How long will it take me to re-establish credit after I declare bankruptcy?

By Mary Ann Marriott, LIT, CIRP

time-for-blog

This is easily one of the most common questions someone asks when considering declaring personal bankruptcy.  And, as with most things in the insolvency world, the answer is “It depends”.

What does it depend on you ask?

To answer that, we need to take a step back and talk about “Credit Worthiness”. There are actually three factors that affect ‘creditworthiness’.

  1. Your credit report/score
  2. Your debt ratio
  3. Your income or job stability

Chart EN

Most of the time, when someone asks how bankruptcy will impact their ability to get credit, they are referring to their credit score.

So, let’s start there….

 

Your Credit Score and the impact in bankruptcy

Two things impact the effect bankruptcy has on your credit score:

  • Where your score was at the time of filing for bankruptcy, and
  • What you do AFTER bankruptcy to improve your score

 

A quick summary of credit scores….

They range from 300-900. 300 is bad. 900 is good. At the time of bankruptcy, you could have a very low score if accounts have been delinquent and/or in collections. Or, you could have a reasonably high score if you have been keeping your payments up to date and have not maxed out your credit.

Generally speaking, most people are in the 4-500’s after they declare bankruptcy. The minimum range a person should strive for is 650-700 and anything above 700 starts to put you in a good position to obtain credit at a decent interest rate.

 

How do you get your score to increase?

Another great question! Well, you first have to stop the negative reporting. Bankruptcy effectively does that as the accounts are either inactive or closed when you declare bankruptcy (or once you are discharged). However, and this is a big however, you need to ensure creditors have stopped reporting your accounts as delinquent and that all creditors (including collection agencies) have been notified. Often it takes several calls to a creditor to ensure they have updated things properly.

Next, you need to get some type of “good credit” back on your report. This requires using new credit after the date of bankruptcy. In some cases, you can get credit while you are in bankruptcy – a car loan, for example, or a secured credit card. In other cases, you may have to wait until you are discharged from bankruptcy (which can be beneficial in the case of a car loan, for example, as the interest rates should be lower once you are out of bankruptcy).

The good news is that secured credit cards are relatively easy to get with paying a deposit down. The key, of course, is to ensure you make your payments on time and that you limit the balance you carry, or simply do not carry a balance, to decrease your interest costs. Because, as you can imagine, interest rates will be high.

Two more notes on this before we move on:

  • Banks will generally not give credit until you are out of bankruptcy for a number of years
  • Secured credit cards come with an annual fee

 

Your Debt Ratio

Your Debt Ratio is the amount of debt you owe to income. In a bankruptcy scenario, your unsecured debt is released. Therefore, the simple act of declaring bankruptcy improves your debt ratio because you owe less money. Going forward, you want to be very careful not to build up too high of a debt ratio.

Tip: Do not go by lenders versions of what percent of your income you should be able to handle in debt payments. Use your own formula based on your lifestyle and income/expense situation.

 

Job Stability/ Income

You need to have a steady, suitable income and you should meet employment guidelines (ie. employed for at least a year, or two years, or self-employed statements for a number of years, etc.).

In summary

Your ability to get credit is impacted by three things. And all three need to be strong in order for you to qualify for credit.

You need to have a good, strong credit score. You need to have a low debt ratio and you need to have job stability and suitable income.

Take one away, and you will have a difficult time obtaining credit.

Having said that, if anyone has not noticed, getting credit is not really an issue these days. Where the banks won’t give you credit, a second or third-tier lending place will. With a hefty price (high-interest rates) of course.

So, my final piece of advice: don’t be too keen to jump back on the credit bandwagon. Take your time, do your research, consider what you need credit for and when. Take the steps necessary to improve your credit score while paying the least amount of interest possible (ie. a secured credit card) until your score is where it needs to be for you to qualify for a lower interest cost.

Wishing you all happy, healthy finances!

