Child Tax Benefits underpayments

I am in the middle of a personal bankruptcy, to be eligible for discharge in two months. I have just received a large cheque from Revenue Canada that represents underpayments owed on Child Tax Benefits. This was calculated after my Trustee filed Income Tax for the past five years as part of my bankruptcy. Am I required to give up the Child Tax Benefit funds to the Trustee or report it as income and have all or a portion allocated to debtors?

One Response to “Child Tax Benefits underpayments”

Barton Goth, GCO Inc. Bankruptcy Trustees said...

This particular issue is a lot more common than you might think.

Our approach to this issue is to give our clients a choice between 2 different ways to treat these funds.

The first is to treat the cheque as income in the month it is received and therefore it is subject to the Surplus Income Standard. The Surplus Income Standard requires bankrupts to pay a portion of their income into their bankruptcy based on the net monthly income received and the number of people in the household. Selecting this option means the person will lose 50% or more of the retro-active cheque.

The second way is to treat the cheque as an asset that the bankrupt was entitled to when they filed bankruptcy. Selecting this option means that the person will have to pay the entire cheque into their bankruptcy.

As you can imagine, very few people have ever selected the second option.

It is important to note that there is significant case law to refute either interpretation and your trustee may not agree with our policy of allowing a bankrupt person to decide which option they would like us to use. If you disagree with your trustee’s approach you should discuss the matter with your trustee and if it cannot be resolved you always have the right to ask the Courts to decide.