Frequently asked questions about income taxes and bankruptcy

Following are explanations of the most common questions and terms related to income taxes and bankruptcy. Still confused? You’re not alone. You can contact us by phone at 1-800-472-7775 or by email at tax@hoyes.com if you have further questions.

What is a “pre-bankruptcy” tax return?

A pre-bankruptcy tax return covers the period from January 1 of the year of bankruptcy to the day before the date of bankruptcy. This is a requirement of the federal Income Tax Act when you file bankruptcy.

What is a “post-bankruptcy” tax return?

This tax return covers the period from the date of bankruptcy to December 31 of that same calendar year. Like the pre-bankruptcy return, this is a requirement of the Income Tax Act when you file bankruptcy.

What is a “prior year” tax return?

These are tax returns for any year prior to the calendar year in which bankruptcy is filed, but that are unfiled at the time bankruptcy is filed.

Which tax returns will the trustee prepare?

The trustee will normally prepare the pre and post-bankruptcy returns, as well as one prior year return.

If your discharge date is in a year subsequent to the year you filed bankruptcy, the trustee does not prepare that return.

Is there a fee for preparing my taxes?

No. Preparing tax returns is part of the bankruptcy process at no additional cost.

Can I prepare my own taxes?

For people with more complicated tax returns, sometimes it makes sense for you or your accountant to prepare the return. You can discuss this with your trustee if you are concerned.

Will you prepare my spouse’s tax return?

We only prepare tax returns for people who file bankruptcy with our firm. If your spouse has not also filed bankruptcy, he or she will be responsible for preparing his or her returns.

What happens to my tax refunds?

Canada Revenue Agency will send tax refunds to the trustee for the pre-bankruptcy, post-bankruptcy and prior year returns that are assessed after the date of bankruptcy. The trustee is required to keep those refunds for distribution to your creditors.

Are my other government credits and benefits affected?

No. There are a number of government payments, such as the Canada Child Benefit, GST/HST Credit and Ontario Trillium Benefit, that are calculated based on your tax information. These are not impacted by bankruptcy.

What happens if there is a balance owing on my taxes?

You are not required to pay a balance owing on the pre-bankruptcy or prior year returns since it relates to periods of time before bankruptcy. The balance owing is included in bankruptcy along with the other debts.

However, you are required to pay a balance owing on the post-bankruptcy return since it relates to a period of time after bankruptcy. Payment is made to Canada Revenue Agency, not the trustee.

How do I make a payment to Canada Revenue Agency?

The CRA website has detailed information about your payment methods.

Will I receive a copy of my tax returns?

Yes. We will send you a copy of the completed return for your records. A meeting with the trustee is not required to prepare the return.

Will I receive the notices of assessment for my tax returns?

For pre-bankruptcy and prior year returns, the notice of assessment is sent to the trustee’s office. We will forward the notice to you for your records after we have reviewed it.

If there is a refund on the post-bankruptcy return, the notice of assessment is sent to the trustee’s office. If there is a balance owing on the post-bankruptcy return, the CRA will send the notice of assessment directly to you. This is because you are responsible for paying this balance owing as it is considered a new debt after your date of bankruptcy.