Types of bankruptcy returns

• the pre-bankruptcy return, which comprises all the relevant tax information until the date of bankruptcy;

• the post-bankruptcy return, which includes all relevant tax information from the date of bankruptcy until the end of the year;

• the trustee's return, used for non incorporated businesses that are pursuing their activities at the date of bankruptcy under the supervision and control of a trustee in bankruptcy.

Usually, a trustee in bankruptcy is assigned the task of having the bankruptcy returns prepared. They remain his responsibility whether he does the work himself or hires another accountant or tax preparer to do it. However, the bankrupt taxpayer is often required to file the post-bankruptcy return.

The pre-bankruptcy return

1. Enter the keyword Bankruptcy and choose the option Pre-bankruptcy return among the choices available.

2. Use the keyword BankruptDate to enter the date of the bankruptcy and indicate whether you want that date printed in the top section of page 1 of the federal return.

   Note: Although many tax preparers prefer to have the bankruptcy date printed in that particular location, the CRA objects to this practice. Therefore, DT Max enables you to override this selection.

3. Enter the data for the pre-bankruptcy tax return, namely the income, losses, and deductions until the date of the bankruptcy.

The post-bankruptcy return

1. In the client's file, display the automatic carryforwards for the post-bankruptcy on the right-hand side.

2. Carryforwards from the pre-bankruptcy return will appear on the right-hand side within the Bankruptcy group. More specifically, you will be able to see the carryforward data with the keywords PreBank-Fed and PreBank-Que . These are amounts from the pre-bankruptcy return which will be necessary for purposes of the calculation of certain credits or deductions of the post-bankruptcy return.

3. Regular carryforwards (UCC, capital cost, etc.) may also be copied from the right-hand side of the screen.

4. After verifying the carryforwards, mark the data [F5] and copy it to the post-bankruptcy return [Alt+C].

5. Enter the data relevant to the post-bankruptcy return (income, losses, deductions from the date of bankruptcy up to the end of the year) which were not included in the trustee's return.

As an administrative policy, when the bankrupt taxpayer is not released from the bankruptcy or was released prior to completion of the assessment of the post-bankruptcy return, the CRA will eventually send to the trustee the tax refund resulting from that return, to the extent that the trustee was careful to include with the return the "Authorization and direction letter" signed by the bankrupt taxpayer. DT Max can generate this letter for trustees in bankruptcy. The "Bankrupt taxpayer identification form" is also generated whenever a bankruptcy return is calculated.

The trustee's return

1. Enter the keyword Bankruptcy and choose the option Trustee's return.

2. Report the income or losses pertaining to the property and business of the bankrupt taxpayer during the bankruptcy.

3. DT Max will calculate the return by cancelling the basic personal credits (basic amount, age amount, disability amount, etc).

4. No amount is automatically carried forward from a trustee's return. The amounts to carry forward from that return must be entered manually.

Non refundable tax credits

Personal tax credits such as the age and the disability amounts, as well as the transfers of unused credits are prorated by the number of days in the period for which the return is produced.

The pension income amount, the credit for charitable donations, the credit for medical expenses, and the tuition fees and education amounts will be based on the respective amounts pertaining to each period.

If there is a spouse and/or dependant...

If the spouse is not bankrupt, his/her return must be calculated with the post-bankruptcy return of the bankrupt taxpayer. Ensure that all information pertaining to the spouse is entered in the appropriate tax plan corresponding to the taxpayer's post-bankruptcy return. Enter the spouse's data for the entire year.

If the spouse is bankrupt as well, you can use the keyword Bankruptcy for both spouses.

Production requirements

The federal returns are addressed to the trustee. The option Identification in the Preferences menu allows you to enter the trustee's address as the alternate address of the tax preparer. If you must enter a different trustee number for a particular client, use the keyword Trustee-Num.

The returns prepared for bankrupt taxpayers cannot be filed electronically, except for the federal pre-bankruptcy return.

Carryforwards

If you wish to obtain carryforwards to the next year for the taxpayer's postbankruptcy return, please follow these steps :

1) Copy the pre-bankruptcy return in a plan (for ex. plan B)

2) Delete the pre-bankruptcy return's data from the current file (i. e. the production version)

3) Display plan A (i. e. the post-bankruptcy return) on the right-hand side of the screen

4) Mark the data on the right-hand side of the screen by using the F5 key

5) Copy the data on the left-hand side (Alt+C)

6) Recalculate (Alt+9) the return