13 November 2009 Internal T.I. 2009-0345831I7 - Disposition of Refunds from Multiple Bankruptcies

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 refunds from two distinct estates, related to the same taxpayer, should be remitted to the trustee of the later bankrupt estate.

Position: No; the refund vests in the trustee of record of the particular estate.

Reasons: Subsection 71(2) of the Bankruptcy and Insolvency Act provides that, at bankruptcy, the bankrupt's property vests in the trustee of the bankrupt estate. An income tax refund for a pre-bankruptcy taxation year is the property of the bankrupt; hence, it vests in the trustee of record for a particular bankruptcy.

								November 13, 2009

Individual and Payments Processing Directorate	HEADQUARTERS
Processing Division					Income Tax Rulings Directorate
								Lindsay Frank
Attention: Sheila Barnard 				(613) 948-2227
                 Manager, Processing Division
								2009-034583

Disposition of Refunds from Multiple Bankruptcies

This is in reply to your email of September 22, 2009. At issue is the disposition of refunds pertaining to two distinct bankrupt estates, albeit with respect to the same taxpayer. Both estates were reassessed, and both reassessments resulted in a refund.

The taxpayer's first bankruptcy arose on XXXXXXXXXX , from which he was discharged on XXXXXXXXXX . The trustee of that estate was discharged on XXXXXXXXXX . His second bankruptcy occurred on XXXXXXXXXX , from which he was discharged on XXXXXXXXXX The trustee of the second estate was discharged on XXXXXXXXXX . The taxpayer engaged the services of a different trustee for each bankruptcy.

Pursuant to paragraph 67(1)(c) of the Bankruptcy and Insolvency Act ("BIA"), the property of a bankrupt, divisible among creditors, comprises all property that may be acquired or devolve on him before his discharge. An income tax refund for a pre-bankruptcy taxation year is the property of the bankrupt that is available for distribution to creditors. As such, and in accordance with subsection 71(2) of the BIA, the refund vests in the trustee of the bankrupt estate, see Wagner v. Diegel & Feick Inc. (1980) 35 C.B.R. (N.S.) 309 (Ont. S.C.). Given that the refunds at issue relate to different estates, which were administered by a different trustee, the refunds should be issued to the respective trustees, in accordance with subsection 71(2).

Although the trustees have already been discharged from administering the estate, subsection 41(10) of the BIA provides that they remain as trustees for the performance of duties that may be incidental to the full administration of the estate. If necessary, the Court has the authority under subsection 41(11) to appoint a trustee to complete the administration of the estate, if assets (i.e. the refunds) were to become available for distribution.

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
Legislative Policy and Regulatory Affairs Branch