tax debt

Are tax debts dischargeable?

A Quora user asks: is tax debt dischargeable?

Victor Fong, Licensed Insolvency Trustee in Toronto, Canada replies:

In Canada, income tax debts are dischargeable but with an important caveat.

If your bankruptcy was filed after 18 September 2009 and the following applies to you:

  • Your income tax debt is $200,000 or more; and
  • Your income tax debt comprises 75% or more of your total debts

then you will not be eligible for an automatic discharge from bankruptcy. You will need to apply to bankruptcy court for your discharge and the court will set out the terms of your discharge based on your individual circumstances, such as:

  • the reason why you fell behind in your income taxes
  • your ability to pay some of your income tax debt
  • whether you’ve previously been bankrupt and the reasons for the previous bankruptcy

In Canada, there will be 3 possible outcomes from your discharge hearing in court:

  • Your discharge will be conditional upon you performing some act, such as paying money to your bankruptcy estate for the benefit of your creditors.
  • Your discharge will be refused. An order refusing discharge is made if the bankrupt’s conduct before and during bankruptcy was especially egregious.
  • Your will receive an order of absolute discharge from bankruptcy. That is, your debts will be discharged immediately.