Mary Ann Marriott, LIT, CIRP

Allan Marshall & Associates Inc.
Servicing Halifax and Bridgewater, NS
maryann@wecanhelp.ca

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Ageing parents and taboo topics

care-for-blog

By Maureen Babin, Amarack Financial

It’s almost inevitable, at some point our parents are going to need our help with financial or health issues. Studies show that 49 percent of us avoid discussions about money matters with our family. The real danger is not knowing. If you’re out of the loop on your parents’ financial issues, it’s hard to know what type of care would be affordable if they have an accident or become ill. It may be time to talk to them about financial matters.

One or both parents may become ill, incapacitated, susceptible to scams or fraud or unable to keep up with their finances as their mental and physical abilities decline. This situation can be difficult in families where the subject of money was never talked about. But waiting until a crisis occurs can cause stress, heartache and losses. Planning helps ensure our parent’s wishes are carried out and reduces disagreements among siblings regarding what our parents would want to be done. Below are some suggestions around this difficult conversation:

• Don’t minimize your parent’s need for a sense of personal control.
• Don’t confuse frailty physically with mental incapacity.
• Recognize that you may have to suggest a discussion several times.
• Give ageing parents as much power and involvement in financial decisions as possible.
• If you find items like unpaid bills, misplaced documents, unfiled tax returns, don’t panic or place blame. Don’t judge your parents’ choices, if they have $50,000 in a savings account, earning 0.02%. It’s their choice.
• If you must assume full responsibility for a parent’s finances, continue to share information with them. You may even want to consider family meetings to discuss finances, to keep everyone current on spending and income.

It is vital that your parents have a will and power of attorney if they have not already done so. Without them, your parents will have lost their ability to name a trusted representative to be in control of their affairs. You have to discuss finances with your parents, and if you don’t, the long-term repercussions can be severe.

It may be awkward to approach this subject. Let them know that it will be easier for you to help them when they need it most. Just beginning the discussion means facing difficult issues such as death or incapacitation. Many of us are resistant to talking openly about them. For parents who are reluctant to sign documents because they feel it reduces their control over their finances and even their lives, suggest naming two children or a child and a lawyer or accountant to act on their behalf. The two parties named then act as a check on each other to ensure everything is being carried out in the best interest of the parent. A power of attorney can be left with a third party with specific instructions, as well, it can be limited in terms of a particular period or specific acts. Powers of attorney and living trusts are essential to have in place; it gives someone else the authority to make critical decisions. If our parents aren’t mentally capable of signing these documents, you may need to seek legal guardianship, which can be a long process.

You’re not prying. You don’t need to know what’s in the will, just where it is. You don’t need to know how much insurance there is, just where the policy (policies) are kept. Becoming informed about where all the financial stuff is, and talking about how your parents want matters handled if they couldn’t do it themselves, you’ll be able to take care of them in the way they would wish to.

So precisely what do you need to know? Where do you find the personal and financial documents in the event of accident, illness or death? Here’s the information you should know:

• Where the will is kept and who the executor is
• Where important legal documents are kept
• Health card and health records
• Pharmacare and other health insurance numbers
• Debts and payments
• Tax returns
• Location and keys for a safe deposit box
• Names and phone numbers of doctors, accountant, lawyer, financial advisor, etc
• Details of insurance policies, including health, life and long term care
• Income and investments
• Bank account numbers, name and location of financial institutions

Remember, it’s essential to respect their rights and wishes. Give them as much control as possible.

Maureen Babin has been in the financial industry since 1972. She’s the author of The Gender Gap, What Every Woman Should Know About Money. Check www.Amarackfinancial.com

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Five Ways to Save on Back to School

Supplies-for-blog

By Shelley Koehli, CIRP, Licensed Insolvency Trustee of D. Thode & Associates Inc. based in British Columbia.

It sure feels like school just ended so you may be wondering why we are already thinking about back to school.  In preparation for the rush at the end of August to ensure you have everything your kids need, let’s take a look at five ways to save on back to school.

