8 January 2026 Internal T.I. 2025-1080161I7 - Subsection 127.421(2) and a bankrupt CCPC

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 CCRB claimed under subsection 127.421(2), being related to a specific period and deemed to be received at a time specified by the Minister of Finance that is after the end of that specific period, should be considered to relate to a pre-bankruptcy 2023 taxation year, a post-bankruptcy 2023 taxation year, or both.

Position: The interpretation that best reconciles subsection 127.421(2) with paragraph 128(1)(d) is that the CCRB be treated as a payment on account of Part I tax payable for the first taxation year ending in the 2023 calendar year. In a bankruptcy context, this would generally be the pre-bankruptcy taxation year.

Reasons: Section 127.421 is structured to limit an eligible corporation to one CCRB per calendar year, calculated based on factors for a calendar year, which is claimed through the filing of a return of income for a particular taxation year. This limitation, and the proposed amendment to extend subsection 127.421(11) to apply for the purposes of subsection 127.421(2), supports the interpretation that a CCRB claim cannot relate to both taxation years of a bankrupt ending in a calendar year.

January 8, 2026

      XXXXXXXXXX						HEADQUARTERS
      								Income Tax Rulings
      								  Directorate
J. Clarkson 

c/o XXXXXXXXXX 2025-108016

Re: Subsection 127.421(2) and 2023 declarations of bankruptcy

We are replying to your request for guidance on whether the Canada Carbon Rebate for Small Businesses (CCRB) is considered to be treated as a pre-bankruptcy or post-bankruptcy refundable tax credit in cases where the insolvency event occurs within the period used to calculate the CCRB, but before the effective date of the CCRB legislation of June 20, 2024.

All statutory references in this document are to the Income Tax Act, R.S.C. 1985, (5th Suppl.) c.1, as amended (the Act), unless stated otherwise.

More specifically, you requested our view on whether a CCRB claim under subsection 127.421(2), which relates to a specific period and is deemed to be paid at a time specified by the Minister of Finance that is after the end of that specific period, should be considered to relate to a pre-bankruptcy 2023 taxation year, a post-bankruptcy 2023 taxation year, or both.

You provided two examples with your request:

Example 1

Corporation A is bankrupt, with a bankruptcy date immediately following their 2023 tax year end. There is pre-bankruptcy debt and a CCRB credit on the account.

The CCRB of the bankrupt was processed in 2024, with an effective interest date in 2024, but was assessed as a 2023 tax credit using the information on the T2 return for 2023 (which was a return up to the date of insolvency) and payroll (RP) information returns for 2019 to 2023 (which are pre-insolvency tax years).

It is unclear whether this credit (or a percentage thereof) is available to be applied against a pre-bankruptcy debt.

Example 2

Corporation B is bankrupt, with a bankruptcy date of October 26, 2023. Completion of a write-off of the income tax (RC) account was not permitted, as there was an outstanding CCRB credit on the account for the taxpayer’s period ending December 31, 2023. The pre-bankruptcy taxation year end is October 25, 2023.

Our comments

The CCRB is a refundable tax credit provided under section 127.421 and is intended to return a portion of fuel charge proceeds collected under the federal carbon pollution pricing system to each eligible Canadian-controlled private corporation (CCPC). The amount of a CCRB is determined for each fuel charge year and corresponds with the federal fuel charge. A fuel charge year runs from April 1 to March 31.

By filing its 2023 return of income, being the initial return that gives rise to eligibility, a CCPC may be eligible for a CCRB in respect of the 2019-2020 through 2023-2024 fuel charge years. Returns for later taxation years give rise to eligibility for a CCRB in respect of one fuel charge year. For example, a CCPC’s 2024 T2 return would give rise to eligibility for the 2024-2025 fuel charge year.

Subsection 127.421(2) provides that an eligible CCPC is deemed to have made a payment on account of its tax payable under Part I for a taxation year ending in 2023 (other than a final return on dissolution), on the day specified by the Minister.

Based on the specified date provided by the Department of Finance, being October 1, 2024, subsection 127.421(2) deems an eligible CCPC to have made a CCRB payment on account of Part I tax payable for a taxation year ending in 2023 on that date.

