Revenue Canada Taxes and Wage Garnishment

| Category: Bankruptcy in Ontario
Category: Bankruptcy in Ontario | (2) comments

Question: Revenue Canada is garnisheeing 30% of my wages next week for HST and GST and taxes. Can bankruptcy clear that or is Revenue Canada exempt?

Answer: Yes, debts to CRA are included in a bankruptcy or consumer proposal, so if you file bankruptcy the wage garnishments stop.

cra-tax-garnishmentIt is a popular misconception that Canada Revenue Agency is different than other creditors, but in a bankruptcy they are subject to the same process as everyone else.  Even though you are filing bankruptcy in Ontario, bankruptcy is governed by federal law, and since CRA is part of the federal government they are required to follow all federal laws.

The only significant “special power” that CRA has in a bankruptcy is that if you owe more than $250,000 for income taxes, and if that income tax debt is more than 75% of your total debt, you will be required to attend a discharge hearing in bankruptcy court to obtain your discharge.  This rule exists to prevent people from going bankrupt simply to avoid a huge tax debt.  This is a very unusual circumstance, and only applies to income tax, not HST debts.

One final point: You are still required to ensure that all outstanding tax returns are filed (for HST and income taxes), and you are required to make all current payments to CRA while you are bankrupt.  So, if you are self-employed, you should ensure that each month you remit whatever taxes may be owing for the month to CRA.  The purpose of bankruptcy is to give you a fresh start, so you want to avoid any future problems with CRA and taxes owing.

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  1. J. Douglas Hoyes Post author

    If you sell your home and then file bankruptcy, the answer will depend on what you received for your home.

    If you sold your home and broke even or suffered a loss, your bankruptcy would not be impacted. If you sold your home and generated some cash, the existence of the cash would be disclosed when you filed bankruptcy, and if it is a significant amount it could be seized by the trustee. In that case a consumer proposal may be a better option.

    If CRA has a lien on your house the lien must be paid as a condition of the sale.

    This is a complicated area, so you should consult a bankruptcy trustee before deciding on the best approach in your situation.

    Reply

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