  1. Inventory

What supplies do you already have lurking in that old pencil case or that junk drawer?  Depending on the age of the child, certain items can be reused year after year, assuming it’s not lost.  Think calculators, scissors, rulers.  See what backpacks and lunch bags still have life left and can be reused for the coming school year.  Get your kids to go through their closet to see what clothes still fit and what will need to be replaced.

  1. School List

Some schools make a list of what you need to purchase, and others do bulk purchases, and the parents simply pay a flat amount for all supplies.  The latter sure makes life easier for the basic supplies.

Once you have your list, check your inventory from #1 above and make your shopping list.  The earlier you make this list, the better as you can start budgeting the cost.

  1. Sales

Keep your eye on the flyers, sign up for alerts from your favourite stores.  Also, know which stores price match, so you’re not running around to 2 or 3 different shops.  Lastly, check store prices against online retailers to ensure you are getting the best deal.

  1. Buy and Sell Groups

There are many online groups, especially within Facebook that allow you to purchase used goods from other parents.  Keep an eye on these sites for good-used condition items like clothing, backpacks and other supplies.  Just make sure you are getting a reasonable price.  Check the article online to see what the retail price is to ensure you are getting a deal.

  1. Shop throughout the year

Keep an eye out for the end of season sales where you can stock up on clothing for the following fall, winter, spring and summer.  Keep a drawer and a portion of your child’s closet to store the items until they fit.  If you see an exceptionally good price on something you know you will need the next school year, grab it.  Just don’t forget that you have these items tucked away and include in your summer inventory each year.

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Five thrifty ways to spend time with your family

Free-activities

By Crystal Buhler, Licensed Insolvency Trustee, and President of C. Buhler & Associates Ltd.

If you’ve decided you are going to be more budget-conscious this year and find that your spending plan doesn’t have quite the room you’d like for summer activities, remember that summer activities don’t have to cost money. In fact, if you think back to your childhood, you might recall that some of the most memorable experiences with your parents or friends didn’t cost anything! We’ve got five thrifty ways to spend time with your family, without spending money.

  • Park right here – Remember that time your parents stopped at the park you always wanted to visit, with its twirling slide, or too tall swings? Give your kids or grandkids a chance to stretch their legs at a new park every week this summer. If you are lucky enough to live in an area with several schools, pack your lunch, and spend some time trying out all the different playground equipment with your family. You’d be surprised at how high-tech playgrounds have become – incorporating sensory experiences such as sound and texture, with the traditional swings and slides. One summer while building a house, our family of 5 shared a small apartment and in order to keep our kids busy, it became our mission to check out every playground in our small town. Over 5 years later, they still say, “Remember the time we went there!” as we drive past some of the playgrounds we were able to visit.
  • Look toward the heavens – have you ever experienced a meteor shower? Or perhaps you are old enough to remember Halley’s Comet? We have recently experienced many cosmic events such as eclipses, and depending on your location, you might find a few once in a lifetime events. In our city, the local University opens up its Observatory for free viewing when an event is expected, and it makes for not only a great excuse to stay up late, but a chance for you to learn a little bit about the world around you. Perhaps you have a future astronomer, or maybe just a kid with their head in the clouds! Either way, exploring the night sky together doesn’t need anything more than a dark area and some time.  Pack your jacket and a blanket, and for extra points, download a free star chart on your device, and you are ready to go!
  • Dog park and hiking trails – does your family include someone 4-legged? Consider a trip to a new dog park or off-leash area. Perhaps a new hiking trail would interest your furry pal. If you or your 4-legged prefer to stay indoors, consider teaching your canine a new trick, or spend some time perfecting the one they have conveniently ‘forgotten’. If your pet is of a different variety, consider making a new toy for them to enjoy, out of household recycling, or craft supplies. Be sure to choose something safe for your pet – our cat currently enjoys sleeping in his cardboard ‘igloo’ complete with fleece scraps for a pillow, hand-crafted by his youngest owners.
  • Spend time – throughout the school year we are very busy with not only school but swimming, soccer, football, hockey, piano….and the list goes on! Often these busy activities take a break over summer, and so should we. Take those new-found hours to do all the things that have been put off – visit your aunt across town, invite the neighbours for a bonfire, play a board game with your spouse. Maybe pick up that hobby you put down long ago and enjoy the slower pace.
  • Don’t forget your local library – Recently I’ve discovered that our local library has an opportunity for every age group. From Lego clubs for the young, Science Saturday for the pre-teens and teens, and adult book clubs, to groups that help you further your skills and abilities, the library is no longer a dusty, boring place. Much – if not all – of the programming is free and is usually listed on the library’s webpage. See what events you might be interested in and sign up with a friend!

