Do I Lose My HST Rebate When I Declare Bankruptcy in Ontario?

The short answer is yes, you lose your HST Rebate when you go bankrupt. However, there are some exceptions.

When you file personal bankruptcy in Ontario the Canada Revenue Agency (CRA) is notified, and they automatically re-direct all HST cheques (and tax refund cheques) to your trustee. Those funds form part of your bankruptcy estate, and at the end of your bankruptcy the money in your estate is distributed to your creditors.

However, Rule 59 of the Bankruptcy and Insolvency General Rules, which is designed to explain paragraph 67 (1) (B.1) of the Bankruptcy & Insolvency Act, states that:

(1) A goods and services tax credit payment is not comprised in the property of the bankrupt for the purpose of paragraph 67(1)(b.1) of the Act if a dividend is available to the creditors without taking that payment into account.

(2) If, in order for a dividend to be available to the creditors, it would be necessary to take into account all or part of a goods and services tax credit payment, the portion of that payment that is not comprised in the property of the bankrupt for the purpose of paragraph 67(1)(b.1) of the Act is the portion, if any, that would have been paid as a dividend to the creditors had all of the payment been comprised in the property of the bankrupt.

(3) For greater certainty, if no dividend would be available to the creditors even if a goods and services tax credit payment were taken into account, all of that payment is comprised in the property of the bankrupt for the purpose of paragraph 67(1)(b.1) of the Act.

Huh?

Don't you love the way the lawmakers make a law, and then explain it by saying "For greater certainty", which only makes it more confusing?

It's complicated rules like this that makes it very important for you to deal with a trustee firm that fully understands all of the rules. Here's what the rule is saying, in simple English:

The trustee is required to return your GST or HST tax credit to you if, at the end of your bankruptcy, there is sufficient money in your estate to pay a dividend to your creditors. The math on this is complicated, but to over-simplify it, if there is about $1,700 or more in your estate at the end of your bankruptcy, the trustee will return your HST credits to you.

All trustees process HST cheques differently, so if you are not dealing with Hoyes Michalos & Associates, you should contact your trustee for further information.

How does HST work at Hoyes Michalos?

At Hoyes Michalos we want you to get a fresh start. So, if possible, we would like you to be able to keep your HST tax credit cheque, and use that money to start saving for emergencies, or to start saving for the future. But as we discussed above, CRA automatically sends the cheque to us. So how can we follow the rules and let you keep the HST cheque?

We know that under Rule 59 if there will be more than approximately $1,700 in your estate, we will be returning the HST to you at the end of the bankruptcy. So, if your monthly contributions in your bankruptcy are set at $190 per month or more, and since all bankruptcies last for a minimum of nine months, there will be at least $1,710 in your estate in your bankruptcy.

If you agree to make contributions of $190 per month (or $95 bi-weekly if you are paid bi-weekly, or $47.50 per week if you are paid weekly) by pre-authorized payment, we will immediately notify CRA to send the HST tax credits directly to you, not to us. We are able to do this because we know that we will be returning the HST cheque to you anyway, so it's better for you to get the cheque in advance.

If you expect an HST rebate cheque of $300 every three months, that could be a savings to you of as much as $900 during the first nine months of your bankruptcy, so that's a significant start on your savings plan. Many people choose to use that refund cheque to pay off their bankruptcy faster, which is also a good idea.

Please note that the amount you are required to pay during your bankruptcy is based on a number of factors. You will be required to pay the base monthly payment ($190 per month in this example), plus you are required to make additional payments if you have surplus income. You may also be required to make additional payments if you are keeping assets (such as equity in a house, or an RRSP or RESP), and you also lose your income tax refund for the year of bankruptcy, and any prior years.

Again, these rules are complicated, so please contact us to review your situation and explain in detail the cost of your specific bankruptcy.

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