Tax Returns During Bankruptcy

Navigating Tax Returns During Bankruptcy in Canada

Bankruptcy is a complex legal process that can come with many financial implications, one of which includes handling tax returns. This article will guide you through the process of managing your tax returns during bankruptcy in Canada.

Understanding Bankruptcy

Bankruptcy in Canada is governed by the Bankruptcy and Insolvency Act, a legal process that can help you get relief from most of your debts. Upon filing for bankruptcy, a trustee becomes the manager of your assets, selling them off and using the funds to settle your debts.

This process is overseen by Innovation, Science and Economic Development Canada, which manages the enforcement of the Bankruptcy and Insolvency Act. The Superintendent of Bankruptcy, the Bankruptcy Tribunal, the Official Receiver in Bankruptcy, and the trustee all fall under its jurisdiction.

The initial identification of an individual who has declared bankruptcy occurs when the trustee forwards Form DC905, Bankruptcy Identification Form to the proper authorities. This form should be sent as soon as the trustee gets your estate number from the Office of the Superintendent of Bankruptcy.

Tax Returns and Bankruptcy: An Overview

When it comes to tax returns during bankruptcy in Canada, there are several key things to understand.

Firstly, if you were required to file an income tax return for the year before you filed for bankruptcy and did not do so, your trustee is obligated to file it on your behalf. This trustee also needs to file a pre-bankruptcy tax return, which accounts for the period from January 1 up to the day before your bankruptcy filing.

Your trustee may also file an in-bankruptcy return. This is to report income from assets that have been liquidated (like RRSPs) or from businesses that the trustee has wound up for the benefit of creditors.

Lastly, it’s your responsibility to file a post-bankruptcy tax return if your trustee does not do this for you. This return would cover the period from your date of bankruptcy to December 31.

These returns should be clearly identified as pre-bankruptcy, in-bankruptcy, or post-bankruptcy returns. The trustee should not use their own address in the “Identification” section when preparing any return on your behalf.

Refund After Filing for Bankruptcy

Refunds resulting from tax returns for years before the year of bankruptcy are considered the property of the bankruptcy estate and will be sent to the trustee. However, refunds from tax returns for years after the bankruptcy year will be sent to you unless the trustee obtains a court order.

For the year of bankruptcy, any refund from the pre-bankruptcy return goes to the trustee. Refunds from the post-bankruptcy return are also sent to the trustee if your bankruptcy assignment date is July 7, 2008, or later. However, if your bankruptcy assignment date is before this, the refund will be sent to you unless the trustee has obtained a court order or has provided an Authorization and Direction letter.

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