Blog provided by Crystal Buhler, Licensed Insolvency Trustee, and President of C. Buhler & Associates Ltd., who provides assistance to those in debt living in Manitoba and the Northwest Territories. Learn more at www.debtfreenorth.com.

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Ideas for kids activities this summer

Kid-for-blog

By Crystal Buhler, Licensed Insolvency Trustee, and President of C. Buhler & Associates Ltd.

Summer brings with it certain energy, and parents often find this energy is best controlled, or at least directed, into fun summer activities. For pre-teens and teens, summer can mean longer daytime hours and more free time to spend with friends or engaging in relaxing summer activities. So, with summer creeping over most of Canada, we’ve taken this opportunity to collect a few suggestions, that are budget-friendly, to keep your family busy.

  • Summer camp – many a fond memory is made at summer camp. Bunk beds, bug catching, and crafts are highlights of the stories that children arrive home with each year. If you are looking for budget-friendly alternatives, consider having your children apply for scholarships for sports, music or cadet camps. Hard work and dedication to one’s sport, instrument, or hobby can pay off in reduced camp fees, or transportation costs. Many faith-based groups will sponsor children to go for a few days at a local religious camp. Consider sending your child with a friend to not only make sure they have a great week but also you can benefit if you split the travel cost with other families from your area. Last, if a week away is too costly, consider day camps at your local YMCA, University, College or other community organizations. Not sure your child would enjoy that much time away? Consider some of the community-based programs where your child could enjoy an afternoon making a craft, and you can enjoy watching them work together with others, while you take some time to visit with other parents.
  • Travel – we understand that not everyone’s budget includes plane tickets and Disneyland, but even a road trip to a local beach can give you a chance to bond as a family. Does your family include a 4-legged friend? Consider day trips to pet-friendly destinations, such as hiking trails, dog parks, or overnight stays that can accommodate your furry friend.
  • Camp – many families have access to an RV, a tent, or a cabin, even if they don’t own one. Consider taking your family or friends up on their offer to ‘join us at the lake’. If you don’t have a tent, check out local yard sales in advance of your trip and collect a few supplies. Camping is always more fun with more people…the kids tend to entertain themselves and travel in packs around a campground. Friendships are made, sandcastles built, and bikes raced. If it’s been years since you camped, note that most provincial campgrounds reservations can be made online now, and some even allow you to preview the site prior to selecting. Don’t forget you may need a parking pass – but watch as some locations have certain weekends or months where they waive the park entry fee.
  • Staycation – too difficult to get out of town this year? Work schedule or family schedule just doesn’t allow the flexibility? Be a tourist in your own town! Drop in on the museum you drive past every day, take your kids to the local spray park, or have a bonfire at a local park. There are many amazing sights to be seen in your own hometown. Visit your local theatre, buy tickets to a play, or make a point to visit with friends you haven’t been able to fit into your schedule. Camp out on your own deck and stay up late to count the stars. The possibilities are endless!
  • Volunteer – perhaps ‘relaxation’ is a hard concept for you to fathom. If staying busy is more your speed, or you prefer the structure of having a ‘plan’, consider volunteering at a local community organization with your family! Perhaps taking dogs for walks at the local pet shelter or packing hampers at the local food bank will spark something in your family that may help them chose a future career! Do you have a budding builder in your family, but you don’t know which end of a hammer to use? Consider volunteering with Habitat for Humanity – they’ll show you what to do and would be grateful for your assistance. Take an afternoon to play board games with a local seniors’ group, or perhaps volunteer at a car wash. Your time will be well spent, and your community will appreciate your generosity.

