Someone told me recently that he thought CRA debt could not be dealt with in a bankruptcy. Apparently, someone had told him it was not possible to write off tax debt through bankruptcy proceedings.
This is not true. Just like a Visa bill, an American Express debt or a Mastercard obligation, CRA debt is dealt with in the bankruptcy proceedings and can be written off.
When a person files an assignment in bankruptcy, creditors, including the CRA, are prohibited from attempting to collect their debt from the person that filed the Assignment into bankruptcy. CRA, and all other unsecured creditors, must communicate through the trustee and may not contact the debtor. That’s the law. It is a violation of the Bankruptcy Insolvency Act law to contact the person that filed the Assignment into Bankruptcy with the intention of collecting a debt owed.
At times, a person’s obligations to the CRA are insurmountable due to neglect, unfortunate circumstances, or unfair tax rulings. When the CRA obligation cannot reasonably be repaid, the interest and penalties will grow over time and often double the tax obligation.
As I’ve mentioned, there are a number of reasons that can cause personal income tax debt to become insurmountable. Nobody wants that to happen, but if it does, that obligation can be dealt with through the bankruptcy process. Upon discharge of the person filing the Assignment into bankruptcy, personal income tax debt will be declared as equal to zero by the courts.
The rules around income tax are complex and prone to change. If you have CRA related questions, talk to an expert – a Licensed Insolvency Trustee will have the accurate answers you are looking for.
Dan Faber, CPA, CA, CIRP, LIT
Dan Faber is the co-founder and Executive Director of Faber Inc. Dan is a Chartered Accountant (CA), Chartered Insolvency and Restructuring Professional (CIRP) and Licensed Insolvency Trustee. Dan has over two decades of experience in providing consumer and corporate insolvency and restructuring services throughout an extensive range of industries.