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: Whether a bankrupt can claim s. 111 losses in the post-bankruptcy period.
Position: No.
Reasons: S. 128(2)(f) precludes a bankrupt from claiming s. 111 losses in the post-bankruptcy period.
August 20, 2009
Kitchener-Waterloo Tax Services Office HEADQUARTERS
Revenue Collections Division Lindsay Frank
(613) 948-2227
Attention: Mark Kresky, Team Leader
2009-031634
Losses Carried Forward by a Bankrupt
This is in reply to an email from Kris Pinkney. At issue, is whether a bankrupt could carry forward losses under section 111 of the Income Tax Act ("the Act") to the post-bankruptcy period.
Section 111 of the Act sets out the extent to which a taxpayer is allowed to deduct losses of other years, when computing taxable income for a taxation year. It sets out the rules under which a loss, sustained in one year, may be carried backward or forward. On the other hand, section 128 of the Act contains rules concerning the obligations of a bankrupt.
The onset of bankruptcy divides the year of bankruptcy into two taxation years. In accordance with paragraph 128(2)(d) of the Act, the first taxation year of an individual runs from January 1 to the day before bankruptcy, while the second begins on the day of bankruptcy and ends on December 31. The first taxation year is part of the pre-bankruptcy period, which comprises any other taxation years preceding the bankruptcy. The second taxation year belongs to the post-bankruptcy period, and consists of taxation years subsequent to the date of bankruptcy.
Although section 111 permits losses to be carried forward, a taxpayer who is bankrupt or who is absolutely discharged from bankruptcy can never claim them. In this respect, subparagraph 128(2)(f)(iii) stipulates that, in computing taxable income, a bankrupt cannot deduct amounts under section 111. In addition, subparagraph 128(2)(g)(i) provides that, in computing taxable income, a taxpayer who is absolutely discharged from bankruptcy cannot deduct section 111 losses for pre-bankruptcy taxation years.
Should you need clarification or additional information, please do not hesitate to contact Lindsay Frank at the number provided above.
B.J. Skulski
Manager
Insolvency and Administrative Law Section
Business and Partnerships Division
Income Tax Rulings Directorate
c.c. Kris Pinkney
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2009
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2009
Email this Content