Treatment of the Ontario Trillium Benefit under the Bankruptcy and Insolvency Act

Date: July 16, 2012

Issue

The Office of the Superintendent of Bankruptcy (OSB) has been asked for its position regarding treatment, under the Bankruptcy and Insolvency Act (BIA), of the Ontario Trillium Benefit. As of July 12, 2012, that benefit will combine three existing refundable tax credits: the Ontario Energy and Property Tax Credit (OEPTC), the Northern Ontario Energy Credit (NOEC) and the Ontario Sales Tax Credit (OSTC). The OSB has been asked whether the Ontario Trillium Benefit is to be considered as income for the purpose of calculating surplus income obligations or is to be considered as property of the bankrupt, thereby forming part of the estate of the bankrupt.

This position paper replaces the June 29, 2010, position paper on the OSTC. It applies to all three refundable tax credits that will be combined to form the Ontario Trillium Benefit.

Position

The OSB’s position is that, subject to court interpretation to the contrary, the Ontario Trillium Benefit (and its OEPTC, NOEC and OSTC constituent refundable tax credits) is exempt from seizure. Therefore, the benefit must be remitted to the bankrupt. Nevertheless, it is captured by the definition of “total income” in section 68 of the BIA and therefore must be accounted for in the surplus income calculation.

Background

The Ontario Trillium Benefit provides relief to low- to middle-income Ontarians to help pay for energy costs and provide relief for sales tax and property tax.

Analysis

The Ontario Taxation Act, 2007 provides that the Ontario Trillium Benefit payment is exempt from seizure.Footnote 1Therefore, the BIA dictates that it is not property of the bankrupt divisible among the creditors.Footnote 2

The Ontario Trillium Benefit, however, is "deemed to be an overpayment on account of the individual’s liability for tax under" the Ontario Taxation Act (subsection 103.2(3)).Footnote 3In spite of this overpayment of tax on the individual’s income and its subsequent reimbursement in the form of the Ontario Trillium Benefit, the funds retain their character as income. Subsection 68(2) of the BIA provides that a bankrupt’s revenues of whatever nature (regardless of whether they are exempt from seizure) are captured by the definition of "total income." Therefore, while the bankrupt is entitled to retain the Ontario Trillium Benefit, it is also accounted for by the trustee in the surplus income calculation under section 68 of the BIA.

Footnotes

Footnote 1

Taxation Act, 2007, ss.103.17(1). See also ss.104.39(8) for the OEPTC, ss.104.23(6) for the NOEC, and ss.104.11(7) for the OSTC.

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Footnote 2

BIA paragraph 67(1)(b). Under this paragraph, the property of a bankrupt divisible among his or her creditors shall not comprise 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..

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Footnote 3

This is unlike the Working Income Tax Benefit (WITB), which is deemed to be an overpayment of income tax under the federal Income Tax Act (not the provincial Taxation Act, 2007) and therefore is defined as property of the bankrupt divisible among the creditors pursuant to BIA paragraph 67(1)(c) if owing in respect of the calendar year of the bankruptcy. For more information, read the OSB’s position paper on the WITB.

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