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Bankruptcy and taxes on capital gains/income.

When a bankrupt’s assets are liquidated how are the capital gains and accumulated income taxed? Are they included in the pre-bankruptcy return filed by the trustee or the post-bankruptcy return?

If the bankrupt is the sole owner of a CCPC what happens to the tax liabilities of the corporation when the trustee assumes control? At that point how are shareholder loans treated? As debt of the bankrupt or taxable distribution to the bankrupt?

And how does the bankrupt treat the transfer of ownership? As a tax-free sale of shares or taxable liquidation? Again are the tax liabilities included in the pre or post bankruptcy return?

One Response to “Bankruptcy and taxes on capital gains/income.”

A licensed trustee said...

You are obviously a financially sophisticated person – you should be speaking to your tax accoutant or lawyer regarding these matters. If they can’t help you then I suggest you go and speak to a trustee directly.

The short answer is the cap gains etc are the trustee’s problem to worry about, not the bankrupts. In regards to the corporate obligations they remain intact in so far as the corporation is concerned.

The transfer is a little trickier – the shares of the corp vest with the trustee and therefore it will depend on the form that any sale/transfer takes.

Again, contact your tax accountant or lawyer – this is not the sort of information you should be looking for on a free website…