14 March 2013 Internal T.I. 2012-0451131I7 - Trustee's Rights & Obligations under the Act

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: 1. Whether the Minister may disclose taxpayer information to a trustee in bankruptcy?
2. Whether a trustee is required to file all outstanding returns, or just those for the year before a bankruptcy and the year of bankruptcy?

Position: 1. Yes.2. All outstanding returns.

Reasons: 1. A trustee is entitled to taxpayer information under subsection 164(1) of the Bankruptcy and Insolvency Act; therefore, paragraph 241(4)(k) of the Income Tax Act applies. In addition, pursuant to section 128 of the Income Tax Act, a trustee is deemed to be the agent of the bankrupt for all purposes of the Act; therefore section 241(5) of the Income Tax Act applies. And under subsection 164(1) of the Bankruptcy and Insolvency Act, a trustee is entitled to obtain information and property of a bankrupt.
2. Subsection 150(3) requires a trustee to file all outstanding returns, while subsection 164(2.01) forbids the Minister from paying a refund otherwise payable unless all outstanding returns under the Act, the Air Travellers Security Charge Act, the Excise Act, and the Excise Tax Act are filed.

March 14, 2013

Telephone Services Division HEADQUARTERS
Income Tax Rulings
Directorate
Attention: Nancy Della Valle Lindsay Frank
Individual Programs Section (613) 960-7919

2012-045113

Trustee's Rights and Obligations under the Act

We are replying to your request for a technical interpretation regarding the interaction between the Income Tax Act (the "Act") and the Bankruptcy and Insolvency Act (the "BIA"). Specifically, you asked us whether:

1. the Minister may disclose taxpayer information to a trustee-in-bankruptcy (the "trustee"); and

2. the trustee is required to file all outstanding income tax returns or just the two returns specified in the BIA?

Our Comments

1. Disclosure of Taxpayer Information to a Trustee

Section 241 of the Act requires the Minister to keep taxpayer information strictly confidential. As defined in subsection 241(10), taxpayer information is information of any kind, relating to one or more persons, that is either obtained by, or on behalf of, the Minister for the purposes of the Act, or is prepared from that information. While the need to safeguard the confidentiality of tax information is paramount, Parliament has sanctioned specific circumstances where the Minister may disclose taxpayer information.

Subsection 241(5) of the Act permits the Minister to disclose taxpayer information to the taxpayer, or, with the taxpayer's consent, to any person. Normally, the taxpayer gives such consent by completing and filing Form T1013, Authorizing or Cancelling a Representative. Where a taxpayer is bankrupt, section 128 of the Act deems the trustee to be the bankrupt's agent for all purposes of the Act. Furthermore, paragraph 241(4)(k) allows the Minister to disclose taxpayer information to any person otherwise entitled to it under an Act of Parliament, solely for the purposes for which that person is entitled to the information. Moreover, a trustee, who is appointed under section 13 of the BIA, is a person entitled to taxpayer information pursuant to subsection 164(1) of the BIA. Accordingly, until discharged from administering the affairs of the bankrupt estate, the Minister may disclose taxpayer information to the trustee. Under these circumstances, the completion of a T1013 is not necessary, as long as the Minister has been provided sufficient evidence of the trustee`s appointment.

2. The Requirement of a Trustee to File Income Tax Returns

As stated above, section 128 of the Act deems the trustee to be the agent of a bankrupt taxpayer for all purposes under the Act. While subsection 150(3) requires the trustee to file all of the bankrupt's outstanding tax returns, section 22 of the BIA requires a trustee to file two returns, namely, the return for the taxation year before the year of bankruptcy, and the return for the year of bankruptcy. However, subsection 164(2.01) of the Act forbids the Minister from paying a refund where returns have not been filed under the Act, the Air Travellers Security Charge Act, the Excise Act, 2001, and the Excise Tax Act. Therefore, unless the trustee complies with subsections 150(3) and 164(2.01) of the Act, the Minister cannot pay out any refunds otherwise payable to the taxpayer. It follows, then, that a trustee must file all outstanding returns before the bankrupt estate could benefit from a refund.

Should you have any questions or require additional information, please do not hesitate to contact Lindsay Frank at the number above.

Yours truly,

Terry Young, CPA, CA
Manager
Administrative Law Section
International Division
Income Tax Rulings Directorate