Thanks for info. I will show it to my husband when he gets home. He knows more of the details than I do about what has been done in regards to the corporate taxes. I know that our personal taxes haven't been done since 2008. If we have anymore questions i will let you know.

A number of questions need to be addressed.

1. Has the corporate tax return been filed and assessed for 2009? If not, you can make any changes you wish. However, this can become a tricky situation. Here's why. If you planned to treat payments to you and your spouse as dividends, ( distributions from the corporation ), then T5's and a T5 Summary should have been filed with the CRA by February 28, 2010. I assume that this has not been done. Instead of treating these payments as dividends, I suggest that you treat these payments as a shareholder advance
( shareholder loans ). What this does is that it avoids you and your spouse having to report these monies as income for 2009. The corporation does not get a deduction from income, however, any amounts paid to you and your spouse will show as an asset ( receivable ) on the corporate books and must be repaid in the following year. If on the other hand, you report all monies paid to you and your spouse as salary, then T4's and a T4 Summary should have been filed with the CRA by February 28, 2010. In addition, income taxes, and CPP should have been withheld and timely remitted. I assume that you and your spouse are equal shareholders. If so, then EI is not a withholding requirement. Your corporation could get "hammered" by the CRA for interest and penalties for not remitting these deductions. If the corporation has insufficient funds to pay these unremitted monies owing, then the directors and officers of the corporation are personally responsible. Again, I assume that you and your spouse are the officers and directors of the corporation. In a personal bankruptcy, these unremitted monies are called a "Deemed Trust" and receive preferential treatment behind secured creditors, but ahead of general creditors.

SUMMARY

For an unfiled and unassessed corporate tax return for 2009, I strongly suggest that you and your spouse treat all payments received as a shareholder advance. The corporation is now exempt from filing T4's and T5's and their related Summaries. To minimize or eliminate any corporate tax owing, I suggest that you make an accounting entry on the corporate books by Debiting "Salaries" and crediting "Salaries Payable".
This will solve your personal and corporate tax problems for 2009. You and your spouse can file your personal tax returns for 2009 showing no income.

2. If the corporate tax return has been filed and assessed for 2009, I do not suggest that you attempt to adjust it to show that monies paid to you and your spouse were salaries and not dividends. Any attempt to make these changes will send up the "red flag" and will definitely trigger an audit by the CRA, something you want to avoid at all costs.

3. If the corporate tax return has not been filed for 2010, then you and your spouse will have to report all monies received in 2009 ( i.e. shareholder loans ) and all monies received in 2010 together with the accounting entry of "Salaries Payable" as salaries received in 2010. Be sure you file the T4's and T4 Summary by February 28, 2011. This will avoid any interest and penalties for late filing of these forms. If you show income tax and CPP withheld, this will become a liability of the corporation. You and your spouse will have to file personal tax returns for 2010 showing large incomes for which no tax was withheld. This will result in a huge tax liability. I also strongly urge you and your spouse to file your 2010 tax returns BEFORE you make an assignment in bankruptcy so that this debt can be included in your bankruptcy filings. As you probably know, unpaid income taxes can be included in a bankruptcy.

Please consider the above options carefully. If you have any further questions, post them on this blog or send me a PM.

I wanted to confirm this information before I went ahead doing our taxes and with the bankruptcy. In the past we paid ourselves as shareholders of our incorporated company and we could declare tax that fits in with what we are tryng to do. normally we would allow the company to pay the corporate tax and we declared very little income which got us $800 - $900 per month in child tax as well as max GST returns and no MSP fees. Now, I am going to go and declare our income as high so that we don't get the child tax and it doesn't put us into surplus income. I haven't done taxes for 2009 or 2010 yet which means i haven't recieved any child tax since July of last year. I can declare both years at 80k plus and it we won't recieve anything. Does that sound right to you? Before I go ahead and do it I should probably make sure its okay to do it this way.

I hate to be the bearer of bad news but you are absolutely correct. It is quite evident that you have done your homework and know the rules of the game. This was one of the changes that was recently made to the bankruptcy rules extending the time period for individuals with excess income from 9 months to 21 months before being discharged. Previously, individuals with excess income could avoid making additional payments to their creditors after 9 months. This was perceived to be a "loophole" in the legislation and has subsequently been changed to reflect this.

Thanks for the reply. If it is considered income for bankruptcy purposes then it will put us above the allowable amount of income for a family of 5. We currently earn $4000 per month and the allowable amount for us is $3971 so the child tax will put us into surplus/excess income. Which the trustee will take 50% of and it will keep us in bankruptcy for 21 months.

While the Child Tax Benefit is not considered as income for tax purposes, it is considered as income for bankruptcy purposes. Under bankruptcy rules, all and every source of monies received is considered as income whether or not that source of income is taxable under the Income Tax Act ( Canada ).

Not sure what you meant by the following questions.

< Will that put us in to excess income?

< Will they take that monthly credit from us?

Please explain.

Hi,
My husband and I are about to file for bankruptcy in January 2011. We had a construction contract go sideways and used the payroll and gst remittences to pay our guys. This happened in 2006, the government has finally caught up with us and is in the process of assigning us the debt. So fastforward, We will be taking all the paper work in and paying the $200 per person to start the bankruptcy. We are currently at the monthly allowable amount for a family of five for our income. However, when we file our taxes for 2009 and 2010 I will qualify for approximately $800 per month in child tax credit.

My question is, Is the Child Tax Credit considered income in a bankruptcy? Will that put us into excess income? Will they take that monthly credit from us?

Thanks for taking the time to answer my questions.

Jen