If you would prefer to listen to the audio version of this Brandon’s Blog, please scroll to the bottom of the page and click on the podcast.
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 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 this 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, 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 these 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. This 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 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 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 that credit cheque to the LIT.
- The LIT needs to give the 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 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 just people who have low or moderate incomes. It happens to those that we might think are rich too. It can happen to a person, a business or a company.
Are you or your company in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do both a personal debt restructuring/debt settlement program as well as a complex corporate restructuring. However, more importantly, we understand the needs of people.
You are worried because you or your company faces significant financial challenges. The stress placed upon you due to your financial challenges is enormous. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we deal with your problem and prepare and implement a restructuring plan, we know that we can help you.
We know that facing financial problems is scary and that you need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team. That is why we can develop a restructuring process as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious in finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.
Call us now for a free consultation. We will get your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.