Bankruptcy: Taxes During

Top CRA Related Issues Explained

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Bankruptcy involves filing two tax returns: one for income before filing and one for income after. Pre-bankruptcy tax debts are released, but post-bankruptcy taxes remain your duty. Refunds are managed by your trustee for creditor distribution.

Since creditors and lenders cover their fees, trustees don’t truly represent you. You could even be billed more than once. Don’t risk it—reach out by phone, text, or live chat.

Filing Requirements During Bankruptcy

Individuals must submit two income tax returns for the year of bankruptcy: pre-bankruptcy and post-bankruptcy., Pre-bankruptcy return covers income from January 1 to the day before the bankruptcy filing., Post-bankruptcy return covers income from the date of bankruptcy to December 31 and may be managed by the individual or trustee.

Individuals filing for bankruptcy in Canada are required to submit two income tax returns for the year of their bankruptcy. The pre-bankruptcy return must cover income from January 1 up until the day before the bankruptcy filing. This return is typically filed by the Licensed Insolvency Trustee (LIT) and includes any income earned during that period, ensuring that all earnings are accurately reported before the bankruptcy process begins. On the other hand, the post-bankruptcy return accounts for income from the date of bankruptcy to December 31. Depending on individual circumstances, either the individual or the LIT can handle this return, especially if the person is self-employed. Both returns must be filed by April 30 of the following year, but self-employed individuals can receive an extension until June 15.

Tax debts also have different treatments during bankruptcy. Pre-bankruptcy tax debts can be discharged, meaning they won’t have to be repaid to creditors. However, any tax liabilities incurred after the bankruptcy filing remain the responsibility of the individual. It’s important to understand that tax refunds received from both pre-bankruptcy and post-bankruptcy periods go to the LIT and are distributed amongst creditors. For example, if an individual was expecting a tax refund from their pre-bankruptcy return, that amount would go to pay off debts rather than staying with the filer. Remember, understanding these requirements can help you navigate the challenging waters of bankruptcy more effectively.

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Handling Tax Debts and Refunds

Pre-bankruptcy tax debts are discharged under bankruptcy proceedings., Post-bankruptcy tax debts remain the responsibility of the individual., Tax refunds from both pre- and post-bankruptcy periods are collected by the trustee for distribution to creditors.

Handling tax debts and refunds in Canada during bankruptcy can be tricky, but understanding the basics will help you navigate the process better. When you declare bankruptcy, any tax debts you owe from before your bankruptcy are typically wiped out. This means they get discharged during the bankruptcy proceedings, relieving you of that burden. For example, if you owe $5,000 in taxes from the previous year, you won’t have to pay that once your bankruptcy is complete. However, any tax debts that arise after you file for bankruptcy are your responsibility and won’t be included in the bankruptcy discharge.

Additionally, it’s important to know how tax refunds work in this scenario. Any tax refunds you receive from both before and after your bankruptcy also go to your Licensed Insolvency Trustee (LIT) to be shared with your creditors. This means if you get a refund for 2022 after declaring bankruptcy in 2023, that money doesn’t go to you but rather goes toward paying your debts. It’s essential to stay informed and seek guidance from a bankruptcy professional to understand your options and ensure you’re managing your tax responsibilities effectively.

Special Cases and Surplus Income Payments

Special filing requirements exist for in-bankruptcy returns in cases with liquidated assets like RRSPs., Business and self-employed filers may have additional filing obligations and deadlines., Surplus income payments are calculated based on a percentage of income above a set threshold and must be paid to ensure discharge.

When filing for bankruptcy in Canada, it’s crucial to be aware of some special cases and surplus income payments. For instance, if you have liquidated assets, like RRSPs, there are specific rules. An in-bankruptcy tax return will need to be submitted by your trustee, covering the income from these assets up to the bankruptcy date. If you’re self-employed or running a business, additional filing obligations and deadlines apply, which can complicate your situation further. Make sure to stay on top of these requirements to avoid any delays in your bankruptcy process.

Surplus income payments also play a significant role in determining your bankruptcy outcome. These payments are calculated based on 50% of your income exceeding a specific threshold set by the government. For example, if your household income is $5,000 per month and the threshold is $4,200, you would need to pay 50% of the $800 surplus, totaling $400 monthly. These payments are important; failing to make them could prevent your discharge from bankruptcy, making it essential to plan accordingly.

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