The Taxman Cometh: How Receivers And Trustees Can Avoid Tax Liability

When determining whether a distribution of property should be made, the tax consequences not only for the taxpayer, but also for its legal representatives, must be considered. Failing to properly analyze the tax implications of a distribution can expose trustees (including both trustees in bankruptcy and proposal trustees) and receivers to liability for the taxpayer's obligations.

Legal Representatives

Subsection 248(1) of the Income Tax Act (Canada) (the "ITA") provides a broad definition of "legal representative". A legal representative of a taxpayer is defined to include, among others, trustees and receivers of any kind who deal in a representative or fiduciary capacity with property that belongs or belonged to the taxpayer. Accordingly, both privately-appointed and court-appointed receivers are captured by this definition.