Principal Issues: 1. Can a Canada Recovery Benefit (CRB) repayment under section 8 of the Canada Recovery Benefits Act (CRB Act) be deducted on a pre-bankruptcy return, given that its calculation must be made after the end of the calendar year (taking into account income earned in the post-bankruptcy taxation year)?
2. Does the wording “the amount was not deductible in computing the taxpayer’s income for any preceding taxation year” in paragraph 60(v.2) mean that if the CRB repayment amount is deductible in a pre-bankruptcy taxation year, it must be claimed in that taxation year even if this does not match the income inclusion with respect to the CRB received in the calendar year?
Position: 1. Yes.
2. Yes.
Reasons: 1. The text of paragraph 60(v.2) requires that the deduction of a CRB repayment calculated under section 8 of the CRB Act and payable on or before the balance-due day for the taxation year may be deducted provided that it was not deductible in a preceding taxation year. Any repayment required by section 8 of the CRB Act is considered payable on the balance-due day for the year. Therefore, income in a pre-bankruptcy taxation year may be reduced by a deduction under paragraph 60(v.2).
2. The text of paragraph 60(v.2) is clear that the deduction of a CRB repayment calculated under section 8 of the CRB Act and payable on or before the balance-due day for the taxation year may be deducted provided that it was not deductible in a preceding taxation year. There is no requirement that the CRB income be (or have been) included in income in order for a CRB repayment to be deductible. Therefore, it is our view that a deduction under paragraph 60(v.2) for a CRB repayment should always be claimed in the pre-bankruptcy taxation year.
May 26, 2023
Legislation Section HEADQUARTERS Common Tools and Support Division Income Tax Rulings Directorate IPRRD, ABSB Julia Clarkson
Attention: André Perrier
2023-096261
Paragraph 60(v.2) deduction for a bankrupt individual taxpayer
All statutory references in this document are to the Income Tax Act, R.S.C. 1985, (5th Suppl.) c.1, as amended (the Act), unless stated otherwise.
We are writing in reply to your email of February 3, 2023, and related correspondence in which you request our guidance on how to interpret the application of paragraph 60(v.2) to a bankrupt individual taxpayer that has two taxation years within a calendar year.
More specifically, as we understand it, you have requested our guidance on the following matters:
1. Can a Canada Recovery Benefit (CRB) repayment under section 8 of the Canada Recovery Benefits Act (CRB Act) be deducted on a pre-bankruptcy return, given that its calculation must be made after the end of the calendar year (taking into account income earned in the post-bankruptcy taxation year)?
2. Does the wording “the amount was not deductible in computing the taxpayer’s income for any preceding taxation year” in paragraph 60(v.2) mean that if the CRB repayment amount is deductible in a pre-bankruptcy taxation year, it must be claimed in that taxation year even if this does not match the income inclusion with respect to the CRB received in the calendar year?
Our comments
1. Deduction in the pre-bankruptcy taxation year
Subsection 128(2) provides that the year in which an individual becomes bankrupt consists of two separate taxation years. Subparagraph 128(2)(d)(ii) provides that the individual bankrupt’s last taxation year that began before the date of bankruptcy (the pre-bankruptcy year) is deemed to have ended immediately before that date. Conversely, subparagraph 128(2)(d)(i) provides that a taxation year (the post-bankruptcy year) is deemed to have begun at the beginning of the day on which the individual became bankrupt.
Section 60 states:
“There may be deducted in computing a taxpayer’s income for a taxation year such of the following amounts as are applicable
[…]
Canada Recovery Benefit Repayment(v.2) any benefit repayment payable by the taxpayer under section 8 of the Canada Recovery Benefits Act on or before the taxpayer’s balance-due day for the taxation year, to the extent that the amount was not deductible in computing the taxpayer’s income for any preceding taxation year;…”
Therefore, a deduction for a CRB repayment may be claimed by a taxpayer if all of the following conditions are met:
1. It is a result of the application of section 8 of the CRB Act.
2. It is payable on or before the taxpayer’s balance-due day for the taxation year.
3. It was not deductible in computing the taxpayer’s income for any preceding taxation year.
When the first condition is met for a calendar year, the second condition will always be met as the CRB repayment is deemed to be payable on the taxpayer’s balance-due day for that year under subsection 8(2) of the CRB Act.
Accordingly, income in a pre-bankruptcy taxation year may be reduced by a deduction under paragraph 60(v.2).
2. Matching deduction to income inclusion taxation year
In our view the text of paragraph 60(v.2) is clear that the deduction of a CRB repayment calculated under section 8 of the CRB Act and payable on or before the balance-due day for the taxation year may be deducted provided that it was not deductible in a preceding taxation year. There is no requirement that the CRB income be (or have been) included in income in order for a CRB repayment to be deductible.
As stated by the Supreme Court of Canada in paragraph 10 of the decision for The Queen v Canada Trustco Mortgage Company (2005 SCC 54), “When the words of a provision are precise and unequivocal, the ordinary meaning of the words play a dominant role in the interpretive process. On the other hand, where the words can support more than one reasonable meaning, the ordinary meaning of the words plays a lesser role.” We note that a textual interpretation was reflected in our view on how to calculate the CRB repayment. Therefore, it is our view that a deduction under paragraph 60(v.2) for a CRB repayment should always be claimed in the pre-bankruptcy taxation year.
When looking at the calendar year, which is the period covered by the pre-bankruptcy and post-bankruptcy taxation years of the bankrupt, under this interpretation the appropriate amount of CRB income would be taxed, being any portion that the taxpayer may have retained.
We trust these comments will be of assistance.
Unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency’s electronic library. After a 90-day waiting period, a severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. You may request an extension of this 90-day period. The severing process removes all content that is not subject to disclosure, including information that could reveal the identity of a taxpayer. You may ask for a version that has been severed using the Privacy Act criteria, which does not remove taxpayer identity. You can request this by e-mailing us at: ITRACCESSG@cra-arc.gc.ca.
Yours truly,
Gillian Godson
Manager
Specialty Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch