What Happens to my Tax Refund in a Consumer Proposal?

Many of the people I meet with in our London Ontario office have heard that if they file bankruptcy, they will lose their tax refund.  At this time of year especially, this can be stressful because many of us count on our tax refunds to get caught up on bills, complete car repairs, buy our kids summer clothes, etc.  Unfortunately, if you file bankruptcy, it’s true. You will lose a tax refund.  In fact, depending on when you file, you could lose more than one.  (For example if you file bankruptcy on April 1, and haven’t done your taxes yet, you will lose your refund this year AND next year.)

If, however, you file a consumer proposal, you get to keep your tax refund. So, if you generally get a good sized return each year, it may make sense to look at a proposal as an alternative to bankruptcy.

Speaking of taxes, one thing that we will explain to you when you meet with us, is the continued importance of filing taxes.  If you are in a consumer proposal and don’t file your taxes, this can actually interfere with the proposal itself.

Another point to consider is this: income taxes are debts that are included in a consumer proposal.  So, if you owe money to Canada Revenue, you should consider a proposal, as this can help you deal with that type of debt as well.

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34 thoughts on “What Happens to my Tax Refund in a Consumer Proposal?

  • Allen H

    Good day,

    I’m wondering if you could shed some light on my current situation. I currently am in a consumer proposal filed in February 2017. When I filed my 2016 taxes last year in May 2017, the refund went to the balance that I owed the CRA. The remaining balance was later included with my proposal by June of 2017.

    I’ve recently net-filed my 2017 taxes and after confirming that my CRA balance owed was at zero (confirmed with a CRA agent, as well as an accounts receivable agent), and have been waiting just over 16 business days (3 weeks) for my return. My question is have you ever heard of a Tax return being delayed due to a person filing a consumer proposal? And has that person who filed the consumer proposal, who had a balance previously owing to the CRA, had their refund applied to the previous balance owing even though it was included in the consumer proposal?

    Reply
    • J. Douglas Hoyes

      Hi Allen. Yes, I hear this story all the time. Unfortunately it is not uncommon for CRA to put a “flag” on your file, showing that you are insolvent. Sometimes their internal system does not distinguish between a proposal or a bankruptcy. In your case, you don’t owe CRA anything, so you should be entitled to your refund. However, they won’t release the refund until the “flag” is lifted, and that may not happen until a human being at CRA looks at the file and releases the refund. I suggest you have your trustee contact CRA and ask them to release your refund. That should solve the problem.

      Reply
  • Melanie

    I have a question similar to this but different…
    If a person is in the middle of a consumer proposal process…the process was started in February 2018, and this person did their taxes online and was supposed to receive $900. The $900 was deposited into a bank account whose debts were included in the consumer proposal, however the bank KEPT the tax refund and distributed the payments towards the debts linked to that account…
    Is the bank allowed to keep that tax return or is there a way to get it refunded back since that bank account was already included in the proposal?

    Reply
    • J. Douglas Hoyes

      Hi Melanie. This is a question you should ask your trustee. My general advice to everyone filing a consumer proposal is to open a new bank account at a new bank, where you don’t owe any money, so this doesn’t happen. However, what you describe is not uncommon, because unless you remember to notify CRA of your new bank account, they will send it to the bank account they have on file, which in this case was your old bank account. It may be possible for your trustee to contact the bank and request that they return the money; that will take a while, and there is no guarantee of success, but that would be my advice in your situation.

      Reply
  • lisa

    HI I am in Consumer Proposal can I get instant cash back from H&R Block usually I would not do this . But I am needing the money sooner then later.

    Reply
    • Ted Michalos

      There are no restrictions in the Bankruptcy and Insolvency Act stopping you from applying for an instant rebate (or whatever H&R Block calls their refunds). I don’t know what policies H&R Block has in this area, but I suspect you can. Before you do, find out how long you’d have to wait for the full refund if you e-file. If it is only a few days maybe you should e-file yourself and keep all of the money…

      Reply
  • Rosa

    Hello, I have a quick question…I applied for a consumer proposal on october 2018 and got accepted and now i have to do my taxes for the year of 2018..will they take my refund…i dont own tax but i do own money to Emploment insurance?…but EI was included in the proposal

    Reply
    • Ted Michalos

      They should not take your refund, but they might. If they do, contact your trustee and ask them to see if they can have it returned to you. The government isn’t always consistent in how they handle EI overpayments so I can’t give you a more definite answer.

      Reply
  • Neil

    Hi , I filed for a consumer’s proposal Nov 1 2018 and it was accepted Jan 19 20019 . I have small business, will I have to still pay my taxes for 2018 that I’m about to file ?

