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:
The effect of bankruptcy on deductibility of non-capital losses.
Position TAKEN:
No change in control on an assignment in or discharge from bankruptcy.
Reasons FOR POSITION TAKEN:
Trustee is agent of the bankrupt per 128(2)(a).
Revenue Canada Round Table
Canadian Petroleum Tax Society
June 2, 1994
Question 23
Acquisition of Control - Implications in a Bankruptcy
An individual makes an assignment in bankruptcy. One of the assets which the individual owns and which is transferred to his Trustee in Bankruptcy is shares of a corporation which has non-capital losses carried forward and an active business operation. In the course of the individual's bankruptcy, the assets of the corporation are liquidated resulting in further non-capital losses being accumulated. After the individual's discharge from bankruptcy, the shares of the corporation are registered in the individual's name so that a new business can be carried on through the corporation, the income of which would be sheltered by the non-capital losses carried forward.
Are the non-capital losses carried forward from pre-bankruptcy years subject to the acquisition of control limitations contained in subsection 111(5) and are the non-capital losses generated during the period between the assignment in bankruptcy and the discharge from bankruptcy subject to the acquisition of control limitations in subsection 111(5) ?
Department's Position
The following, which was stated in our reply to question 57 of the Revenue Canada Round Table at the 1993 Canadian Tax Foundation Annual Conference, continues to be our position:
"Paragraph 128(2)(a) provides that a trustee in bankruptcy is deemed to be the agent of the bankrupt for all purposes of the Act. Therefore, there will be no change in control of the particular corporation in the above situation when the individual makes an assignment or is discharged from bankruptcy. As a result subsection 111(5) will not apply."
Author: D. Yuen
File: 941086
Date: June 6, 1994