Summer doesn’t have to involve expensive hotels and plane tickets, or going into debt to spend family time. Summer fun can happen in your own backyard, and without the stress of credit card bills as a souvenir.

Blog provided by Crystal Buhler, Licensed Insolvency Trustee, and President of C. Buhler & Associates Ltd., who provides assistance to those in debt living in Manitoba and the Northwest Territories. Learn more at www.debtfreenorth.com.

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Be careful . . . Look out for fraud!

Catch-for-blog

By Nathalie Brault, CPA, CMA, CIRP, SAI

Recently, we asked our members:

“Have you received fraudulent calls involving the Canada Revenue Agency?”

We were surprised to discover that 84% of our members reported that they had seen this scam, which can be done by email, telephone or text message.

During tax season, be careful not to be fooled by this swindle since this is when these fraudsters are most active. They use two approaches, sometimes passing themselves off as Canada Revenue Agency (CRA) employees but also sometimes as employees of Immigration, Refugees and Citizenship Canada:

  • Individuals receive a message telling them that they qualify for a tax refund but to receive it they must provide their personal information, such as their name, address, social insurance number, credit card number, passport number, etc.
  • Individuals receive a message saying that their taxes have been audited and that they must pay the balance owing to the tax office. The message stresses that they must pay the money owed immediately or they will be fined, and non-payment means that an arrest warrant will be issued.

Remember that the CRA does not threaten or use intimidating language to obtain payment of back taxes.

The CRA is not permitted to ask for personal information related to your passport or driver’s licence.

The CRA does not issue arrest warrants or deportation orders for non-payment of back taxes.

The CRA does not ask you to click on a link to provide your personal or financial information in an online form or to obtain a refund.

The CRA never communicates with taxpayers by text message.

As well, the CRA would not ask you to pay a tax debt with a prepaid credit card, in cryptocurrency such as Bitcoin or through gift cards (iTunes, Amazon or something else).

The Canadian Anti-Fraud Centre received 59,694 complaints of CRA-related fraud between 2016 and 2018. The 8,211 victims who came forward lost a total of $13.4 million.

But the challenge is that it is estimated that only 5% of victims will file a complaint with authorities.

Police recommend the following approach if you believe you are a victim of such a scam:

  • If in doubt: Hang up!
  • Contact the CRA to confirm your tax situation — you can access your file online.
  • If you believe you are a victim of this type of scam, report the incident to the Canadian Anti-Fraud Centre at 1-888-495-8501.
  • If you have made any payment, contact the police.

In February 2019, the RCMP and the Canadian Anti-Fraud Centre issued news releases to advise the population that some illegal call centres in India had been dismantled. This mass marketing fraud had been perpetrated by criminal groups in various places in India. Nonetheless, the RCMP does not have the authority to act as it would like as far as making arrests in India.

As a result, the RMCP has been looking for leads or other information about those responsible for this scam in Canada and abroad. The RCMP needs the public’s help to bring about the arrest of these criminals.

Individuals who fall prey to this scam also risk becoming victims of identity theft, so be on the lookout and notify the proper authorities!

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Planning for maternity / parental leave

Maternity

By Chelsea Taylor, CIRP, LIT

Few things are more exciting than welcoming a new addition to your family. However, all that excitement comes at a price. Growing families often find it difficult to manage the costs a new baby brings – in both supplies and time – and generally benefit from utilizing the full value of available aid and resources. While it is often possible to lean on partners and family to address the time requirements, the financial part can be much harder to work around.

Comprehensive planning is the best way to address any potential financial challenge. But where does that start?

