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Bankruptcy Returns

Updated: 2023-02-20

In TaxCycle T1, you can prepare three types of bankruptcy returns for individuals: 

  • Pre-bankruptcy—Return for the period from January 1st up until the day before the date of bankruptcy. Many non-refundable tax credits are prorated to the number of days in this period.
  • In-bankruptcy—For reporting income from liquidated assets (for example, RRSPs) or from businesses wound up for the benefit of creditors.
  • Post-bankruptcy—Return for the period from the date of bankruptcy until December 31st. 

Set up trustee information

To set up trustee's information:

  1. To open options, go to the File menu, then Options. Or, if you are on the Start screen, click Options in the blue bar on the left. The settings below are accessible from section on the left-hand side of the Options dialog box.
  2. On the left, expand the Organization section and click on Trustee. 
  3. Complete the information on this screen, including the Organization and License numbers. Check the check boxes if you want to use the same details as the preparer's address and contact information (you can set these in the Preparer section).

Once you change these settings, they will be automatically inserted into the Engagement form when you create a new return. They then flow to the DC905 from there. 

DC905 Bankruptcy Identification Form

If you are the Trustee for someone filing for bankruptcy, you must complete the DC905 as soon as you receive the taxpayer's estate number.

Do not include this form to any of the T1 tax returns.

TaxCycle includes the DC905 to make it easy for you to fill out. It auto-completes the taxpayer's information from the Info form and the trustee's information from the Engagement form.

Specifying the date of bankruptcy and type of return

TaxCycle uses the date and type of bankruptcy entered on the Info form to calculate the number of days in the period for the return type, so as to pro-rate relevant amounts on the Bankruptcy worksheet.

  1. Open the Info form.
  2. Scroll down to the Credits section.
  3. Enter the date of bankruptcy. 
  4. Select the Type of return: Pre-bankruptcy, In-bankruptcy or Post-bankruptcy.
  5. If the file has already been saved, TaxCycle will suggest renaming the file to include the bankruptcy type.

     

    Specifying the date of bankrupty return

Preparing a pre-bankruptcy return

  1. Enter the date of bankruptcy at the top of the Bankruptcy worksheet. This information is shared with the bankruptcy fields on the Info worksheet.
  2. Select Pre-Bankruptcy as the Type of return.
  3. Enter amounts, slips information for the pre-bankruptcy period using the same TaxCycle forms and worksheets for regular returns.
  4. On the Bankruptcy worksheet, amounts relevant to the pre-bankruptcy return will appear in the first column. The number of days in the period appear at the top of the column.
  5. TaxCycle automatically pro-rates the allowed non-refundable tax credits for the pre-bankruptcy period. 
  6. Many fields in the in-bankruptcy and post-bankruptcy columns remain editable, so you add in amounts as needed to use in calculations or trigger review messages. However, certain sections for items subject to pro-ration between the pre- and post-taxation years, or those wholly applicable to each taxation year cannot be edited. 
  7. When you save a new pre-bankruptcy return, TaxCycle adds pre-bankruptcy to the file name so that it is easy to distinguish between the bankruptcy return types.
  8. Pre-bankruptcy returns are eligible for T1 EFILE. Read the T1 EFILE help topic to learn how.

Pre-bankruptcy return

Preparing a post-bankruptcy return

  1. Create a new tax return.
  2. Enter the date of bankruptcy at the top of the Bankruptcy worksheet.
  3. Select Post-Bankruptcy as the Type of return.
  4. Enter amounts, slips information from the post-bankruptcy period using the same TaxCycle forms and worksheets for regular returns.
  5. On the Bankruptcy worksheet, amounts relevant to the post-bankruptcy return will appear in the third column. The number of days in the period appear at the top of the column.
  6. Open the pre- and in-bankruptcy returns you already prepared. Copy applicable amounts from those returns into the relevant column on the Bankruptcy worksheet in the post-bankruptcy return. However, certain sections for items subject to pro-ration between the pre- and post-taxation years, or those wholly applicable to each taxation year cannot be edited. 
  7. When you save a new post-bankruptcy return, TaxCycle suggests renaming the file by adding post-bankruptcy to the file name so that it is easy to distinguish between the bankruptcy return type Post Bankruptcy
  8. You must paper-file post-bankruptcy returns. TaxCycle will indicate that you need to paper-file the return.

Paper file bankruptcy