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 clearance certificate should be issued to trustee in bankruptcy
Position: no
Reasons: not necessary and could be misleading
November 23, 1999
Calgary Tax Services Office Income Tax Rulings and Interpretations Directorate Attention: Susanna Moretta T. Harris Estates & Trusts (613)957-2114 Verification & Enforcement Division 7-992991
Re: Subsection 159(2) - Clearance Certificate
We are writing in response to your memorandum of November 9, 1999 wherein you requested our opinion concerning clearance certificates under subsection 159(2) of the Income Tax Act (the "Act") in the case of a trustee in bankruptcy.
Subsection 159(2) requires that every person (other than a trustee in bankruptcy) who is an assignee, liquidator, receiver, receiver-manager, administrator, executor or any other like person must request and obtain a clearance certificate before distributing property under his control.
Under subsection 159(3) the person who distributes property under his control without obtaining a certificate pursuant to subsection 159(2) is personally liable for unpaid taxes, interest and penalties to the extent of the value of the property distributed.
Subsection 248(1) of the Act defines a "legal representative" of a taxpayer to include a trustee in bankruptcy. Consequently, to ensure that a trustee in bankruptcy was not subject to the provisions of subsections 159(2) and (3) of the Act, it was necessary to include the expression "(other than a trustee in bankruptcy)" in those provisions. We, therefore, confirm your interpretation that a trustee in bankruptcy is not required to obtain a clearance certificate under subsection 159(2) prior to making a distribution of property under the trustee's control. Similarly, a trustee in bankruptcy would not be subject to personal liability under subsection 159(3) of the Act.
You have also inquired whether a clearance certificate should be granted under subsection 159(2) to a trustee in bankruptcy if the trustee were to request one. In our view a clearance certificate should not be issued to a trustee in bankruptcy since to do so would serve no purpose. The purpose for obtaining a clearance certificate under subsection 159(2) is to protect the legal representative from any personal liability under subsection 159(3) of the Act for unpaid taxes. Since a trustee in bankruptcy has no personal liability under subsection 159(3) there is no purpose to issuing such a certificate. Furthermore, the issue of such a certificate may be misleading. In the case of a bankruptcy, paragraphs 128(1)(e) and 128(2)(e) set out the liability of the trustee in bankruptcy for any unpaid taxes. A certificate issued pursuant to subsection 159(2) would have no affect on the liability of the trustee under these provisions.
You have also asked us whether the comments in a memorandum dated July 16, 1992 reflects the current position relating to clearance certificates. Since the memo to which you refer was prepared by the Audit Directorate, we believe that they would be in a better position to answer your inquiry on this matter. We have therefore forwarded a copy of your request on this matter for their reply.
We trust that our comments will be of assistance.
for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
P.S.: For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Department's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version or they may request a copy severed using the Privacy Act criteria which does not remove client identity. Requests for this latter version should be made by you to Jackie Page at (819)994-2898. The severed copy will be sent to you for delivery to the client.
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