What to do with your tax returns in a bankruptcy?
June 24, 2019
Things to do in your tax returns in a bankruptcy?
At this time of year, a lot of people can ask questions about taxes. The question that comes up most often is: “I went bankrupt, what should I do for my tax returns? If you ever ask yourself this question, here are the procedures you must complete before handing over your tax file to anyone.
First, you must personally file or have your trustee in bankruptcy or accountant file two tax returns that are mandatory: a first declaration for pre-bankruptcy and a second declaration for post-bankruptcy. At Big-well Associates, we offer you to file your pre-bankruptcy return without charge.
What is the difference between the pre-bankruptcy declaration and the post-bankruptcy return?
The pre-bankruptcy declaration is valid for the period from January 1 to the day before your bankruptcy. As this report relates to your activities prior to the date of bankruptcy, a federal tax refund may be applied. In this case, the amounts obtained will be returned to the trustee since they will be considered property belonging to the person who went bankrupt. On the other hand, the provincial tax refund will be returned in full to the bankrupt except where the bankrupt has an old debt that is refundable for tax purposes. It is all the more useful to specify that the pre-bankruptcy return must necessarily be produced by your trustee after your bankruptcy.
As for the post-bankruptcy return, it covers the period from the day of your bankruptcy to the end of the current year, which is December 31st. The tax refund also remains possible, and as with the pre-bankruptcy return, the money paid back will go to the trustee for the federal while the provincial could go back to the bankrupt. You are responsible for your post-bankruptcy declaration. If necessary, we can recommend an accountant who is experienced in this area near you.
Some tips to consider
When you, or your trustee, file the income tax and benefit return for the tax year in which the bankruptcy took place, it must be clearly stated whether it is a pre-tax return. bankruptcy or a post-bankruptcy declaration.
Note that if you have submitted a consumer proposal, it does not affect your tax return.
When you have to choose a trustee in bankruptcy, make sure that it is familiar with the pre and post bankruptcy tax returns.