Treatment of the Ontario Sales Tax Credit under the Bankruptcy and Insolvency Act

June 29, 2010

Issue

The Office of the Superintendent of Bankruptcy (OSB) has been asked for its position regarding the treatment of the Ontario Sales Tax Credit (OSTC) under the Bankruptcy and Insolvency Act (BIA).

Background

In its March 2009 budget, the Province of Ontario proposed the new ongoing OSTC program to help low to middle-income individuals and families with the sales tax they pay.

For 2010, the new sales tax credit will provide annual relief of up to $260 for each adult and child. Ontario residents must apply for the OSTC, along with the goods and services / harmonized sales tax (GST/HST) credit when they file their income tax and benefit return.Footnote 1 However, the quarterly OSTC payments will be issued separately from the GST/HST credit payments.

The OSTC will be paid quarterly starting in August 2010. The Canada Revenue Agency will administer this program on behalf of the Government of Ontario.

Analysis

The provision governing the OSTC is section 104.11 of the Ontario Taxation Act (OTA).Footnote 2 In turn, section 104.11 of the OTA imports most of section 122.5 of the federal Income Tax Act (ITA), which creates the Goods and Services Tax Credit (GSTC). Unlike the ITA, in regard to the GSTC payment, the OTA creates an exemption. Subsection 104.11(7) states the following:

Amount not to be charged
104.11(7) A credit under this section or an entitlement to the payment of a credit under this section, as the case may be,
(a) shall not be assigned, charged, attached or given as security; and
(b) shall not be garnished. (2009, c. 34, Sched. U, s. 24.)

Section 67 of the BIA specifies what property of the bankrupt is divisible and what property is not divisible among the creditors. Paragraph 67(1)(b) states:

67. (1) The property of a bankrupt divisible among his creditors shall not comprise
[…]
(b) any property that as against the bankrupt is exempt from execution or seizure under any laws applicable in the province within which the property is situated and within which the bankrupt resides;

When reading subsection 104.11(7) of the OTA and paragraph 67(1)(b) of the BIA together, it is possible to assert that the OSTC payment cannot be attached, thereby making it exempt from seizure and not divisible among the bankrupt's creditors.

For information on treatment, under the BIA, of the Ontario Sales Tax Transition Benefit (OSTTB), please see the OSB's position paper entitled Treatment of the Ontario Sales Tax Transition Benefit under the Bankruptcy and Insolvency Act.

For information on treatment of GSTC payments and application of section 67 of the BIA and Rule 59 of the Bankruptcy and Insolvency General Rules in the context of bankruptcy, please see the OSB's position paper entitled GST Credit Payments in Bankruptcy.

Position

It is the view of the OSB that the OSTC payment represents property of the bankrupt referred to in paragraph 67(1)(b) of the BIA that is exempt from seizure and therefore must be remitted to the bankrupt.


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