Paragraph 128(1)(d) provides that where a corporation becomes a bankrupt, its taxation year is deemed to end immediately before the day on which the corporation became a bankrupt, and a new taxation year begins on that day. As a result, a bankrupt corporation may have both a pre-bankruptcy taxation year and a post-bankruptcy taxation year ending in the same calendar year.

Subsection 127.421(2) does not specify how the CCRB is to be allocated where this occurs. Accordingly, an interpretive ambiguity arises that must be resolved by reference to the scheme and context of section 127.421.

A CCRB claim made under section 127.421 is structured on a calendar-year basis, with eligibility and computation of a CCRB being determined by reference to factors for a calendar year. The structure of the provision limits an eligible corporation to a single CCRB per calendar year which is claimed through the filing of a return of income. This limitation is reflected in subsection 127.421(11), which, for the purposes of subsection 127.421(3), deems the relevant taxation year for that return of income to be the first taxation year ending in the calendar year. Although subsection 127.421(11) does not currently apply for the purposes of subsection 127.421(2), it demonstrates how Parliament addressed the existence of multiple taxation years ending in the same calendar year within section 127.421. Having regard to the structure of section 127.421 as a whole, including the limitation to a single CCRB per calendar year, it would not be consistent with the scheme of the provision to treat a CCRB claim under subsection 127.421(2) as relating to more than one taxation year of a bankrupt.

In light of the foregoing, the interpretation that best reconciles subsection 127.421(2) with paragraph 128(1)(d) is that, where a corporation has more than one taxation year ending in 2023, the CCRB is treated as a payment on account of Part I tax payable for the first taxation year ending in the 2023 calendar year. In a bankruptcy context, this would generally be the pre-bankruptcy taxation year ending immediately before the day the corporation became a bankrupt.

Given this clear intention for a CCRB claim to relate to the filing of one return of income per calendar year, it seems appropriate to conclude that a CCRB claim made under subsection 127.421(2) cannot be viewed as relating to both taxation years of a bankrupt.

The Department of Finance has proposed an amendment to extend the application of subsection 127.421(11) to subsection 127.421(2). If enacted, this amendment would expressly deem the relevant taxation year to be the first taxation year ending in the relevant calendar year, thereby resolving the ambiguity described above. This proposed amendment supports, but does not alter, the interpretive conclusion reached under the current legislation.

Given the facts provided for Example 1, the CCPC’s normal taxation year end is the same as the date otherwise deemed under paragraph 128(1)(d) to be the end of the pre-bankruptcy taxation year. Therefore, the CCPC appears to have only one taxation year ending in 2023. As a result, the CCRB would be deemed to have been paid on account of the Part I tax payable for that 2023 taxation year.

Given the facts provided for Example 2, the CCRB appears to have been administratively applied on account of the Part I tax payable for the December 31, 2023 (post-bankruptcy) taxation year, rather than the October 25, 2023 (pre-bankruptcy) taxation year. This application is not consistent with the interpretation set out above, nor would it be consistent with the income tax treatment that would apply if the proposed amendment to subsection 127.421(11) were enacted with effect from June 20, 2024. (footnote 1)

Any potential impact of the Bankruptcy and Insolvency Act on this issue has not been explored as our comments are limited to the interpretation of the Act.

Unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency’s electronic library. After a 90-day waiting period, a severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. You may request an extension of this 90-day period. The severing process removes all content that is not subject to disclosure, including information that could reveal the identity of the taxpayer. The taxpayer may ask for a version that has been severed using the Privacy Act criteria, which does not remove taxpayer identity. You can request this by e-mailing us at: ITRACCESSG@cra-arc.gc.ca. A copy will be sent to you for delivery to the taxpayer.

We trust that these comments will be of assistance.

Yours truly,

Gillian Godson
Section Manager
Specialty Tax Division
Income Tax Rulings Directorate
Legislation Policy and Regulatory Affairs Branch

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1. See subsection 50(5) of Bill C-15, which received first reading on November 18, 2025.