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Digest: Quebec (Revenue) v. Caisse populaire Desjardins de Montmagny

[2009] S.C.J. No. 49
2009 SCC 49

Court File No. 32486, 32489, 32492

Supreme Court of Canada

October 30, 2009
On appeal from the Court of Appeal for Quebec, [2007] J.Q. no 14712; [2007] J.Q. no 14713; [2007] J.Q. no 14564.

Insolvency -- Claims -- Priorities -- Claims by Crown -- In amending the Bankruptcy and Insolvency Act (BIA), the federal government intended to reduce the Crown to the rank of an ordinary creditor in bankruptcy situations -- The Quebec legislation respecting the QST did not contain a provision similar to the one of the Excise Tax Act that rendered the deemed trust in favour of the tax authorities ineffective in bankruptcy situations -- However, the provincial legislatures could not modify the order of priority established in the BIA -- The deemed trusts in favour of the Crown were terminated at the time of the bankruptcy -- Appeal dismissed.

Taxation -- Goods and Services Tax (GST) -- Collection and enforcement -- In amending the Bankruptcy and Insolvency Act (BIA), the federal government intended to reduce the Crown to the rank of an ordinary creditor in bankruptcy situations -- The Quebec legislation respecting the QST did not contain a provision similar to the one of the Excise Tax Act that rendered the deemed trust in favour of the tax authorities ineffective in bankruptcy situations -- However, the provincial legislatures could not modify the order of priority established in the BIA -- The deemed trusts in favour of the Crown were terminated at the time of the bankruptcy -- Appeal dismissed.

Taxation -- Sales and service taxes -- Enforcement -- Collection -- Quebec Sales Tax -- In amending the Bankruptcy and Insolvency Act (BIA), the federal government intended to reduce the Crown to the rank of an ordinary creditor in bankruptcy situations -- The Quebec legislation respecting the QST did not contain a provision similar to the one of the Excise Tax Act that rendered the deemed trust in favour of the tax authorities ineffective in bankruptcy situations -- However, the provincial legislatures could not modify the order of priority established in the BIA -- The deemed trusts in favour of the Crown were terminated at the time of the bankruptcy -- Appeal dismissed.

Appeal by the Canadian and Quebec tax authorities of a decision of the Quebec Court of Appeal allowing the appeal of the trustees in bankruptcy of certain businesses and financial institutions holding various security interests in the property of the bankrupts. The parties disagreed about what should be done with taxes on consumption that had been collected but not remitted, or were collectible, as of the date of the bankruptcy. The tax authorities submitted that they were entitled to the amounts in issue as the owners thereof, as opposed to creditors. In their opinion, the trustee collected the taxes on their behalf, as their mandatary, and these amounts were not part of the bankrupt’s patrimony. The respondents contended that, under the law applicable in bankruptcy matters, the federal or provincial Crown was only an ordinary creditor and had to be ranked as such with the debtors’ other creditors. The financial institutions submitted that their security interests could be set up against the Crown as against any ordinary creditor. The Quebec Superior Court found for the Crown. The Quebec Court of Appeal set aside the judgments and accepted the arguments of the trustees and financial institutions.

HELD: Appeal dismissed. In amending the Bankruptcy and Insolvency Act (BIA), the federal government intended to reduce the Crown to the rank of an ordinary creditor in bankruptcy situations. The Quebec legislation respecting the QST did not contain a provision similar to s. 222(1.1) of the Excise Tax Act that rendered the deemed trust in favour of the tax authorities ineffective in bankruptcy situations. However, according to a settled principle of constitutional law regarding the Parliament of Canada’s legislative authority over bankruptcy and insolvency, the provincial legislatures could not modify the order of priority established in the BIA. The tax authorities’ position amounted to maintaining that the deemed trusts established by tax legislation continued to exist after a bankruptcy. This argument was inconsistent with the nature of their rights under the system for the collection and remittance of the GST and QST. It also conflicted with Parliament’s clear intent and with the very explicit wording of the relevant statutory provisions regarding what was to happen if a supplier went bankrupt. The deemed trusts in favour of the Crown were terminated at the time of the bankruptcy.

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