31 March 1998 External T.I. 9802765 - BANKRUPTCY, RRSP DEDUCTION LIMIT

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:

Will an individual's bankruptcy affect his or her RRSP deduction limit?

Position:

No

Reasons:

Bankruptcy does not affect RRSP deduction room other than paragraph 128(2)(d.1) requires that the bankrupt's two taxation years in that year be considered one year for purposes of unused RRSP deduction room.

980276
XXXXXXXXXX M.P. Sarazin

Attention: XXXXXXXXXX

March 31, 1998

Dear Sirs:

Re: RRSP Deduction Limit and Bankrupt Individuals

This is in reply to your letter dated January 26, 1998, wherein you requested confirmation that an individual who has been discharged from bankruptcy would continue to have an RRSP deduction limit, within the meaning assigned by subsection 146(1) of the Income Tax Act (the "Act").

Comments

The Department's views in respect of how a taxpayer's bankruptcy will affect the determination of the taxpayer's RRSP deduction limit are expressed in paragraph 37 of Interpretation Bulletin IT-124R6. It states:

"Beginning in 1991, special rules apply to ensure that the RRSP deduction limit and unused RRSP deduction room of a bankrupt taxpayer and the RRSP excess contribution tax payable by such a taxpayer will be determined as if the taxpayer had not become bankrupt."

In determining a bankrupt taxpayer's RRSP deduction limit, the taxpayer's unused RRSP deduction room at the end of the immediately preceding taxation year will not be affected by an individual's going bankrupt or being discharged from bankruptcy. However, as outlined in your letter, the provisions of paragraph 128(2)(d.1) would apply in determining the value of the variable D in the computation of the taxpayer's unused RRSP deduction room for the end of the year in which the taxpayer has become a bankrupt. The expression "unused RRSP deduction room" has the meaning assigned by subsection 146(1) of the Act.

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

Yours truly,

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

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