8 March 2016 Internal T.I. 2015-0614421I7 - Returns filed or amended by bankrupt taxpayer

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Is the trustee in bankruptcy the only person who may file any outstanding returns or amend previous years’ tax returns for a bankrupt individual under subsection 152(4.2)?

Position: No.

Reasons: Paragraph 128(2)(a) of the Income Tax Act provides that the trustee in bankruptcy is the agent for the bankrupt for all purposes of the Act. This includes filing the returns required according to subsection 128(2) and any outstanding returns of the bankrupt according to subsection 150(3). However, the legislation does not preclude a taxpayer from filing outstanding returns or requesting an adjustment to a return under subsection 152(4.2) for taxation years prior to the bankruptcy. Note this position replaces the views expressed in document 2007-024648.

							March 8, 2016

Individual Returns Directorate
Program and Support Division 			HEADQUARTERS
Legislation Section				Income Tax Rulings
							  Directorate
Attention: Marc Grignon				G. Godson

							2015-061442

Returns filed or amended by bankrupt

We are writing in reply to your email dated October 21, 2015, wherein you requested clarification as to who is responsible to file or amend a tax return of a bankrupt individual for taxation years prior to the year of bankruptcy.

Specifically, you have asked us to clarify the comments from document 2007-024648 (the “2007 Document”), which addressed who may request an adjustment under subsection 152(4.2) of the Income Tax Act (the “Act”) in respect of a year prior to the year of the bankruptcy. In this regard, the 2007 Document stated that the only person authorized to make a request for an amendment to this tax return is the trustee in bankruptcy (the “trustee”). Furthermore, the 2007 Document stated that the Canada Revenue Agency cannot action a request under subsection 152(4.2) of the Act without receiving the request from the trustee.

Your email refers to certain provisions of the Bankruptcy and Insolvency Act (the “BIA”). In this regard, you refer to subsection 71(2) of the BIA which provides that at bankruptcy a bankrupt individual ceases to have any capacity to deal with his or her property. You also refer to section 22 of the BIA which provides that a trustee is not liable to make any return that the bankrupt individual was required to make more than one year prior to the commencement of the calendar year or the fiscal year of the bankrupt individual where that is different from the calendar year, in which he or she became bankrupt. Based on your understanding of these provisions, it is your view that either the bankrupt individual or the trustee can file a return prior to the year of bankruptcy, or make an adjustment request under subsections 152(4) or (4.2) of the Act.

Our comments

In general, the Canadian tax system is a self-assessing system where taxpayers are responsible for managing their own tax affairs including their filing and reporting obligations. In this regard, section 150 of the Act generally outlines a taxpayer’s filing obligations regarding their return of income.

In addition, subsection 128(2) of the Act contains rules that apply to individuals who become bankrupt. In this regard, where an individual taxpayer is bankrupt, paragraph 128(2)(a) of the Act deems the trustee to be the agent of the bankrupt for all purposes of the Act. Accordingly, the trustee is generally required to perform tasks that the individual taxpayer would ordinarily be required to do under the Act. Paragraph 128(2)(e) of the Act requires a trustee to file, for each taxation year in the calendar year in which an individual becomes bankrupt, an income tax return with respect to certain income arising from dealings in the estate of the bankrupt individual. Moreover, paragraph 128(2)(f) of the Act requires an individual who is bankrupt at any time in a taxation year to file an income tax return for the year, on the basis that the income required to be reported by the trustee under subparagraph 128(2)(e) of the Act was not the income of the individual.

Furthermore, subsection 150(3) of the Act requires the trustee to file any return for a taxation year of any person who has not filed the return for that taxation year.

Subsection 152(4.2) of the Act permits the Minister to adjust an individual’s income tax return after the normal reassessment period in respect of a taxation year if an application for an adjustment is made by the individual taxpayer within ten calendar years after the end of that taxation year. We recognize that, a trustee, acting as the agent of a bankrupt individual, may make a request to amend a tax return after the normal reassessment period for a taxation year prior to bankruptcy if the requirements of subsection 152(4.2) are met. We also recognize that a trustee may have additional filing obligations pursuant to subsection 150(3) of the Act.

However, in our view, neither paragraph 128(2)(a) nor subsection 152(4.2) of the Act preclude a bankrupt individual from making such a request to amend a return. Accordingly, the comment from the 2007 Document suggesting that the Canada Revenue Agency cannot action a request under subsection 152(4.2) of the Act by a bankrupt individual unless the request is received from a trustee is inconsistent with these provisions.

Therefore, in our view, a request pursuant to subsection 152(4.2) of the Act in respect of a bankrupt individual for a taxation year prior to bankruptcy may be made by either the bankrupt individual or the trustee in bankruptcy.

We trust these comments will be of assistance.

Bob Naufal
Manager
Administrative Law Section
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch