22 September 1997 Internal T.I. 9722297 - BANKRUPTCY

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: interpretation of the law

Position: application of 96 and 128

Reasons:

September 22, 1997

   Victoria Tax Services Office	       Resources Partnerships and 		                                				Trusts Division
   Attention: Mr. E. Toth		             S.J. Tevlin
       Manager Special Investigations (613) 957-2093

			                             	7-972229

Partnership/Bankruptcy Income Tax Determination

We are writing in response to your letter dated August 13, 1997 wherein you requested we confirm your understanding of the tax implications concerning the bankruptcy of a professional partnership.

In this regard we offer the following general comments.

Paragraph 96(1)(b) of the Income Tax Act (the "Act) states that the income of a member of a partnership shall be computed as if the taxation year of the partnership were its fiscal period.

Pursuant to subsection 98(3) of the Act a Canadian partnership will be considered to have ceased to exist at such time as all the partnership property has been distributed to persons that were members of the partnership immediately before that time and each person has an undivided interest in such property.

Where an individual is bankrupt, paragraph 128(2)(a) deems the trustee in bankruptcy to be the agent of the bankrupt for purposes of the Act.

Subparagraphs 128(2)(c)(i) and (ii) of the Act determine that the income and taxable income of the bankrupt individual for a year during which the individual was a bankrupt and for any subsequent year shall be calculated as if the property of the bankrupt did not pass to and vest in the trustee in bankruptcy and any dealing in the estate of the bankrupt or any carrying on of business of the bankrupt by the trustee and any income of the trustee from such dealing or carrying on business is income of the bankrupt and not of the trustee.

Therefore, based on the information provided, we agree with your position that the trustee in bankruptcy acting on behalf of the bankrupt, XXXXXXXXXX, must file the appropriate income tax returns on behalf of the bankrupt and pay any tax payable, pursuant to subsection 128(2) of the Act.

We also agree that the partnership and the XXXXXXXXXX continue to exist and are to be considered administered by the trustee on behalf of the bankrupt.

We trust our comments will be of assistance to you.

for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch