Filing Late Tax Returns & Personal Bankruptcy
Some of the people who file for Personal Bankruptcy with David Sklar & Associates have not filed their income taxes for several years. In general, this is a reflection of the financial chaos that their lives have become.
There are many reasons people have for not filing – but they seem to fall into five main categories:
- Fear that they owed the government money they could not pay;
- Kept putting it off;
- Lost their tax receipts/information slips;
- Were intimidated by the whole process; and
- Did not know how to get help.
Whatever the reasons for not filing, when a person goes in to Personal Bankruptcy they must bring their individual tax filings up to date.
Part of the duties of the Bankruptcy Trustee includes:
- filing Income Tax Returns for the year prior to the bankruptcy (if they have not been filed); and
- filing a pre-bankruptcy tax return for the period January 1st of the year the bankruptcy is filed in to the day before the actual date of the bankruptcy.
In addition, DSAI also files post-bankruptcy tax returns for most of their clients. The post-bankruptcy return is for the period from the first day of the bankruptcy, to the 31st of December for the year the bankruptcy was filed in.
As part of the Bankruptcy process, the Canada Revenue Agency (CRA) is informed that a bankruptcy has been filed. If there are unfiled tax returns, the CRA will send a ‘demand’ letter insisting that the tax reporting be brought up to date.
In the case where a person in Bankruptcy (a bankrupt) has not filed their Tax Returns for several years, DSAI will recommend several firms that can complete your Tax Returns for you.
Here are some of the most frequently asked questions about late income tax filings:
What if the tax receipts and records are missing?
Good news, CRA has copies of all your income and official tax receipts/information slips – and will forward them, if requested, for processing.
This is important to note – even if you are not in bankruptcy, you are able to get copies of tax receipts that you have lost, from the CRA.
What happens if there are rebates on a bankrupt’s late tax returns?
If there has been no fraud, tax rebates will normally go into the individual’s bankruptcy estate as assets for disbursal among the unsecured creditors.
What happens if there are taxes owing on a bankrupt’s late tax returns?
If there has been no fraud, they will normally go into the individual’s bankruptcy estate as debts and will be covered by the bankruptcy.
What does all of this mean to people in Personal Bankruptcy?
In most cases, getting their tax returns up to date brings a sense of relief. This is part of the process of getting the ‘fresh start’ that is the goal of bankruptcy.
In some cases, it can result in the individual becoming aware of credits such as GST and disability credits, that they will qualify for after they have been discharged from their bankruptcy. These individuals can look forward to any such benefits in the future.
Final Note: Whether or not you are contemplating a Bankruptcy – keeping your tax filings up to date is strongly recommended.