Income tax debts are unsecured debts and, as such, the debt will be extinguished as a result of bankruptcy/proposal.
HST is also an unsecured claim in bankruptcy/proposal. If you were self-employed and owe HST, your bankruptcy will extinguish your obligation to pay the outstanding HST.
If you were self-employed and have unpaid source deductions, this claim too, is extinguished through the bankruptcy/proposal process, although the claim ranks first against non-exempt assets.
Canada Revenue Agency ("CRA") has the right to garnish wages, but this right ceases on bankruptcy/proposal. If you owe tax and have not yet filed for bankruptcy/proposal, CRA can send a garnishment notice to your employer resulting in a portion of your wages or salary being withheld and sent to CRA.
Once you file for bankruptcy/proposal, the garnishment will be stopped immediately as CRA cannot continue with collection proceedings once a person has done a filing, just as a credit card company or other unsecured creditor is prohibited from continuing collection activities.
Income taxes, HST and source deductions that arise for the period after bankruptcy/proposal must, however, be paid as they are "post-bankruptcy" debts.
© 2017 Grant Thornton Limited, Licensed Insolvency Trustees. All rights reserved.
Make an appointment