Filing taxes after bankruptcy discharge in Canada involves a unique set of procedures. This comprehensive guide aims to provide clear, easy-to-understand information about the process, from the role of the Licensed Insolvency Trustee (LIT) to income tax refunds and beyond.
1. Understanding Bankruptcy in Canada
Bankruptcy is a legal process that provides relief to individuals who are unable to pay their debts. It’s a serious decision with far-reaching consequences, so it’s essential to understand the process before proceeding. It’s always recommended to seek advice from a legal professional or a financial advisor before making this decision.
1.1 The Role of a Licensed Insolvency Trustee
When you file for bankruptcy, a Licensed Insolvency Trustee (LIT) is appointed to oversee the process. This trustee is responsible for handling your assets and dealing with your creditors.
2. The Impact of Bankruptcy on Income Tax Returns
The Canada Revenue Agency (CRA) is automatically notified when you file for bankruptcy. The process of filing taxes after bankruptcy discharge in Canada involves several different types of income tax returns, depending on the timing of the bankruptcy.
2.1 Pre-Bankruptcy Tax Returns
Before bankruptcy, if you should have filed an income tax return for the previous year but didn’t, your LIT is required to file this return immediately.
2.2 Year of Bankruptcy Tax Returns
In the year of bankruptcy, your LIT must file a pre-bankruptcy income tax return from January 1st to the date of bankruptcy. Furthermore, a post-bankruptcy tax return must be filed for the period from the date of bankruptcy to December 31st.
2.3 Post-Bankruptcy Tax Returns
After bankruptcy, tax returns are filed as usual. However, if there is income tax owed for tax years after you have been discharged from bankruptcy, you are required to pay it.
3. Handling Income Tax Refunds After Bankruptcy
The handling of income tax refunds after bankruptcy is a crucial aspect of filing taxes after bankruptcy discharge in Canada.
3.1 Refunds Prior to Bankruptcy
Refunds resulting from returns for the year immediately prior to bankruptcy are considered to be the property of the estate in bankruptcy. They will be sent to your LIT and made available to creditors.
3.2 Refunds During Bankruptcy
Refunds from pre-bankruptcy, in-bankruptcy, and post-bankruptcy returns are also considered to be the property of the estate in bankruptcy and will be sent to your LIT.
3.3 Refunds After Bankruptcy
Refunds from returns made after bankruptcy will be sent to you, unless there is a court order in place to have them sent to the LIT.
4. Income Tax Debts After Bankruptcy
Income tax debts are usually unsecured debts and are therefore cleared by the bankruptcy. However, if there is income tax owed for tax years after you have been discharged from bankruptcy, you are required to pay it.
5. HST Rebates and Bankruptcy
If you have filed for bankruptcy and are owed an HST rebate, it will be sent directly to your LIT. However, if a dividend is available to creditors without taking the HST payment into account, you will receive the HST refund.
6. Canada Child Benefit (CCB) and Bankruptcy
The Canada Child Benefit (CCB) is a tax-free monthly payment made to eligible families. Filing for bankruptcy does not stop you from receiving this benefit, but the CCB must be included when calculating and reporting your household income.
7. Surplus Income and Bankruptcy
These monthly reports determine whether you are considered to have surplus income, which will impact how long you are in bankruptcy and how much you will be required to pay.
8. Handling a Criminal Record
A criminal record can affect your ability to get a loan, a mortgage, or a job. If you need to erase your criminal record, you can learn more at Pardon Partners.
9. Debt Solutions
If you are in a situation of financial difficulty, there are many options to consider before filing for bankruptcy. For easy-to-understand debt solutions, you can contact the preferred experts at BankruptcyCanada.
10. E-filing Your Income Tax Return After Bankruptcy
After bankruptcy, you may encounter difficulties when e-filing your income tax return. CRA does not allow individuals who have filed bankruptcy to e-file their income tax returns until the trustee has been discharged.
10.1 Trustee’s Discharge
There are two discharges associated with personal bankruptcy filing. The debtor’s discharge, which is often automatic after a certain period of time, and the trustee’s discharge, which comes after the debtor is discharged and the trustee has completed the administration of the bankrupt estate.
11. Filing Your Income Tax Returns in Paper Form
Even if the trustee has not been discharged, you can still file your income tax returns in paper form and you will receive their income tax refund.
12. The Trustee’s Role in the Discharge Process
The trustee works to complete the administration of your personal bankruptcy file as quickly as possible and obtain the discharge. However, there can be outstanding items that remain after you have been discharged that the trustee is required to deal with before applying for his or her discharge.
Filing taxes after bankruptcy discharge in Canada is a complex process that requires time and careful management. By understanding the process and working closely with your trustee, you can navigate this challenging time and begin rebuilding your financial future.
