Filing taxes during a Consumer Proposal or bankruptcy: Complete 2026 guide

Tax season is stressful enough, but when you’re managing debt through a Consumer Proposal or bankruptcy, knowing what the CRA expects from you is very important.

The rules differ significantly depending on your situation. In a Consumer Proposal, you continue filing your own tax returns and keep most refunds from post-filing years. In a bankruptcy, your Licensed Insolvency Trustee typically handles your filings, and refunds for the year of filing and prior years go to the trustee for your creditors. In both cases, CRA tax debt—including income tax arrears, penalties, and unpaid HST/GST—can be included in the process.

In this guide, we’ll walk you through exactly how tax filing works in both situations. We’ll go over what happens to your tax debt, who files your returns, how refunds are handled, and which government benefits are protected. Whether you’re comparing your options or already in the process, this guide will help you stay compliant with the Canada Revenue Agency and move forward with confidence.

Jump to:

• Can you include tax debt in a consumer proposal or bankruptcy?
• Filing your taxes in a consumer proposal
• Filing your taxes in a bankruptcy
• How are government benefits treated during a bankruptcy?
• Does bankruptcy affect my spouse’s taxes?
• Consumer proposal vs. bankruptcy: how do they compare on taxes?
• 2026 tax filing deadlines to be aware of

Can you include tax debt in a Consumer Proposal or bankruptcy?

Yes. CRA tax debt is treated as unsecured debt under Canada’s Bankruptcy and Insolvency Act (BIA), which means it can be included in both a Consumer Proposal and a bankruptcy. This covers:

• Income tax arrears
• Penalties and interest charges
• Unpaid HST/GST
• Unpaid source deductions (with some exceptions for incorporated businesses)

In a Consumer Proposal, the CRA has no special priority over other creditors. It votes on your repayment plan the same way a bank or credit card company would, and if the majority of creditors accept, the proposal becomes legally binding on everyone—including the CRA.

This means your total tax liability can be reduced and rolled into one structured monthly payment.

In a bankruptcy, most tax debts are discharged at the end of the process. However, there are two important exceptions:

• If your CRA tax debt exceeds $200,000 and represents more than 75% of your total unsecured debt, a court hearing may be required before you can be discharged.
• Debts linked to fraud or unfiled returns are also not automatically discharged.

One important note: you must have all outstanding tax returns filed before the CRA will vote in favor of a Consumer Proposal. If you have unfiled returns, your Licensed Insolvency Trustee can help you get up to date before filing.

Filing your taxes in a Consumer Proposal

A Consumer Proposal is not a bankruptcy. In most cases, you continue filing your personal income tax returns the way you normally would—one standard full-year return for each year you are in the proposal. There is no requirement to split the year into pre- and post-proposal returns.

What happens to your tax refund in a Consumer Proposal?

For the most part, you keep your tax refunds during a Consumer Proposal. Under the BIA, refunds from tax years after your filing date belong to you and are not automatically claimed by the CRA or your creditors.

However, the year you file is treated differently. The CRA has the right to apply any pre-proposal refunds or credits against tax debt that was outstanding at the time you filed. This means:

• If you had prior-year tax arrears and are owed a refund, the CRA may apply that refund against the existing debt.
• If the CRA was not one of your creditors at the time of filing, or if no offset applies, your refund is typically issued in the usual way.
• If the CRA was a creditor, ask your Licensed Insolvency Trustee how any refund or balance owing will be handled in your specific case.

Timing matters here. Two people in Consumer Proposals can have different outcomes depending on when they filed, whether they had tax arrears, and how the CRA classifies the amount. If you are unsure, speak with your Licensed Insolvency Trustee before assuming your refund will be processed as normal.

Filing your taxes in a bankruptcy

A bankruptcy creates a “bankruptcy estate.” This means certain tax returns and tax refunds must be dealt with as part of the insolvency process, rather than in the usual way. Your Licensed Insolvency Trustee typically handles your tax filings during the bankruptcy.

How the tax year is split in a bankruptcy

During the tax year in which you declare bankruptcy, your income tax return must be split into two separate filings:

• Pre-bankruptcy return: covers January 1 up to the date of your bankruptcy filing. Your trustee is required to file this return.
• Post-bankruptcy return: covers the day you filed for bankruptcy through December 31. This is often filed by your trustee as well, but confirm this; it remains your responsibility if they do not file it for you.

Your trustee will also file any prior-year returns that were outstanding at the time of bankruptcy. The CRA requires all returns to be up to date for the process to be completed. If you are missing tax slips, the CRA holds copies of all T4s, T4As, T5s, and other documents. You or your trustee can request them at any time.

What happens to your tax refund in a bankruptcy?

Tax refunds work very differently in a bankruptcy than in a Consumer Proposal:

• Any refund generated from your pre-bankruptcy return, or from prior-year returns, goes to your Licensed Insolvency Trustee for the benefit of your creditors.
• If the CRA owes you a refund but you also owe the CRA, it will first offset your debt and send any remainder to the trustee.
• Refunds from your post-bankruptcy return also go to the trustee. However, if you owe tax on your post-bankruptcy return, that is considered a new debt — one you are personally responsible to pay, since it was incurred after the bankruptcy was filed.

This is one of the most significant differences between a Consumer Proposal and bankruptcy, and one of the main reasons Canadians who regularly receive larger refunds may find a Consumer Proposal to be the more tax-friendly option.

What you need to provide your trustee

Good communication with your trustee is essential. Provide the following as early as possible:

• T4s, T5s, and all other tax slips for the relevant years
• Prior-year tax information, if any returns are missing or unfiled
• Any CRA correspondence, letters, or notices you have received
• Questions about refunds, balances owing, or benefit payments

How are government benefits treated during a bankruptcy?

This is one of the biggest concerns for Canadians considering bankruptcy—the fear that every government payment will stop or be seized. That is not how it works, but the rules vary by benefit. Some are fully protected. Some refund-based amounts for the year of bankruptcy may form part of the estate. Others may still count as income for surplus income purposes while you remain undischarged.

Benefits protected from bankruptcy

Canada Child Benefit (CCB): The Canada Child Benefit is protected from bankruptcy and insolvency. If you are eligible, this payment continues to go directly to you. It is not treated as divisible property, and it is not included as income for surplus income (Form 65) purposes.

Child Disability Benefit: Because this is paid through the CCB framework, it is treated the same way—it continues to flow to the family rather than to the estate.

Benefits that may form part of the bankruptcy estate

Some money linked to the year you went bankrupt (or before) can be taken control of by the trustee and included as part of your assets.

Disability Tax Credit (DTC): The DTC is a tax credit, not a monthly benefit. If it creates a refund for the calendar year of bankruptcy or for a prior year, that refund is treated as an asset of the estate and goes to the trustee.

Canada Workers Benefit (CWB): CWB amounts tied to the year of bankruptcy or earlier years vest with the trustee and may be collected as part of the estate.

Canada Carbon Rebate (CCR): There are no further quarterly CCR payments after April 2025. However, if any CCR amount is still being paid based on a tax year tied to the year of bankruptcy or a prior year, it may form part of the estate.

Benefits that may not be divisible, but can still affect surplus income

Some payments are not automatically divisible among creditors, but they may still be reviewed as income while the bankruptcy is open — which can affect your surplus income calculation.

Canada Groceries and Essentials Benefit: The federal government has renamed the GST/HST credit as the Canada Groceries and Essentials Benefit. For 2026, eligible recipients of the January 2026 payment are expected to receive a one-time top-up no later than June 2026, with the benefit scheduled to increase from July 2026 onward. In a bankruptcy, do not assume this payment will always flow through unchanged — its treatment can depend on your specific file.

Canada Workers Benefit (later-year amounts): CWB amounts for years after the year of bankruptcy do not vest in the same way, but if you are still undischarged, they may need to be included in your surplus income calculation.

Canada Carbon Rebate (later-year amounts): Later-year CCR amounts may not form part of the estate in the same way, but they can still be reviewed as income for surplus income purposes while the bankruptcy remains open.

Provincial tax credits: Not all provincial benefits are treated the same way. For example, the Ontario Trillium Benefit is not property divisible among creditors, but it retains its character as income and may be counted in the surplus income calculation. If you receive a provincial credit or benefit and are unsure how it will be treated, ask your Licensed Insolvency Trustee before assuming it will be unaffected.

Does bankruptcy affect my spouse’s taxes?

If one spouse goes bankrupt, it usually doesn’t directly affect the other spouse’s taxes. Their tax year stays the same, and they’ll still get any refunds or credits they’re owed.

The trustee only handles the bankrupt person’s taxes—not the other spouse’s. The non-bankrupt spouse still has to file their own tax returns. However, they may need to share some information with the trustee so both sets of taxes are done correctly.

Consumer Proposal vs. bankruptcy: how do they compare on taxes?

Here is a side-by-side comparison of how the two options treat your tax situation:

Feature	Consumer Proposal	Personal Bankruptcy
Inclusion of tax debt	Yes, as unsecured debt, CRA treated like any other creditor	Yes, most tax debts discharged (exceptions apply)
Tax refunds	Refunds from post-filing years stay with you; CRA may offset pre-filing refunds	Trustee receives refunds for pre-bankruptcy and year-of-filing returns
Tax filings	One standard full-year return per year	Split returns required: pre-bankruptcy and post-bankruptcy
Who files your taxes	You (with LIT guidance)	Your Licensed Insolvency Trustee (usually)
Asset protection	You keep all assets, no surrender	Non-exempt assets form part of the estate
Credit impact	R7 rating; removed 3 years after completion	R9 rating; stays 6–7 years after discharge (14 for second)
Canada Child Benefit	Unaffected, goes directly to you	Protected, goes directly to you
CWB / DTC refunds	Yours to keep (post-filing years)	May vest with trustee for year of filing or prior years

 

If protecting your tax refunds, keeping your assets, and minimizing disruption to your life are priorities, a Consumer Proposal is generally the more tax-friendly choice. If your debts are overwhelming even through a structured repayment plan, bankruptcy may offer a more complete reset. Just remember it comes with stricter controls, loss of refunds for the filing year, and a longer-lasting impact on your credit.

2026 tax filing deadlines to be aware of

For the 2025 tax year (filed in 2026), the standard deadlines are:

• April 30, 2026: Filing and payment deadline for most individuals.
• June 15, 2026: Extended filing deadline for self-employed individuals, but any balance owing is still due April 30.

If you are in a Consumer Proposal or bankruptcy, your Licensed Insolvency Trustee will advise you on any specific deadlines that apply to your file. If you are in bankruptcy, do not assume your trustee will file everything on your behalf without your involvement—check what is expected of you.

Speak to your Licensed Insolvency Trustee if you have any questions

If you’re still unsure about how to file your taxes while in a Consumer Proposal or bankruptcy, the team at Harris & Partners is here to help. For over 50 years, our Licensed Insolvency Trustees have been offering clear, judgment-free advice to help Canadians understand exactly what applies to their situation, what to do next, and how to deal with debt in the best way possible.

We can help you reduce your debt by up to 80% and get you on the path to a fresh financial start. Reach out for a free, confidential conversation today.