Group Benefits Maternity / Parental Top-Up

Some group benefit plans include a maternity / parental leave top-up. These plans generally pay a portion of your income for a set number of weeks. If this benefit is available to you, it will generally pay more than you will receive through Employment Insurance. It may be worth your while to review your group benefits plan in detail or speak with your employer.

Employment Insurance Maternity and Parental Benefits

Federal Employment Insurance (EI) benefit options are split between maternity benefits and parental benefits.

Maternity benefits are available for the person giving birth and pay up to 15 weeks at 55 percent of insurable earnings (up to $562 per week). Conversely, parental benefits generally follow the same structure and are available to either parent (including adoptive parents or parents of a child born through surrogacy). Families considering parental benefits have two options to choose from:

Standard: Up to 40 weeks (35 weeks if only one parent is claiming the benefit) at 55 percent of insurable earnings (up to $562 per week)

Extended: Up to 69 weeks (61 weeks if only one parent is claiming the benefit) at 33 percent of insurable earnings (up to $337 per week)

The Government of Canada’s website offers more detailed information about these benefit programs and how they could benefit your individual circumstance.

Consider Sharing Benefits with your Partner

If your partner’s group benefits provide for a parental top-up, it may be worth considering splitting leave to maximize the benefits. In addition, an extra five to eight weeks leave may be available to your partner through parental EI benefits. This can increase the amount of time a parent is at home with your child and save money by delaying the start of childcare.

Child Tax Benefit

Once your child has arrived don’t forget to apply for your Child Tax Benefit, which is calculated based on the following criteria:

  • Number of children who live with you
  • Ages of your children
  • Adjusted family net income
  • Eligibility for the child disability benefit

Your benefit adjusts every July based on income reported on your and (if applicable) your spouse’s filed tax return(s). The Government of Canada has a helpful calculator on its website to assist with estimating your benefit entitlement.

Looking Forward So You Can Look Forward

There’s a lot to consider when planning for a baby. Ideally, you will have had adequate time to get some savings in place to help cover the initial costs, as well as any decrease in income if you plan on taking a leave from work. With some careful planning and sound advice, it is very possible to enjoy your maternity time creating cherished memories with your new family member instead of worrying about how you’re going to afford it.

If you find yourself struggling to maintain your existing budget and worry a new child will add more financial pressure than you can manage, you may want to seek the advice of a professional.  You can find a Licensed Insolvency Trustee near you by visiting CAIRP’s website.

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The Treatment of Personal Income Taxes In A Personal Bankruptcy

taxes

By Mary Plahouras, CFE, L.L.M.

The approach taken by the Canada Revenue Agency (CRA) regarding the collection of personal income tax debt is straightforward: upon issuance of a Notice of Assessment or Reassessment to the taxpayer, all taxes assessed and determined to be owing, are to be paid in full, pursuant to the Income Tax Act (ITA).

When bankruptcy occurs, the taxation year is split into two periods: (1) pre-bankruptcy period; and, (2) post-bankruptcy period. The taxation year of a bankrupt comes to an end on the day before the date of bankruptcy (pre-bankruptcy period) and a new taxation year begins on the date of bankruptcy and ends on December 31st of that year (post-bankruptcy period). For instance, if the date of bankruptcy is April 3, 2019, the taxation year of the bankrupt comes to an end on April 2, 2019, and a new taxation year begins on April 3, 2019, and ends on December 31, 2019.

The significance of the pre and post-bankruptcy period has consequences for the dischargeability of the tax debt. A pre-bankruptcy tax debt is dischargeable in bankruptcy. A post-bankruptcy tax debt is not dischargeable in bankruptcy. Notwithstanding the bankruptcy, the bankrupt remains liable to the CRA for payment of the post-bankruptcy tax debt.

