2001 Ruling 2000-0062493 - TRUSTEE IN 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: Whether a trustee will be considered to have disposed of several properties as a result of receiving a payment from the bankrupt in return for the trustee disclaiming interest in properties.

Position: No.

Reasons: By virtue of paragraph 128(2)(c), properties remain vested in bankrupt and trustee is an agent of the bankrupt for purposes of calculating income and taxable income.

XXXXXXXXXX 2000-006249

XXXXXXXXXX, 2001

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling
XXXXXXXXXX (the "Trust")

We are writing in response to your letter dated XXXXXXXXXX, in which you requested an advance income tax ruling on behalf of the Trust.

To the best of your knowledge, and that of the Trust involved, none of the issues involved in the ruling request is:

i. in an earlier return of the Trust or a related person;

ii. being considered by a tax services office or a taxation centre in connection with a tax return already filed by the Trust or a related person;

iii. under objection by the Trust or a related person;

iv. before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired; and

v. the subject of a ruling previously issued by the Directorate.

Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended (the "Act"), and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.

Our understanding of the facts, the proposed transactions and the purpose of the proposed transactions is as follows:

FACTS

1. XXXXXXXXXX ("Mr. X"), an individual resident in Canada, was deemed to have made an assignment in bankruptcy on XXXXXXXXXX, pursuant to XXXXXXXXXX of the federal Bankruptcy and Insolvency Act ("BIA").

2. XXXXXXXXXX (the "Trustee") was appointed as trustee in bankruptcy for Mr. X.

3. Mr. X's major assets were his interests in XXXXXXXXXX properties. Mr. X only owned a percentage interest (ranging from XXXXXXXXXX% to XXXXXXXXXX%) in each property, except for XXXXXXXXXX in which Mr. X owned XXXXXXXXXX% and which the Trustee sold for $XXXXXXXXXX on XXXXXXXXXX.

4. The following claims have been filed by Mr. X's unsecured creditors;

XXXXXXXXXX.

5. The following claims have been filed by Mr. X's secured creditors;

XXXXXXXXXX.

6. Pursuant to section 67 and subsection 71(2) of the BIA, all of Mr. X's property, subject to the rights of secured creditors, passed to and vested in the Trustee on the date of bankruptcy. The Trustee has since disclaimed any interest in XXXXXXXXXX properties, which had XXXXXXXXXX equity for the estate. Only XXXXXXXXXX properties remain in the estate.

7. The estimated net benefit to the Trust from selling its interests in the remaining XXXXXXXXXX properties (the "remaining interests") is approximately $XXXXXXXXXX, after deducting the properties' mortgages and after paying the taxes that would arise on the sale (but not taking into account the professional and legal fees required to sell the interests).

PROPOSED TRANSACTION

8. Mr. X proposes to pay the Trustee $XXXXXXXXXX to settle all outstanding issues with respect to the Trust in return for having the Trustee disclaim its interest in the remaining interests. Mr. X has advised the Trustee that he will be obtaining the $XXXXXXXXXX in the form of a personal unsecured loan from XXXXXXXXXX.

PURPOSE OF PROPOSED TRANSACTION

9. The purpose of the proposed transaction is for the Trustee to maximize recoveries for the creditors by accepting the $XXXXXXXXXX settlement offer (and finalizing the estate forthwith), thus avoiding the time-consuming and costly process of marketing, negotiating and completing a sale of each of the remaining interests. Given the difficulty of selling only a percentage interest in a property, the Trustee anticipates that a lengthy time period would otherwise be required to locate interested purchasers and complete sales on an "as is, where is" basis. The Trustee and Inspectors (who represent the creditors) of the Trust are of the opinion that the settlement offer is substantially better for the creditors than a sale of the remaining interests by the Trustee. The result of this transaction is that the remaining interests will re-vest in Mr. X once the Trustee disclaims any interest it may have in them.

RULING GIVEN

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transaction, and purpose of the proposed transaction, and the proposed transaction is completed as described above, we confirm that the proposed transaction will not result in a disposition of the remaining interests by the Trust.

CAVEAT

Nothing in this ruling should be construed as implying that the Canada Customs and Revenue Agency has agreed to or reviewed the tax consequences relating to the facts and proposed transaction described herein other than those specifically described in the ruling given above.

The ruling provided herein is subject to the limitations and qualifications set out in Information Circular 70-6R3 dated December 30, 1996, and is binding on the Canada Customs and Revenue Agency provided that the proposed transaction is completed by XXXXXXXXXX.

Yours truly,

XXXXXXXXXX
for Director
Business and Partnerships Division
Income Tax Rulings Directorate

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