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 pay equity payment has to be reported on the "in-bankruptcy" return filed by the trustee in bankruptcy or the "post-bankruptcy" return filed by the individual where the payment is made while an individual is still bankrupt.
Position: The pay equity payment should be report on the post-bankruptcy return.
Reasons: Although the pay equity settlement is received by the trustee, paragraph 128(2)(a) deems the trustee to be the agent of the bankrupt for purposes of the Act. Further, the income for purposes of the in-bankruptcy return filed by the trustee under paragraph 128(2)(e) is to be calculated as if the only income of the individual for the particular taxation year were the income for the year, if any, "arising from dealings in the estate of the bankrupt or acts performed in the carrying on of the business of the bankrupt by the trustee."
September 19, 2000
Saskatoon Tax Services Office HEADQUARTERS Client Services J. Gibbons Individual Enquiries (613) 957-2135
Attention: Barbara Laybourne
2000-003464
Pay Equity Payments - Which Bankruptcy Return?
We are replying to your facsimile dated June 28, 2000, in which you requested our views on whether a pay equity payment has to be reported on the "in-bankruptcy" return or the "post-bankruptcy" return? You described the following situations:
Situation 1
The individual became bankrupt in September 1999. A pay equity payment made in April 2000 was claimed and received by the Trustee in bankruptcy as an asset of the estate of the bankrupt.
Situation 2
The individual became bankrupt in February 2000. A pay equity payment made in April 2000 was claimed and received by the Trustee in bankruptcy as an asset of the estate of the bankrupt.
Our Views
In the calendar year in which an individual becomes bankrupt, a number of income tax returns must be filed by, or on behalf of, the individual:
- a return to be filed for the taxation year that ends on the day before the bankruptcy (the "pre-bankruptcy return");
- a return to be filed under paragraph 128(2)(e) by the trustee in bankruptcy with respect to certain income of the estate and business for each taxation year ending in the calendar year; (the "in-bankruptcy return") and
- a separate return to be filed under paragraph 128(2)(f) by the individual for the taxation year that begins on the day of bankruptcy (the "post-bankruptcy return").
For each subsequent calendar year during which the individual is bankrupt, the trustee and the individual must continue to file income tax returns in respect of the income of the individual. That is, the trustee must file in-bankruptcy returns and the individual must file post-bankruptcy returns.
In the situations described in your letter, pay equity payments were received by the trustee after the date of bankruptcy. The trustee has indicated that the right to the pay equity payment belongs to the trust. While it is not the Agency's responsibility to determine the rightful owner of a bankrupt's property, it seems that the pay equity payments received by the trustee, in both of the situations described, should be reported by the bankrupt on the post-bankruptcy for 2000. In this regard, we note that, although the pay equity settlement is received by the trustee, paragraph 128(2)(a) deems the trustee to be the agent of the bankrupt for purposes of the Act. Further, the income for purposes of the in-bankruptcy return filed by the trustee under paragraph 128(2)(e) is to be calculated as if the only income of the individual for the particular taxation year were the income for the year, if any, "arising from dealings in the estate of the bankrupt or acts performed in the carrying on of the business of the bankrupt by the trustee." Thus, we are inclined to the view that income from a pay equity settlement cannot be included on the in-bankruptcy return.
John Oulton
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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