BANKRUPTCY HARM MY REFUND? Who is eligible for GST/HST credit? The GST/HST credit payment is a tax-free quarterly
distribution by the Federal government. It assists people and their family members with
low or moderate earnings counter all or a component of the GST or HST that they pay
in their everyday lives. The purpose of this Brandon’s Blog is to discuss GST/HST credit
payments in bankruptcy. The base year is the year of the income tax
return used to determine eligibility for the GST/HST credit payment amount. As an example,
GST/HST credit payments calculated from the 2018 income tax return will start being released
in July 2019, which is the start of the repayment year. The payment period ranges from July
1 of the year after the year of the income tax return being relied upon. The payments
for that year run to June 30 of the following year. So if the 2018 tax return is being used
to calculate eligibility, for those who qualify, the payment year runs from July 1, 2019, to
June 30, 2020. You qualify for the GST/HST credit if you
are a Canadian resident under the Income Tax Act (Canada) in the month prior to and at
the start of the month in which the Canada Revenue Agency (CRA) makes a payment. You
also need to satisfy one of that you:: are at least 19 years of age
have (or had) a spouse or common-law partner are (or were) a parent and also live (or lived)
with your son or daughter What is the maximum income for GST HST credit? The maximum income for GST HST credit, based
on a 2018 income tax return, is a sliding scale as follows: Family members
Family net income $ Single person
46,649 Single parent 1 child
52,449 A single parent with 2 children
55,509 A single parent with 3 children
58,569 A single parent with 4 children
61,629 Married or common-law with no children
49,389 Married or common-law with 1 child
52,449 Married or common-law with 2 children
55,509 Married or common-law with 3 children
58,569 Married or common-law with 4 children
61,629 To see the GST/HST credit calculator, check
out the CRA formula. Can the bankruptcy trustee keep my tax refund?
It used to be the position of the Superintendent of Bankruptcy (OSB), that, a bankruptcy trustee
(now called a licensed insolvency trustee) (LIT) that an insolvent person could assign
their GST/HST credit payments in bankruptcy to the LIT for the period of time they are
an undischarged bankrupt. The LIT could only keep those credit payments if those credit
payments are necessary to cover the LIT’s fee and disbursements. The OSB also stated
that it could not be kept in files where there would be a distribution to creditors from
the realization of the assets of the bankrupt person. A recent decision from the Court of Queen’s
Bench of Alberta, following a decision from the Superior Court of Justice – Ontario
(In Bankruptcy and Insolvency), rather than a prior Alberta Court decision, has changed
all that for GST/HST credit payments in bankruptcy. The GST/HST credit payments in bankruptcy
case The Alberta Court case decision released on
September 17, 2019, is Rites-Miguens (Re), 2019 ABQB 721. The LIT applied for advice
and direction as to whether LITs should follow the OSB position paper “GST/HST credit payments
in bankruptcy” or, the prior Alberta Court decision. The Court reviewed the prior Alberta case,
the OSB position paper and the Ontario decision in Glasgow (Re), 2018 ONSC 4608. The OSB position
paper follows the Glasgow decision. The Alberta Court sided with the OSB’s position arising
from Glasgow (Re). Here is why. Can the bankruptcy trustee keep my tax refund? Let us first discuss the GST/HST credit payments
in bankruptcy situation, which is not really a refund. It is an income tax credit paid
to those residents of Canada with low or modest incomes who qualify. After that, I will broaden
the discussion to include actual tax refunds. Section 67(1) (b.1) of the Bankruptcy and
Insolvency Act (Canada) (BIA) states that the GST/HST credit payments in bankruptcy
that are made in prescribed circumstances to the bankrupt, are not a property that falls
to the LIT for division amongst the creditors. Rule 59 of the BIA defines what the “prescribed
circumstances” are. It states that if no dividend would be paid to the creditors of
the bankrupt, even when the GST/HST credit payments are considered, then all such credit
payments received by the LIT form property of the bankrupt. In other words, the GST/HST credit payments
in bankruptcy can go to help fund the LIT’s fee and disbursements, but not any distribution
to creditors. In this way, Canadians of modest means could have access to the Canadian bankruptcy
system using all or some of the credit payments to pay for the bankruptcy process. The Ontario Court looked at that prior Alberta
decision. The Ontario Court disagreed with the Alberta decision that in a properly worded
assignment agreement, the LIT could keep the payments as long as the prescribed circumstances
existed. So, the Ontario Court did not follow that decision. Rather, the Ontario Court looked
at Section 67 of the Financial Administration Act which says that a Crown debt is not assignable
without a specific Act of Parliament authorizing it. A GST credit is a Crown debt for which
there is no Act of Parliament allowing its designation by way of assignment. It was this Ontario decision that the Alberta
Court followed in Rites-Miguens (Re), 2019 ABQB 721. The OSB position As a result, the OSB updated its position
paper on the topic of GST/HST credit payments in bankruptcy. The OSB’s position is: Where there will not be a distribution to
creditors, the GST/HST credit payments comprise property of the bankrupt payable to the LIT
through the operation of the BIA as described above.
Where there will be a distribution to creditors, the GST HST credit payments are exempt from
seizure, cannot be assigned to the LIT and must be paid to the individual. The OSB goes on to give an example as to how
a LIT may treat the GST/HST credit payments in bankruptcy that are otherwise exempt. It
is a bit cumbersome, but, goes as follows: The LIT gets a GST/HST credit cheque;
It must be excluded according to the BIA as there will be a dividend paid to the creditors.
The bankrupt consents to pay an amount matching the GST/HST credit to the LIT.
The LIT needs to give the GST/HST credit cheque to the bankrupt, despite any kind of contract
between them. Based on the Ontario Court decision described above, that contract is not enforceable
anyway. The bankrupt gets and cashes the cheque.
The bankrupt pays to the LIT an amount matching to the GST/HST credit cheque they just cashed.
That payment can be by cash, bank draft, money order or a cheque drawn on the bankrupt person’s
own chequing account. How does filing bankruptcy affect your tax
refund? Real income tax refunds are a result of an
overpayment of income tax by the tax debtor. In the year of bankruptcy, the two income
tax returns that must be prepared and filed are: A pre-bankruptcy income tax return covers
your tax obligation from Jan. 1 to the day prior to your date of bankruptcy.
The post-bankruptcy income tax return covers the tax obligations from the day of bankruptcy
to Dec. 31 of that year. If there are assets that are liquidated that
have income tax attributes, an in-bankruptcy tax return will also have to be prepared and
filed. Any pre-bankruptcy income tax refund is a
property of the bankrupt divisible amongst the creditors. So, the LIT is entitled to
keep the pre-bankruptcy income tax refund. It is also possible for the post-bankruptcy
income tax refund to be assigned to the LIT. Any amount owing by the bankrupt person from
the post-bankruptcy tax return must be paid by the bankrupt person as it is a post-filing
debt. Any income tax refunds for years prior to
the year of bankruptcy is also a property of the bankrupt payable to the LIT and forms
part of the bankruptcy estate. Summary Financial problems can happen to anyone. Not
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