As we navigate the complexities of financial insolvency, one particular aspect that often raises questions is the role of GST/HST credit payments in bankruptcy. This article seeks to demystify this topic, focusing on the Canadian context.
What Is GST/HST Credit?
The Goods and Services Tax (GST) and the Harmonized Sales Tax (HST) are value-added taxes levied in Canada. Low to moderate-income individuals and families can receive GST/HST credit payments to offset some or all of the GST or HST that they pay.
Bankruptcy: The Basics
Bankruptcy is a legal status that can be declared when a person or an organization cannot pay their debts. In Canada, the process is governed by the Bankruptcy and Insolvency Act (BIA).
Intersection of GST/HST Credit Payments and Bankruptcy
When a person declares bankruptcy, one of the key questions that arises is how their assets will be handled. This includes GST/HST credit payments.
Role of the Trustee
In a bankruptcy proceeding, a Licensed Insolvency Trustee (LIT) is appointed to manage the bankrupt individual’s assets, which may include GST/HST credit payments.
Section 67 of the BIA and Rule 59
Section 67 of the BIA and Rule 59 of the Bankruptcy and Insolvency General Rules outline the trustee’s authority concerning GST/HST credit payments.
Application of Section 67
Section 67 determines which assets of a bankrupt individual should be divided among their creditors and which are exempt from seizure. The GST/HST credit payments are considered exempt in certain circumstances, as defined by Rule 59.
Understanding Rule 59
Rule 59 specifies that the GST/HST credit payments are not part of the property to be divided among creditors if a dividend (a portion of the bankrupt’s assets to be distributed to creditors) is available without considering the GST/HST credit payments.
Retention of GST/HST Credit Payments by Trustee
If there are insufficient assets to provide a dividend to creditors, a part of the GST/HST credit payments necessary to cover the trustee’s fees and disbursements can be retained during bankruptcy. Any excess should be returned to the bankrupt individual.
Can GST/HST Credit Payments Be Assigned?
The OSB has clarified that GST/HST credit payments cannot be assigned. This is based on section 67 of the Financial Administration Act (FAA), which states that a Crown debt (like GST/HST credit payments) cannot be assigned.
Implications
This means that the trustee cannot take an assignment of GST/HST credit payments from the bankrupt individual. However, there are legal ways for trustees to handle these payments, which involve the bankrupt individual voluntarily paying an amount equivalent to the GST/HST refund to the trustee.
Conclusion: The Trustee’s Power Regarding GST/HST Credit Payments in Bankruptcy
In conclusion, a trustee’s powers concerning GST/HST credit payments in bankruptcy are limited. The trustee can retain only the portion of the GST/HST credit payments necessary to cover their fees and disbursements when there are insufficient assets for distribution to creditors. Assignment of these payments is not possible.
Effective Date
The aforementioned position regarding GST/HST credit payments in bankruptcy has been enforced for bankruptcies filed after March 4, 2019, in Canada.
Additional Resources
For further information on this topic, consult the following resources:
A Final Word
Understanding the nuances of GST/HST credit payments in bankruptcy is crucial for those navigating the insolvency process. While this article provides a comprehensive overview, seeking professional advice is always recommended.
