Answer: In your case, yes, it might matter.  If, when you declare bankruptcy in Canada, you owe more than $250,000  in taxes, and if your tax debts represent more than 75% of your total debt, you are not eligible for an automatic discharge from bankruptcy.  That means you would be required to go to bankruptcy court, and it would be up to the court to decide how much, if any, of the tax debt you would be required to repay.  The court may not make you repay anything, or they might.

So, in your case, ensuring that your tax debt is less than $250,o00 could make your bankruptcy simpler.

Answer: That’s a question you should ask your trustee. Under normal circumstances Canada Revenue Agency will send your tax refund for all prior years (2007 in your case) and the year of bankruptcy (2008 in your case) to your trustee for distribution to your creditors. In most cases your tax refund for the year after bankruptcy does not become property of the estate, and is returned to the bankrupt.

However I have accumulated a $20000 debt with revenue canada, and they are garnishing 40% of my income. What can I do about this, if anything?

Answer: The short answer is there is very little you can do. You are an undischarged bankrupt, so you can’t file bankruptcy to eliminate your tax debt until you are discharged from your first bankruptcy.

The most logical approach would be to work with your trustee to get your first bankruptcy finished. At the same time, you could talk to Revenue Canada to see if they would agree to lowering the amount they are garnisheeing, although there is no guarantee they will make any changes.

Once you are discharged from your first bankruptcy you can talk to an Ontario bankruptcy trustee about a second bankruptcy or a proposal. (A second bankruptcy lasts longer and is more costly than a first bankruptcy, so consider all options before filing bankruptcy for a second time).

Answer: The first option would be to determine, based on your cash flow, how much you can afford to send to Canada Revenue Agency each month. If you can afford to send them $5,000 per month, you will have the debt paid in 16 months. Obviously the faster you pay it the better, because at some point Revenue Canada will contact you looking for their money.

If you cannot make payment arrangements, you may have no choice but to consider a proposal or bankruptcy, but repaying it on your own is the best option if possible.

Answer: Yes, bankruptcy in Ontario includes debts owed to Revenue Canada for taxes and GST. Your trustee can provide you with more detailed information.

Answer: Does owed to CRA (Canada Revenue Agency) are discharged in a bankruptcy, just like bank loans and other debts. Your trustee can explain the requirements in more detail.

Answer: If you have received your tax refund before you file for bankruptcy you don’t lose your refund for the prior year. Under current rules you lose your tax refund for prior years if you haven’t received them yet, and you lose your tax refund for the year of bankruptcy.

Answer: Yes, taxes are discharged in a bankruptcy. However, there are a number of issues to be aware of with respect to taxes and bankruptcy, so you should consult a licensed Ontario bankruptcy trustee for more information.

Answer: The short answer is: because it’s the law. Under the Bankruptcy & Insolvency Act, all assets (except those that are exempt, such as your personal belongings) become assets of your bankruptcy estate, and they are distributed to your creditors.

To determine whether or not the government owes the bankrupt any money, the trustee is required to file all outstanding tax returns, including a tax return up to the date of bankruptcy. If there is a refund, it goes to the creditors. If there are taxes owing, they are discharged in the bankruptcy.