Income Tax Refunds in Bankruptcy
Canadian Bankruptcies & Tax Returns
Must I File Tax Returns Before Filing Bankruptcy is a common question many people have while considering whether to file for bankruptcy.
It is better if you have filed up to date tax returns for the period prior to your bankruptcy because it shows Canada Revenue Agency (CRA) that you are following the law regarding tax returns.
You do not want them to oppose your bankruptcy discharge because they think you are a multiyear offender.
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Once your bankruptcy is filed the trustee will notify CRA of the fact of your bankruptcy.
CRA will then send any tax refunds to the trustee.
What CRA says about filing Tax Returns before Filing Bankruptcy.
CRA says that If an income tax and benefit return had to be filed for the year prior to the year of bankruptcy and you did not file it, the trustee must immediately file one on your behalf.
The trustee must also file an income tax and benefit return for the period from January 1 up to the day before the date of bankruptcy; this return is called the pre-bankruptcy return.
What about a tax refund?
Any tax refunds for the period prior to the date of bankruptcy are the property of the trustee. CRA will send these to the trustee.
The pre-bankruptcy tax refund (January 1st to the date of bankruptcy) and the post-bankruptcy tax refund (date of bankruptcy to December 31st) are also the property of the trustee and CRA will send these to the trustee.
Many people think that their discharge from bankruptcy will prevent the refund from going the trustee and will go to them instead.
This is not the case. Your discharge will not affect the fact that refunds for the periods in the previous paragraph will go to the trustee.
It is your responsibility to file a tax return for the period January 1st to December 31st and subsequent years, following the year of bankruptcy.
CRA will send any refunds for these tax returns to you.
If you have any questions about Tax Returns Income tax refunds in Bankruptcy or other aspects of bankruptcy or consumer proposals you can set up a FREE consultation with Bankruptcy Canada’s Licensed Insolvency Trustees.