14 May 2013 External T.I. 2013-0474741E5 - RRSP Limits after 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.

Principal Issues: Can a taxpayer who has an undeducted RRSP contribution, exclude it from bankruptcy and claim the deduction following the taxpayer's discharge?

Position: The Act does not restrict when a deduction for a RRSP contribution must be made. However, such exclusion may not be allowed under the Bankruptcy and Insolvency Act.

Reasons: Subsection 146(5) does not restrict when the deduction may be made. Sections 67 and 158 of the Bankruptcy Act define property and the duties of a bankrupt to report all of its property accordingly. Undeducted RRSP contributions would arguably be property under the BIA. As such, the bankrupt would be required to disclose the undeducted RRSP contribution to the trustee in bankruptcy.

XXXXXXXXXX
2013-047474
Katharine Skulski

Attention: XXXXXXXXXX

May 14, 2013

Dear XXXXXXXXXX:

Re: Undeducted RRSP contributions and bankruptcy

We are writing in response to facsimile dated December 21, 2013. We also acknowledge our telephone conversation (Skulski/XXXXXXXXXX).

You have asked us whether a taxpayer who has an undeducted RRSP contribution could exclude such a deduction from property reported in a bankruptcy and use the deduction in a taxation year following the taxpayer's discharge from bankruptcy.

Written confirmation of the tax implications inherent in particular transactions is provided by this Directorate where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, "Advance Income Tax Rulings", dated May 17, 2002.  This Information Circular and other CRA publications can be accessed on the internet at http://www.cra-arc.gc.ca/formspubs/menu-e.html. Where a request concerns a completed transaction and a review of the relevant facts and circumstances surrounding the situation would be required, such review would normally be conducted by the applicable Tax Services Office during the course of an income tax audit. If such audit is undertaken, it would be carried out after the particular taxpayer has prepared and filed its income tax return for the year. Notwithstanding the foregoing, we are prepared to provide the following comments that may be of assistance.

Unless otherwise stated in this letter, all references in this letter to a statute are to the Income Tax Act (Canada), R.S.C. 1985, c. 1 (5th Suppl.) (the "Act"), as amended to the date of this letter.

Subsection 146(5) of the Act provides that a taxpayer may deduct the amount of an RRSP contribution subject to certain restrictions, such as to the amount contributed and whether it was deducted in a previous taxation year. There is no provision in the Act which prevents a taxpayer from deducting an RRSP contribution made prior to bankruptcy after the taxpayer has been discharged from the bankruptcy.

Notwithstanding the foregoing, we would draw your attention to some of the information provided on the Web site of the Office of the Superintendent of Bankruptcies (http://www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/br02668.html#obligations), which states that it is the responsibility of the bankrupt to disclose all of his or her assets and liabilities to the trustee. An unused tax deduction would arguably be "property" as per the definition of this term in section 67 of the Bankruptcy and Insolvency Act ("BIA"). As such, the bankrupt would have a duty under subsection 158 of the BIA to disclose all of its property to the trustee. You may wish to review the above-noted Web site for further information.

We trust that these comments will be of assistance.

Yours truly,

Terry Young, CPA, CA
Manager, Administrative Law Section
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch