1 February 2012 Internal T.I. 2011-0422581I7 - Withholding of Refunds Where Outstanding Returns

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 the prohibition on issuing refunds under subsection 164(2.01) applies to a bankrupt's trustee in bankruptcy.

Position: Yes.

Reasons: Subsection 150(3) requires the trustee to file all outstanding returns of the bankrupt. If the returns are not filed, subsection 164(2.01) applies.

		February 1, 2012

	Assessment and Benefit Services Branch			HEADQUARTERS
	Individual Returns Directorate				Income Tax Rulings
										  Directorate
	Attention:  Valerie Bunce
	T1/T3 Accounting Enquiries Section
	Individual Returns Directorate
										2011-042258

Subsection 164(2.01) Withholding of Refunds Where Outstanding Returns

We are writing in response to your email concerning the application of subsection 164(2.01) of the Income Tax Act (the "Act"), which provides that the Minister may not refund, repay, apply to other debts or set-off amounts if the Minister is aware that not all required returns of the taxpayer have been filed under the Act or other statutes enumerated in the provision.

In your inquiry, you have expressed your concern that some bankruptcy trustees might file returns involving refunds first with the result that the refunds are paid to the trustee. Subsequently, the remaining returns would then be filed leaving a balance of tax owing by the bankrupt.

Specifically, you asked the following questions:

Question 1: Is the trustee in bankruptcy required to file all outstanding returns that the bankrupt individual has not filed?

Answer: Yes. Under paragraph 128(2)(a) of the Act, the trustee in bankruptcy is deemed to be the agent of the individual bankrupt. Pursuant to subsection 150(3) of the Act, a trustee in bankruptcy is required to file all outstanding returns that have not been filed by the bankrupt.

Question 2: Does the prohibition against the issuance of a refund under subsection 164(2.01) of the Act apply to a trustee in bankruptcy?

Answer: Yes. The Minister may not issue a refund to a trustee in bankruptcy where the Minister is aware that not all required returns have been filed under the Act or other statute enumerated in subsection 164(2.01). This includes the return for the taxation year that began before the day on which the individual became a bankrupt and which is deemed to have immediately ended before that day in accordance with subparagraph 128(2)(d)(ii) of the Act.

Question 3: Where returns are outstanding should the Minister withhold the issuance of a refund to which the bankrupt estate is otherwise entitled?

Answer: Yes. Where the Minister is aware that not all required returns have been filed under either the Act or other statute enumerated in subsection 164(2.01) of the Act, the Minister may not, pursuant to that provision, refund, repay, apply to other debts or set-off amounts.

We trust that these comments will be of assistance.

Terry Young, CA
For Director
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch