13 February 1997 External T.I. 9703805 - HOME BUYERS PLAN, 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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Is the unpaid portion of the home buyers plan withdrawal a debt for purposes of the bankruptcy laws?

Position: No

Reasons:

The withdrawal is not a debt so there can be no discharge to which the bankruptcy laws could apply.

	                      	970380
XXXXXXXXXX              	M.P. Sarazin 

Attention: XXXXXXXXXX

February 13, 1997

Dear Sirs:

Re: Home Buyers' Plan and Bankruptcy

This is in reply to your letter dated January 30, 1997, wherein you requested our views with respect to whether the unpaid portion of amounts withdrawn from a registered retirement savings plan ("RRSP") under the Home Buyers Plan ("HBP") would be extinguished upon an individual's filing for bankruptcy.

Comments

Under the HBP, an individual may withdraw funds from any RRSP on a tax-free basis. The individual then has an option to either repay the minimum amount in each of the following fifteen years to any RRSP or be subject to an income inclusion of the minimum amount in each of the fifteen years.

Subsection 121(1) of the Bankruptcy and Insolvency Act (the "BIA") makes it clear that only debts to which the debtor is liable before the date of bankruptcy or those to which he may become subject before his discharge by reason of an obligation incurred before the bankruptcy share in the assets of the bankrupt. The withdrawal from an RRSP under the HBP is not a debt or borrowing since there is no entity to which the bankrupt owes money. Consequently, subsection 121(1) of the BIA does not apply because amounts repayable under the HBP are not current or future debts of the bankrupt at the time of bankruptcy. In addition, the trustee in bankruptcy has no claim to any of the repayments to an RRSP or amounts included in income since there is no debt owing to the RRSP.

Where an income inclusion required under the Income Tax Act results in a bankrupt having a liability for tax for the particular year, such tax liability would constitute a debt owing by the bankrupt. In our view, this debt could be subjected to subsection 121(1) of the BIA.

We trust the above comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch