Can bankruptcy or a consumer proposal clear tax debt?

Many of our clients in Calgary and Edmonton ask us if a bankruptcy or consumer proposal will clear their tax debt. The simple answer is yes, a bankruptcy or consumer proposal can deal with your personal income tax and other tax matters such as unpaid GST and source deductions remittances. In fact, many of our clients in Calgary, Edmonton and surrounding areas in Alberta, originally contacted us to inquire about this exact question. Albertans may be facing personal income tax liabilities.  These may have resulted from:

  • Working several jobs during the year and not enough income taxes being taken off when all the incomes are totaled up;
  • Working as a self-employed individual and not planning on setting aside monies to deal with the income taxes that will be owed come tax time or failing to file and remit their GST on the self employment income or their source deduction remittances on their employee or their own wages;
  • Having accessed the Covid-related government programs that were not taxed at source and now must be included in income and taxed or that the Canada Revenue Agency (“CRA”) is now seeking repayment of all or part of those monies.
  • Having been reassessed on a current or prior income tax return which has generated an income tax debt.

Ignoring CRA’s demands for payment is not advisable. The interest rates charged on outstanding balances with CRA are punitive in nature and can quickly add up. In addition, CRA has at its disposal, powers to seize bank accounts, garnish wages, and place liens on real property. It is never advisable to make an agreement with CRA to repay your debt if you do not have the capacity to fulfil your part of the repayment terms.
The result of such actions adds more stress to individuals already suffering from the burden of debt and often is the precipitating factor for seeking help with their debt load.

Crown debts, such as unpaid personal income taxes, unpaid Goods and Services taxes (“GST”) and unpaid source deduction remittances, can be included and dealt with in a bankruptcy or consumer proposal.

The treatment of both unpaid GST and Source Deduction remittances may vary depending on whether or not these debts were incurred as a result of being self-employed or being incurred through the use of a corporate entity and whether or not you are going through the bankruptcy or consumer proposal process. The amount of income taxes owing may affect your access to an automatic discharge from a bankruptcy or whether or not there will have to be a Court application made in order to obtain a discharge.

You should consult with a Licensed Insolvency Trustee in navigating how these debts will be treated in your specific set of circumstances.

Filing for protection under a bankruptcy or consumer proposal will unfreeze your bank account, remove the garnishment from your wages, prevent CRA from registering a lien on title to your property and stop the collection calls.

For more information as to how these debts can be dealt with in your situation, book your free consultation today at or call us at 403-836-6690.