Issue
Prior to 2021, the Climate Action Incentive Payment (CAIP) was a refundable tax credit claimed annually on personal income tax returns. Starting in July 2022, the CAIP will be paid quarterly to eligible residents of Alberta, Saskatchewan, Manitoba and Ontario. Payments will also be made to eligible residents of Newfoundland and Labrador, Nova Scotia and Prince Edward Island starting in 2023. Note that while the list of provinces from which eligible residents will receive payments is subject to further change, the treatment in insolvency of the CAIP remains the same. For additional information on climate-related tax credits, please visit provincial and territorial government official websites.
Position
Regardless of when payments are received, the CAIP is property of the bankrupt under paragraph 67(1)(c) of the Bankruptcy and Insolvency Act (BIA) when the year in which it is calculated is the year of bankruptcy or a prior year.
Although the amount paid is based on the number of members in the family unit, the entire amount vests with the trustee as property of the bankrupt.
Any CAIP calculated based upon post-bankruptcy years is to be included in the calculation of surplus income payments under section 68 of the BIA.
Analysis
The Income Tax Act (ITA) was modified in 2018 following the introduction of new regulations to the Greenhouse Gas Pollution Pricing Act.
According to section 122.8 of the ITA, where a claim is made for a CAIP by an eligible individual who files an income tax return, the ITA deems that individual to have paid the amount calculated under section 122.8 of the ITA on account of taxes payable. Since income taxes payable can only be derived from revenue generated during the year, any amount claimed as a CAIP is considered to be an overpayment of income tax by the individual.
Paragraph 67(1)(c) of the BIA states that the property of the bankrupt includes
- […] any refund owing to the bankrupt under the Income Tax Act in respect of the calendar year […] in which the bankrupt became a bankrupt except the portion that
- is not subject to the operation of this Act, or
- in the case of a bankrupt who is the judgment debtor named in a garnishee summons served on His Majesty under the Family Orders and Agreements Enforcement Assistance Act, is garnishable money that is payable to the bankrupt and is to be paid under the garnishee summons […]
The CAIP calculated on the calendar year in which a person became a bankrupt or on prior years is a refund owed under the ITA and does not fall under one of the two exceptions listed in paragraph 67(1)(c). Nothing in the BIA, the enacting legislation or other federal or provincial legislation excludes this type of payment from the operation of the BIA. Therefore, these payments are considered property of the bankrupt divisible among their creditors regardless of the year in which the payments are received.
Although the amount paid is based on the number of members in the family unit, it is not made to the bankrupt in trust for other members of the family unit. Consequently, the entire amount falls under paragraph 67(1)(c) of the BIA.
As paragraph 67(1)(c) of the BIA does not apply to refunds owing to the bankrupt under the ITA in respect of calendar years following the year of bankruptcy (subsequent years), the CAIP calculated upon subsequent years should be considered as income per section 68 of the BIA and included in the calculation of surplus income.