Late Income Tax Returns And Bankruptcy In Canada

Late Income Tax Returns And Bankruptcy In Canada

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Many Canadian taxpayers who fail to file a tax return for a year or two become afraid to file their tax returns because of the financial consequences that will follow.

They know that once they file their returns and declare their income, the CRA is not only going to assess an amount of income tax that will be owed, but will also add exorbitant interest and penalties. They also know that once the CRA determines the amount of tax that will be owed, they will pursue the taxpayer using aggressive enforcement tactics.

Some taxpayers will consult an accounting professional to negotiate with the CRA, some will ignore the problem entirely and wait until their bank account is frozen or their wages are garnished; while others (especially those who have other financial burdens) will make the decision to file for bankruptcy.

If you plan to file for bankruptcy, one condition under bankruptcy is that you will have to prove that you have filed your income tax returns up to date. You will also be required to provide your bankruptcy trustee with a pre and post bankruptcy income tax return.

The bankruptcy trustee will require proof that all income tax returns are filed up-to-date and estimate the amount of the tax debt based on the returns. The bankruptcy trustee will also use your tax returns to assess your income and calculate how much your payments in bankruptcy will be.

A strong relationship with an accountant will be crucial both before and after your bankruptcy. When you file for bankruptcy you will be undischarged for a period of time and you will have to report your income to the trustee. If you are undischarged for more than one year because you have surplus income, each year you will have to provide your income tax returns to your bankruptcy trustee.

The cost of hiring a chartered accountant to thoroughly prepare your returns prior to bankruptcy is negligible in comparison to the relief you will experience immediately upon filing for bankruptcy (if you are a first-time bankrupt). After filing for bankruptcy (assuming the CRA has not placed a lien on any of your assets) any bank accounts the CRA has and any wage garnishments they may have imposed will have to be lifted.

If you're a homeowner you have an even more time sensitive problem. If the CRA has not already placed a lien on your property, you are going to have to make some financial decisions before they do. Once they place a lien on your property they become much more difficult to negotiate with and they become a secured creditor in bankruptcy.

Our firm routinely prepares pre and post bankruptcy income tax returns for Canadian taxpayers who are behind filing their returns and are planning to file for bankruptcy.

Remember refusing to file your returns or failing to declare income to the CRA is a criminal offense.
You may determine that bankruptcy is not the answer and that you have an asset, investment, some money saved or even a friend or family member willing to loan you some money or some other means that will give you some leverage to negotiate with the CRA. If this is the case accounting firms like ours offer tax management services and after preparing your returns can negotiate with the CRA on your behalf.

If the CRA has not contacted you, requesting that you file your returns and has not notionally assessed you for the tax years in question, you may even be able to file your tax returns under the voluntary disclosure program avoiding penalties entirely.

For more information visit fight back today.ca.

About the Author:
Mark Feldstein, Chartered Accountant, Mark Feldstein and Associates Chartered Accountants http://www.fightbacktoday.ca



Article Originally Published On: http://www.articlesnatch.com


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