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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22 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

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