Can the CRA keep my tax refund after I file a Consumer Proposal?

It’s tax time, and that raises a number of questions about the impact of a consumer proposal or bankruptcy on your tax matters.

Here’s a question that comes up often:

Can the Canada Revenue Agency keep your tax refund after you file a Consumer Proposal?

The short answer is yes, and no, depending on the circumstances.

To explain in more detail:

Filing a consumer proposal results in an automatic Stay of Proceedings. From the date your consumer proposal is filed, creditors, including the Canada Revenue Agency, can take no further action to collect on a debt without leave of the Court.

However, creditors do have the right of set-off, which means they can apply money refundable to you (in this case a tax refund) against the amount of your debt as of the date on which your proposal was filed.

That means if you owed tax on the day  you filed your consumer proposal, the CRA can set off (or keep) a tax refund, or payment of social services benefits, such as the Child Tax Benefit, for any tax year up to and including the one in which you filed your proposal.

In subsequent years, the CRA cannot withhold your tax refund as payment on the old debt. But if you have fresh tax arrears from assessments that were raised after you filed your consumer proposal, the CRA may continue to set-off the refund against the new debt.

Your Goldhar shed the debt specialist can help answer questions about tax filing and a consumer proposal or bankruptcy. Call in confidence at 1-855-541-5114.