Treatment of the British Columbia Harmonized 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 British Columbia Harmonized Sales Tax Credit (BCHSTC) under the Bankruptcy and Insolvency Act (BIA). 

Background

The Province of British Columbia will harmonize its provincial sales tax with the federal goods and services tax (GST) effective July 1, 2010. The current provincial sales tax of 7 percent combined with the GST rate of 5 percent will result in a harmonized sales tax (HST) rate of 12 percent.

To help offset the impact of the new tax on low-income residents, the province is introducing a new refundable credit program called the BCHSTC. The BCHSTC is an ongoing non-taxable quarterly payment that will be integrated with the Goods and Services Tax Credit (GSTC)Footnote 1 and the British Columbia Low Income Climate Action Tax Credit (BCLICATC)Footnote 2 payments starting in July 2010.

The BCHSTC program is fully funded by the provincial government. The Canada Revenue Agency (CRA) will administer this credit on behalf of the Province of British Columbia. Therefore, the GST/HST credit payment cheque issued via the CRA could contain up to three components: one federal component (GST/HST credit) and two provincial components (BCHSTC and BCLICATC). Note that each component will be separately quantified on the credit statement.

Analysis

Federal Component

GST/HST Credit Payment

The OSB has issued a position paper on the treatment of GST credit payments and the application of section 67 of the BIA and Rule 59 of the Bankruptcy and Insolvency General Rules in the context of bankruptcy. Determination of whether or not the federal component of the GST/HST credit payment will be considered as property of the bankrupt will depend on the result of applying Rule 59 to a particular estate.

For further information on the treatment of GSTC payments, please see the OSB's position paper GST Credit Payments in Bankruptcy.

Provincial Component

BCHSTC Payment

British Columbia's Income Tax Act (ITA) has been amended to bring into force new provisions pertaining to the BCHSTC. Section 8.2, entitled BC Harmonized Sales Tax Credit, was incorporated into the act through section 181 of Bill 9-2010.

The enabling legislation does not provide that the BCHSTC payment is exempt from execution or seizure, nor does it stipulate that the credit payment cannot be assigned under the BIA.

One of the purposes of the BIA is to ensure that all property owned by the bankrupt on the date of bankruptcy or in which the bankrupt may, on that date, have a beneficial interest will, with certain exceptions, vest in the trustee for realization by the trustee for the general benefit of creditors and distribution to creditors. Section 67 of the BIA specifies what property of the bankrupt is divisible and what property is not divisible among creditors. The BCHSTC payment is not captured under paragraphs 67(1)(a)(b)(b.1)(b.2) and (b.3) but rather is considered property of the bankrupt that is divisible among creditors as per paragraph 67(1)(c) of the BIA.

BCLICATC Payment

The OSB has already issued a position paper regarding the nature of the BCLICATC payment in a bankruptcy context. It is the view of the OSB that this tax credit represents property under paragraph 67(1)(c) of the BIA that is divisible among creditors. For additional details, please refer to the position paper British Columbia Low Income Climate Action Tax (BCLICATC).

Position

It is the view of the OSB that:

  • the treatment of the federal GST/HST credit portion of the payment has not changed and remains as set out in paragraph 67(1)(b.1) of the BIA and that Rule 59 governs how it is to be treated;
  • the BCHSTC payment, which is the provincial portion of the payment,  represents property under paragraph 67(1)(c) of the BIA that is divisible among creditors; and
  • the BCLICATC payment is considered property of the bankrupt that is divisible among creditors as per paragraph 67(1)(c) of the BIA.

Footnotes

Footnote 1

The GSTC is a tax-free quarterly payment that helps individuals and families with low and modest incomes offset all or part of the GST they pay.

Return to footnote 1 referrer

Footnote 2

The BCLICATC is a tax-free payment to help low-income individuals and families offset the carbon taxes they pay. The program, which is fully funded by the Province of British Columbia, provides a credit of up to $105 for an individual, $105 for a spouse or common-law partner and $31.50 per child ($105 for the first child in a single-parent family). For single individuals with no children, the credit is reduced by 2 percent of their net income over $30 600. For families, the credit is reduced by 2 percent of their adjusted family net income over $35 700. The BCLICATC payment is combined with the quarterly federal GSTC payment.

Return to footnote 2 referrer