The Income Tax Act (ITA) was modified in 2018 following the introduction of new regulations to the Greenhouse Gas Pollution Pricing Act. The new Climate Action Incentive (CAI) payments (aka Federal Carbon Tax Rebate) program will be administered through the income tax system in the form of tax credits starting with the 2018 tax year and will apply to the provinces that have opted out of the federal carbon pricing system (i.e. Manitoba, New Brunswick, Ontario, and Saskatchewan). Only residents of these provinces will be eligible for this rebate.
According to section 122.8 of the ITA , where a claim is made for a CAI payment 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 by the individual, any amount claimed as a CAI payment is considered to be an overpayment of income tax by the individual.
Clarification is required as to whether CAI payments are property of the bankrupt divisible among his/her creditors in the context where such payments are made to a bankrupt.
Any CAI payment received by a bankrupt for the calendar year in which he/she became a bankrupt is considered property of the bankrupt divisible among his/her creditors under subsection 67(1)(c) of the Bankruptcy and Insolvency Act (BIA). Although the amount paid is based on the number of members in the family unit, the whole amount vests with the trustee as property of the bankrupt.
In terms of any subsequent year income tax refunds that include the CAI , they are to be used in the calculation of surplus income payments under section 68 of the BIA .
Subsection 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
(i) is not subject to the operation of this Act, or
(ii) in the case of a bankrupt who is the judgment debtor named in a garnishee summons served on Her 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 CAI payment received by the bankrupt for the calendar year in which he/she became a bankrupt is a refund owed under the ITA , but does not fall under one of the two exceptions listed. Nothing in the BIA , the enacting legislation, or other federal or provincial legislation excludes this type of payments from the operation of the BIA . Therefore, they must be considered property of the bankrupt divisible among his/her creditors.
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 his/her family unit. Consequently, the whole amount falls under subsection 67(1)(c) of the BIA .
However, subsection 67(1)(c) of the BIA does not apply to subsequent years. As such, CAI payments received for subsequent years should be considered as income and be governed by section 68 of the BIA for the purpose of calculating surplus income payments, if any. This is in line with the MarzettiFootnote 1 decision in which the Supreme Court stated that post-bankruptcy tax returns were to be considered as income under section 68 of the BIA .