What should you do if you become insolvent?

When a business cannot pay their debts, it is said to be insolvent.  In this situation, a business may file for bankruptcy or make a proposal (a payment arrangement with their creditors to prevent bankruptcy). These are legal proceedings carried out under the Bankruptcy and Insolvency Act, and must be registered with the Office of the Superintendent of Bankruptcy.

Send copies of all documentation relating to your receivership, proposal in bankruptcy, or bankruptcy to your tax services office because these situations may impact your business accounts.

For more information on these situations and what to sent us, see:

• Bankruptcy
• Proposal in bankruptcy
• Receivership

Responsibilities of the trustee in bankruptcy

The trustee in bankruptcy is the agent of the bankrupt employer under the Canada Pension Plan and the Employment Insurance Act.

If a bankrupt employer has deducted Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums, or income tax from amounts employees received before the bankruptcy, and the employer has not remitted these amounts to us, the trustee must hold the amounts in trust. These amounts are not part of the estate in bankruptcy and should be kept separately.

If a trustee carries on the bankrupt employer's business, the trustee has to continue to deduct and remit the necessary CPP contributions, EI premiums, and income tax according to the bankrupt employer's remittance schedule.

T4 slips should be prepared and filed in the usual way.