    Reply
    • Ted Michalos

      If when you filed your consumer proposal November 1 you included an estimate for the taxes you were going to owe for the period of Jan to Nov 1 then you shouldn’t have to pay those taxes. You will still have to pay the taxes for Nov 2 to Dec 31 and if your estimate was low, you’ll have to pay the extra amount for the rest of the year. You should contact the trustee that is handling your proposal and ask them about this…

      Reply
      • Desi

        Hi i filed for CP in March 2017. Under the CP was OSAP which CRA was garnishing. Taxes have been submitted now for 2017 would CRA not release this refund?

        Reply
        • J. Douglas Hoyes

          Hi Desi. This is a question for your consumer proposal administrator. It will depend on what CRA has coded in their computer, so it may be necessary for your administrator to contact CRA and request that they release the refund.

          Reply
    • J. Douglas Hoyes

      Hi Jennifer. It will depend on whether or not he had any debts with CRA. As a general rule, CRA does not take your tax refund if you are in a proposal (unless there are tax debts that arose since the filing of the proposal). The proposal administrator can answer this question in more detail for you.

      Reply
  • Sean

    Hi there I filed my consumer proposal back in September 2017 in which my CRA debt was included and when I got my income tax refund it went against the CRA outstanding balance at the time.
    Now here’s the problem I want to file my taxes for 2018 year and my CRA account is still showing a balance that I still owe and I want my tax refund .
    What’s happening here??

    Reply
    • J. Douglas Hoyes

      Hi Sean. There is often a time lag in the filing of a proposal and the updating of CRA’s records. I strongly suggest that you contact your proposal administrator and ask them to investigate.

      Reply
  • Lorelie

    I filed for consumer proposal apr 2016 and was accepted and currently paying but had tax owing when i filed 2017 tax and was unable to pay because i had to pay for my proposal and just could not make payments to work. now filed 2018 tax and i owe again can i include my 2017 & 2018 in my existing consumer proposal? Is this acceptable to cra?

    Reply
    • J. Douglas Hoyes

      Hi Lorelie. No, you can only include debts that existed when you filed your proposal, so you cannot go back and include taxes for 2017 and 2018. I suggest you contact your consumer proposal administrator who can explain your options for dealing with CRA.

      Reply
  • Jazz

    Hi there
    I filed for bankruptcy and didn’t go through with the obligations, so my trustee was discharged. I want to file for consumer proposal instead of the bankruptcy, so I’m in the process of doing that.

    However my 2015 tax refund was sent to my trustee to go towards my bankruptcy. My question is, because I didn’t go through with the bankruptcy, am I able to get the tax refund for 2015 back from the trustee

    Reply
  • Bkd

    I have finished my consumer proposal and got discharge certificate. The certificate says take this certificate to your accountant for gst hst or tax refund. Do we get any tax return or gst hst back after completing CP.

    Reply
    • Ted Michalos

      I am sorry, but I am not sure I understand what you’ve been told to do. Normally, neither you HST or tax refunds are taken from you when you file a consumer proposal. If CRA has “held them” pending completion of your proposal then it should be a simple matter of advising CRA that the proposal has been completed for any held funds to be released.

      If CRA was one of the people you owed money to then they should already be receiving notice that you have completed your proposal from your trustee. It can’t hurt for you to reach out to CRA yourself…

      Reply
  • Brenda

    question in regards to Disability Tax Credit retroactive filings and payments…We are in a consumer proposal which was filed last year in January 2018. Our income taxes were put into the proposal. The amount of income taxes that we asked to be put in were approx 25000. This was owing from 2013 until 2017 (year end). CRA received a portion from the proposal etc and this is all in my proposal.

    So what I’d like to know is I’ve done some calculations on my returns (not sent to CRA just at home here to get a figure) in the event that there is a refund (which it looks like there could be as the DTC credit for Ryan over those years would reduce my tax owing by quite a substantial amount) how does that work for a refund if in the end we didn’t actually owe that money in taxes hence and not to the proposal. As a rough example…we technically owed 27,090.77 income tax from 2013-2017 year end. When I calculated the DTC credit into these years (I just did 2013-2018), we should technically only owe $1608.00 in taxes now, not the 27k…I completely understand that these numbers could be out to lunch and CRA finalizes this etc..but I guess in my round about way of asking, do we get that refund if we don’t
    “technically” end up owing that amount in taxes (after this has been calculated and signed off on) or does this amount now go to my trustee?

