9 October 1987 Income Tax Severed Letter 5-3626 - [Calculation of married exemption]

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.

XXXX

R.B. Day Tel. (613) 957-2136

OCT 9 1987

Dear XXXX

We are writing in reply to your letter of July 10, 1987, wherein you requested that we confirm your interpretation of paragraph 128(2)(d) of the Income Tax Act (the "Act") as it relates to the calculation of the married exemption under paragraph 109(1)(a) of the Act.

As we understand it, a taxpayer who was married throughout a particular calendar year, became bankrupt during that year.

In this regard, it is your opinion that pursuant to paragraph 128(2)(d) of the Act, the bankrupt taxpayer's taxation year is deemed to have ended on the day immediately before the date of bankruptcy and as such, in calculating the married exemption, he is required to take into account only the income of his spouse up to that date. It is also your view that pursuant to paragraph 128(2)(d) of the Act he is deemed to have commenced a new taxation year on the date of bankruptcy and as such, in preparing his post-bankruptcy return, the married exemption claim is based only on the income of his spouse subsequent to that date.

We are unable to confirm your interpretation in this regard. Although we would agree that paragraph 128(2)(d) of the Act creates both a pre-bankruptcy and post-bankruptcy taxation year for the bankrupt taxpayer, the taxation year of the bankrupt taxpayer's spouse continues to be the full calendar year. As a consequence, the net income of the spouse for the full calendar year would be used in computing the maximum allowable married exemption for the bankrupt taxpayer in both his pre-bankruptcy and post-bankruptcy taxation years.

In this regard, we note that there are several references in the Act to a taxation year simply by using the words "in the year" or "for the year" or "of the year" without repeating the term "taxation year". Subsection 109(1) of the Act refers to "a taxation year" and subparagraph 109(1)(a)(ii) of the Act refers, in part, to the spouse's income "for the year". Assuming that the bankrupt taxpayer's spouse did not also become bankrupt during the year, her income "for the year" would be her income for the full calendar year in question.

Yours truly,

for Director Small Business & General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch

RBD /zg