy.
There is a good chance that they will not facilitate your bankruptcy until you are up to date with the CRA.
In the event that you do have an amount owing from taxes, speak to the Trustee right away.
They can help you to arrange a settlement amenable to both you and your creditors.
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