Taxes and student loans lead to higher unsecured debt, study finds

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Forty percent of Canadians who filed for insolvency in 2021 had outstanding tax obligations, up from 33% the previous year. Among these filers, the average amount of tax debt owed was $19,776, up from $15,866 the previous year. Insolvent tax debtors owed an average of $63,572 in unsecured debt, or 25.3% more than the average insolvent debtor.

Much of the increase in the percentage of taxfilers with tax debt in 2021 was due to liabilities created by the federal government’s pandemic stimulus benefits, the study’s authors suggested, which people received in 2020 “without withholding tax or with insufficient tax at source”.

“Additionally, many independent debtors and small businesses have stopped paying HST to manage cash flow during the pandemic,” the authors said. “With prolonged shutdowns and reduced incomes, these people have not been able to catch up with the skipped remittances.”

The authors of the study estimate that insolvencies related to tax debt will increase in 2022 as the Canada Revenue Agency increases collection actions, which have slowed during the pandemic, and ends interest relief on Covid-19 performance obligations.

“With the upcoming tax filing deadline of 2021, more Canadians will face an unpaid tax bill when filing their taxes, especially those who have received ongoing benefits from Covid-19,” the authors said. .

The percentage of insolvency filers with student debt increased to 22.3% in 2021, from 20.4% in 2020. Among these filers, the average amount of student debt was $17,005, from $15,251 in 2020. Student loan insolvent debtors owed an average of $52,112, 3.2% more than the average insolvent debtor.

“The pandemic has worsened reimbursement conditions for many millennials who are more likely to work in precarious jobs affected by Covid-19 lockdowns,” the study authors said.

Canadians were less likely to file for bankruptcy or a consumer proposal due to credit card debt and personal loans in 2021, the study found. Average credit card balances of all insolvent debtors fell 9.3% from a year earlier, while personal loans fell 2.0%.

Earlier this month, the Federal Office of the Superintendent of Bankruptcy reported that consumer insolvencies fell 6.6% in 2021 from a year earlier, while business insolvencies fell 11.0. % over the same period.

In the consumer sector, bankruptcies fell 16.5% from the previous year, while consumer proposals, which account for the majority (69.5%) of consumer insolvency activity , decreased by only 1.5% compared to the previous year.

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