Clarification on the treatment of advance payments of the CWB in an insolvency proceeding

September 6, 2023

The Office of the Superintendent of Bankruptcy (OSB) has received several requests for clarification regarding the treatment of advance payments of the Canada Workers Benefit (CWB) in an insolvency proceeding.

The CWB (formerly known as the Working Income Tax Benefit (WITB)) is a refundable tax credit to help individuals and families who are working and earning a low income. The CWB is enacted through the same provisions of the Income Tax Act (ITA) as the former WITB and its treatment under the Bankruptcy and Insolvency Act (BIA) has not changed since the 2009 publication of the OSB Position Paper on the WITB (Working Income Tax Benefits).

Licensed Insolvency Trustees (LITs) should treat CWB quarterly payments as an advance on a debtor’s income tax refund for the ongoing year. The ITA does not exempt CWB payments from execution or seizure. Pursuant to paragraph 67(1)(c) of the BIA, refunds under the ITA in respect of the year of the bankruptcy or previous years are therefore property of a bankrupt divisible among the creditors. Payments for subsequent years are income to be included in the calculation of the surplus income obligation, pursuant to section 68 of the BIA.

To summarize, the OSB takes the following positions:

  • pre- and post-bankruptcy income tax refunds that include CWB payments vest in the LIT pursuant to paragraph 67(1)(c) of the BIA;
  • subsequent income tax refunds that include CWB payments are to be included in the calculation of surplus income under s. 68 of the BIA.

When new credits are issued, LITs should refer to the analytical approach provided by the OSB to determine the status and treatment of such payments: see Explanatory Note: Treatment Of Various Government Payments In Bankruptcy.