Do I keep a tax refund if I file a proposal?

Howard Hayes — Wed, 24 Mar 2010 16:18:05 +0000

Howard Hayes

In simple terms, creditors are not allowed to pursue money owing from prior to the date of the proposal.

If you don’t owe CRA anything, then yes, you keep your refund if you file a Consumer Proposal. Whereas in a bankruptcy, regardless of whether or not you owe CRA money, you’ll lose your tax refund.

This is often considered to be a good advantage to you to consider filing a Consumer Proposal rather than a bankruptcy, particularly if you normally receive a large tax refund.

If you currently owe money to CRA and you file a proposal, all taxes owing up to the end of the prior year are included in your proposal. If you file a proposal on March 24, 2010, all taxes owing up to the end of December 31, 2009 are included, since that’s the last period for which you will have filed your taxes. When you file your taxes for the 2010 year, you are required to pay whatever is owing.

If you get a refund for the 2010 tax year (which you wouldn’t file until early 2011), in theory CRA should send you the refund.

However, on occasion CRA could take the position that, since part of the refund is for the year of the proposal, they will take the refund and apply it against the previous balance owing.

So, it maybe best to assume that you won’t get your refund for last year (if there was a prior balance owing), and it may be possible that you’d not get your refund for this year. Or you may. CRA have not held a consistent position on the matter in the past.

If this is a concern of yours, feel free to call me on (519) 622 3773 or send me an email. We’re here to help you understand the implications of questions like this one and to give you the right information so you can decide on the best options available to deal with your debts.

Are debts to CRA included in a bankruptcy and does it matter how much I owe them?

Howard Hayes — Wed, 10 Mar 2010 21:03:06 +0000

Howard Hayes

Yes. A tax debt to CRA is a debt you can include into either a Personal Bankruptcy or a Consumer Proposal.

(Unfortunately, you likely not going to be able to include a tax debt into a debt management plan with a credit counsllor or debt settlement company).

With CRA debts, it’s important that if you file either a Consumer Proposal or Personal Bankruptcy, then you’d want to make sure that your tax returns are up to date. Either use the latest software, or use a tax accountant or tax return preparation company to get your returns filed.

In a proposal, it could be a win win situation to have your taxes up to date. If you file and you get a refund, you’d keep the refund. If you file the taxes and owe, you can include the debt into your proposal.

In a bankruptcy, CRA will check to see if your returns are up to date. If you have missing tax returns, then it could be likely that they’d consider opposing your discharge from the bankruptcy. They may want to force the issue to have to go to court, so that you can explain why a return has not been filed.

If you owe CRA more than $200,000 or if your tax debt represents more than 75% of your debt load, then you’ll likely have to attend court at the end of the bankruptcy to explain why before you can be discharged from the bankruptcy.

If you have tax debts and are considering your options, talk to a trustee. A good trustee will be able to tell you exactly what you may need to do and what options are available to you. Call us at 516 622 3773 or email me your question.

Howard Hayes Bankruptcy Cambridge Ontario Blog » Taxes

Do I keep a tax refund if I file a proposal?

Are debts to CRA included in a bankruptcy and does it matter how much I owe them?