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Can I simply pay myself less to avoid having surplus income?

I am 66 and own/manage a small business. CRA has sent the business an order to pay 40% of my wage to CRA. The company pays me $500/week, about $2200/mo. CRA has also garnished 100% of both my CPP and OAS, about $900/mo. I have no assets and I have been advised that the company is not worth much if it were to be sold so no equity there. If I declare BR, I have been informed that I must pay 50% of my surplus income to the trustee for 21 months but my CRA debt goes away and I get to keep my CPP and OAS $900. OK, so can I simply pay myself less to avoid having surplus income, say $1000/mo and be discharged in 9 months? It’s my decision as the sole proprietor how much the company pays its employees. Is this true if I declare BR? Does it matter when I start the new pay schedule?

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One Response to “Can I simply pay myself less to avoid having surplus income?”

Doug Stuive, CA | Trustee | CIRP said...

If you declare bankruptcy you cannot simply “pay yourself less” to avoid paying surplus income. If the business is not incorporated, you are not an employee – you and the business are effectively one and the same. Surplus income would be determined on the net income of the business before any withdrawals by the owner as “salary”.

If the business is incorporated, you can draw a regular salary from the business but the books and records of the corporation would also be reviewed by the trustee and if the business is accumulating value as a result of you leaving the money in the business then there are implications that would arise in the bankruptcy as well. There are also issues with you being a director of a corporation while you are in bankruptcy so the business would not be able to continue operating when you are bankrupt.

In general, income tax debt can be included in a bankruptcy filing but the nature and amount of the debt can affect the outcome of the bankruptcy. You should schedule a consultation with a licensed trustee to go over your situation in more detail before taking any action.