Income Tax Refund and Consumer Proposal

Question: I filed a consumer proposal in June 2008. I just did my tax return for 2008 and discovered that I am supposed to get a nice income tax refund of $2,300. Prior to filing my proposal, I owed $2,358 to the CRA, and they settled this account on my proposal for $2,200.

Since CRA settled my account for $2200 within the consumer proposal, can they still take my income tax refund? And if they do, how will this effect my consumer proposal since I will then be paying CRA twice? Will the amount of the proposal be reduced by $2300?

Pre Versus Post Proposal Income Tax Refunds

Technically, your debt to CRA was discharged in your proposal, so you should receive your entire tax refund for 2008.  However, in practice, it is not uncommon for CRA to take the position that they can apply your tax refund that relates to the year of the proposal against any pre-proposal debts.  Since you filed your proposal in 2008 and the tax refund is for 2008, it is possible that CRA will keep the refund and apply it against your debt.

2008 will be the only year that this is an issue.  When you file your 2009 taxes in early 2010, you will receive whatever refund you qualify for, even if the proposal remains in effect.

Your proposal payments are based on your income, assets, and other factors.  If one of the creditors for $2,200 is removed from the proposal, the payments in the proposal do not change.  We are giving you a generic answer; your proposal administrator can give you a more precise answer based on the facts in your specific file.

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