    Reply
    • Ted Michalos

      Once the revised returns are filed and assessed CRA will recalculate your taxes payable for the period. If the amount payable is still greater than the amount CRA has received from your consumer proposal then nothing will change -m CRA won’t return any money until/unless the tax debt is repaid in full.

      If it turns out that the amount payable for the period is less than the amount received from your consumer proposal the overpayment will be returned to your trustee to be given to your other creditors.

      If it turns out that no taxes were payable and in fact you were entitled to a refund for those years then any money CRA has received from your proposal will be returned to your trustee for your other creditors, and any tax refunds will be sent to you.

      This is really something you should be discussing with your trustee…

      Reply
  • Jen

    Hi, Quick question. On February 1st, 2016 I filed a CP. In it I had included an amount owing to CRA (approx $2600), when I filed my taxes in 2016, for the 2015 year they applied my refund of approx $300 against this. Then when I filed for the next two years 2017 & 2018 (for the 2016 and 2017 tax years) I received my refunds as expected. However, I have filed my taxes this year and still haven’t received anything, it shows refund issued but as of right now it doesn’t say where it is going. My fear is they have for some unknown reason sent it to the insolvency dept. CRA can’t keep my refund 3 years into the proposal can they? and why would they start all of a sudden after me getting refunds for the last two years? Thanks

    Reply
    • J. Douglas Hoyes

      Hi Jen. You are correct, CRA can’t keep your refund for three years. At this time of year CRA is backlogged, so this will likely correct itself over the next few weeks. However, if you are concerned, you can either call CRA directly (it may take a few hours to get through to a live body), or contact your trustee and ask them to investigate.

      Reply
  • Cynthia R.

    I filled a consumer proposal sept 2018 —- I owed taxes and this was covered and accepted under the consumer proposal. I filed my this year April 2019 for the 2018 tax year. I am supposed to get a refund which being in the financial position of getting back on our feet this refund would be helpful to my family. After reading the posts on this website am I correct in thinking that I will be getting my refund.? We have four children and this would be a big big help . Thank you thank

    Reply
    • J. Douglas Hoyes

      Hi Cynthia. It’s is CRA’s standard procedure, if you owed taxes when you filed your proposal, to keep your refund (up to the amount previously owing) in the year of your proposal. So, since you filed in 2018, their standard practice is to keep your 2018 refund (which would otherwise go to you in 2019). Your trustee can explain in more detail, and they can call CRA and get clarification if you want more information.

      Reply
  • Denise R.

    Can the CRA keep your tax refund after you file CP for outstanding student loan?I file a CP on April 5th, 2019 , filed my 2018 tax a week later . I got a letter from CRA saying my taxes was applied to student loan owed.

    Reply
    • J. Douglas Hoyes

      Hi Denise. This is a question you should ask your trustee, because the answer may be different depending on CRA practices in your province. In your case it is likely that CRA was not aware of the proposal when you filed your taxes (since it takes them a few weeks to update their system once they receive notification of a proposal) so it is likely that there was already a flag on your file so they automatically seized your tax refund. Your trustee can provide further information on your specific situation.

      Reply
  • Anna

    I filed a consumer proposal February 2018. CRA was included in the proposal. When I did my taxes April 2019 for 2018, I should be getting back 1400.00. Will they keep that refund?

    Reply
    • Ted Michalos

      Probably. The government has gone back and forth on this policy over the years. Sometimes they take the position that you filed partway through the year so they have a right to the refund. AT other times they take the position that under bankruptcy law they don’t have a right to the refund. We tell our clients to expect that the refund will be taken – in that way they aren’t surprised if it is… Sorry, but you won’t know until CRA either takes it or gives it to you. This only applies to your 2018 return.

      Reply
  • Mat

    Filed credit proposal in 2019 owed $20000 for 2018 taxes filled in 2019. Filling taxes in 2020 for 2019. Supposed to be getting $14000. I only filled my credit proposal once I knew how much I would owe for 2018. I’m filling for my 2019 taxes in 2020 if they take my return what are the mechanisms to reverse it. Their logic is not sound as you always have to file the next year for the previous year. I can perhaps understand them holding 2018 return in I owed money in 2017, but they can’t pick or choose if it benefits them.

    Reply
    • Ted Michalos

      This is something to discuss with your trustee directly. CRA may very well seize your 2019 refund (to be received in 2020) when yo file and apply it towards your existing tax debt. The logic being you filed partway through 2019. If the tax debt is the only reason you filed a proposal then such a large refund may dramatically reduce the total debt and therefore what you may be required to repay in your proposal. Again, this is something to discuss with your trustee directly.

      Reply

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