Prior-Bankruptcy Personal Income Tax Return

Pursuant to section 22 of the Bankruptcy and Insolvency Act (BIA), the Licensed Insolvency Trustee (LIT) is not liable to make any return that the bankrupt was required to make more than one year prior to the commencement of the calendar year, or the fiscal year, of the bankrupt, in which the bankrupt became bankrupt. For instance, if the year of the bankruptcy is 2019, the LIT is required to file the bankrupt’s 2018 tax return with the CRA. Notwithstanding the LIT’s obligation to file the one-year prior-bankruptcy tax return, the bankrupt has an obligation under ITA to submit all outstanding tax returns.

If there is a prior-bankruptcy refund, the CRA can claim a set-off to the prior-bankruptcy refund where there is: (1) one or more prior year tax liability owing to the CRA; or, (2) an enforcement maintenance registered with the CRA, such as a maintenance order by Family Responsibility Office for child support. In the absence of any prior-bankruptcy tax liability or enforcement maintenance registered, the CRA will send the prior-bankruptcy refund to the LIT for the general benefit of the bankrupt’s creditors. If there is a tax liability owing to the CRA arising from prior year(s) tax assessment(s), the tax liability is a claim provable in the bankruptcy and dischargeable. The bankrupt will not be liable to the CRA for payment of the prior-bankruptcy tax liability.

Notwithstanding section 22 of the BIA, where the LIT determines that there may be significant refunds for the bankruptcy estate, the LIT may opt to file all the outstanding prior year tax returns for which the bankrupt has not filed in order to capture any income tax refunds or GST/HST tax credits that may become available to the bankruptcy estate.

Pre-Bankruptcy Personal Income Tax Return

If the year of the bankruptcy is 2019, then, in the year 2020, the LIT must file the 2019 pre-bankruptcy tax return with the CRA. If there is a pre-bankruptcy refund, the CRA can claim a set-off to the refund where there is: (1) prior year(s) tax liability owing to the CRA; or, (2) enforcement maintenance registered with the CRA.

If there is no prior-bankruptcy or pre-bankruptcy tax liability or enforcement maintenance registered, the CRA will send the pre-bankruptcy refund to the LIT for the general benefit of the bankrupt’s creditors. If there is a tax liability owing to the CRA arising from the pre-bankruptcy return, the tax liability is a claim provable in the bankruptcy and dischargeable. The bankrupt will not be liable to the CRA for payment of the pre-bankruptcy tax liability.

Post- Bankruptcy Personal Income Tax Return

If the year of the bankruptcy is 2019, then, in the year 2020, the bankrupt must file the 2019 post-bankruptcy tax return with the CRA. Notwithstanding that the LIT is not obligated to file the post-bankruptcy tax return with the CRA, as a matter of practice, the LIT will typically file the return on behalf of the bankrupt.

If there is a post-bankruptcy refund, the CRA can claim a set-off to the refund where there is enforcement maintenance registered with the CRA. If there is no post-bankruptcy tax liability or enforcement maintenance recorded, the CRA will send the post-bankruptcy refund to the LIT for the general benefit of the bankrupt’s creditors.

If there is a tax liability owing to the CRA arising from the post-bankruptcy tax return, the tax liability is not a claim by the bankruptcy estate. The CRA will send the Notice of Assessment or Reassessment to the bankrupt. The bankrupt will be liable to the CRA for payment of the post-bankruptcy tax liability.

High-Tax Debtor Status *

Section 172.1 of the BIA deals with high-tax debtors. It is aimed at ensuring that bankrupts with:

(1) personal income tax debt of $200,000.00 or more; and, whose:

(2) personal income tax debt represents 75% or more of the total unsecured proven claims;

do not become eligible for an automatic discharge from bankruptcy. The LIT will bring the matter of the bankrupt’s application for discharge before the court for a hearing. The bankrupt will be required to attend the hearing. The types of discharge orders that the court may impose and the factors that the court will take into consideration in deciding the bankrupt’s discharge application differ from that of bankruptcy where the bankrupt is not a high-tax debtor.

To avoid the necessity for a court hearing and the consequences that may flow therefrom, a high-tax debtor would be well advised to consider a proposal to the creditor under the BIA as opposed to an assignment in bankruptcy.

* GST/HST payable is not included in the calculation of high-tax debtor.
* Taxes on additional income arising from a shareholder loan, draw or dividend, is included in the calculation of high-tax debtor.

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Tax Compliance for the Self-Employed

Tax-agenda

By Debora Kwasnicky, CIRP, LIT

It is that time of year when all self-employed persons should be preparing to meet with their accountants or reviewing their tax requirements.  Failure to comply with tax deadlines may result in the assessment of penalties and interest.  Some key points to consider are:

  1. My Business Account: It is recommended that you register for My Business Account with CRA.  You can contact CRA at 1-800-959-5525 to register by telephone or register online using your online banking access.  My Business Account will allow you access to various CRA business accounts including income tax, GST, payroll, T5018, etc., and will enable you to manage your address, direct deposit, registering a representative such as an accountant and online mail.
  2. GST: You generally must register for a GST account if at any 3-month period in the year or in total for any 12-month period your income is $30,000 or more.  The deadline for registering is 29 days after you hit this threshold.  CRA will advise when your reporting period starts (your reporting period is the last day of the month following).
  3. Payroll: You must register for a payroll account if you have employees and deduct withholdings on their behalf.  Your remittance must be made by the 15th of the month following your filing period.  CRA will advise what your reporting period is.  For example.
    1. Quarterly – average monthly withholding amount of $0 to $2,999.
    2. Monthly – average monthly withholding amount to $25,000.
  4. Income Tax: Although your deadline for filing your self-employed tax return is not until June 15th, you must remit any taxes owing for the current tax year by April 30th.   This amount is in addition to any required instalment payments you were advised payable on your prior year income tax assessment notice.
  5. T5018 Statement of Contract Payments: If your business is primarily in the construction industry and you pay subcontractors, you must issue a T5018 slip for every subcontractor reporting to CRA all amounts of $500 or more paid from all sources (cash, cheque, barter, etc.) during the year.
  6. Record keeping: Good record keeping is critical for your business.  Your supporting documents for your business income and expenses are to be retained for six years after the end of your tax year.  The benefit of good record keeping is to reduce accounting costs and allow you to readily provide documents for any routine information request or audit by CRA.

Filing business income taxes can be complicated and missing something could have a major impact on your bottom line. It makes sense to do your research and/or engage the services of a professional to ensure everything is filed properly and on time.

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Birthday Parties Reconceived.

birthday party

It’s a new year and it’s time for a new round of birthday parties.  For those of you who have school-aged kids, it’s most weekends.  Talk about expensive, even if you have a budget for gift purchases, and for families that are low income, it can be a lot of stress and worry, especially if you have multiple children.

I have a child in Grade 2 and starting in Kindergarten the invites came fast and furious.  The pressure to invite the whole class is real and even if you don’t invite the whole class it seems that most parties have at least 10 kids.  Does my child need 10 birthday presents outside of what he gets from family? Absolutely not, although I’m sure he’d argue that he certainly does need them.

A trend that is becoming more and more popular as part of a cultural shift toward sustainable living and reducing excess in our homes is the toonie, fiver or the 50/50 birthday party.  The idea behind these parties is the birthday child gets to save or spend half of what they receive and donate the other half to a charity of their choice.  I’ve also heard that the funds can get split three ways; spend, save and donate.  I think this is a fantastic idea and one I’m going to be trying out this year when my son turns 8.

Not only does the child get to pick out a larger gift for themselves but they also learn about giving to a charity of their choice.  It’s an opportunity to discuss with your child different charities and it allows them to explore what is important to them and why. It also takes away the stress of what to buy, removes the cost barrier for a low-income family, and let’s not forget about cutting back on clutter!  Another bonus is teaching your child budgeting and the value of a dollar.

I see this trend as a win-win-win, for the birthday child, the parents and the gift givers all around.

I hope to see this trend grow, for so many reasons and I hope you do too.

 

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