FMC's Roger Simard presents the 2008 Annual Review of insolvency law discussing the Income Tax Act and relevant cases.

1. Annual Review of Insolvency Law 2008
Presented by Roger P. Simard
February 13, 2009
Banff, Alberta
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2. The Federal enhanced deemed trust:
a new source of liability for financial
institutions ?
Jacob S. Ziegel
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3. “ferociously complex body of
jurisprudence”
Jacob S. Ziegel
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4. Janis Sarra
Professor and Director National Centre for Business Law
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5. 8 minutes
Last speaker of
the day
Friday the 13th

6. Fully tax deductible
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7. 227. Income Tax Act
(4) [Trust for moneys deducted] Every person who deducts or withholds an amount
under this Act is deemed, notwithstanding any security interest (as defined in
subsection 224(1.3)) in the amount so deducted or withheld, to hold the amount
separate and apart from the property of the person and from property held by any
secured creditor (as defined in subsection 224(1.3)) of that person that but for the
security interest would be property of the person, in trust for Her Majesty and for
payment to Her Majesty in the manner and at the time provided under this Act.
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8. 227. Income Tax Act
(4.1) [Extension of trust] Notwithstanding any other provision of this Act, the
Bankruptcy and Insolvency Act (except sections 81.1 and 81.2 of that Act), any other
enactment of Canada, any enactment of a province or any other law, where at any
time an amount deemed by subsection (4) to be held by a person in trust for Her
Majesty is not paid to Her Majesty in the manner and at the time provided under
this Act, property of the person and property held by any secured creditor (as
defined in subsection 224(1.3)) of that person that but for a security interest (as
defined in subsection 224(1.3)) would be property of the person, equal in value to
the amount so deemed to be held in trust is deemed
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9. 227. Income Tax Act
(a) to be held, from the time the amount was deducted or withheld by the person,
separate and apart from the property of the person, in trust for Her Majesty
whether or not the property is subject to such a security interest, and
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10. 227. Income Tax Act
(b) to form no part of the estate or property of the person from the time the
amount was so deducted or withheld, whether or not the property has in fact been
kept separate and apart from the estate or property of the person and whether or
not the property is subject to such a security interest
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11. 227. Income Tax Act
and is property beneficially owned by Her Majesty notwithstanding any security
interest in such property and in the proceeds thereof, and the proceeds of such
property shall be paid and to the Receiver General in priority to all such security
interests.
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12. 224. Income Tax Act
(1.2) Notwithstanding any other provision of this Act, the Bankruptcy and
Insolvency Act, any other enactment of Canada, any enactment of a province or any
law, but subject to subsections 69(1) and 69.1(1) of the Bankruptcy and Insolvency
Act and section 11.4 of the Companies’ Creditors Arrangement Act, where the
Minister has knowledge or suspects that a particular person is, or will become
within one year, liable to make a payment
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13. 224. Income Tax Act
• (a) to another person (in this subsection referred to as the “tax debtor”) who is
liable to pay an amount assessed under subsection 227(10.1) or a similar provision,
or
• (b) to a secured creditor who has a right to receive the payment that, but for a
security interest in favour of the secured creditor, would be payable to the tax
debtor,
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14. 224. Income Tax Act
the Minister may in writing require the particular person to pay forthwith, where
the moneys are immediately payable, and in any other case as and when the
moneys become payable, the moneys otherwise payable to the tax debtor or the
secured creditor in whole or in part to the Receiver General on account of the tax
debtor’s liability under subsection 227(10.1) or the similar provision, and on receipt
of that requirement by the particular person, the amount of those moneys that is
so required to be paid to the Receiver General shall, notwithstanding any security
interest in those moneys, become the property of Her Majesty to the extent of that
liability as assessed by the Minister and shall be paid to the Receiver General in
priority to any such security interest.
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15. 224. Income Tax Act
• (1.3) In subsection 224(1.2),
• "secured creditor"
– «créancier garanti » "secured creditor" means a person who has a security interest in
the property of another person or who acts for or on behalf of that person with respect
to the security interest and includes a trustee appointed under a trust deed relating to a
security interest, a receiver or receiver‐manager appointed by a secured creditor or by a
court on the application of a secured creditor, a sequestrator or any other person
performing a similar function;
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16. 224. Income Tax Act
• "security interest"
– «garantie » "security interest" means any interest in property that secures payment or
performance of an obligation and includes an interest created by or arising out of a
debenture, mortgage, hypothec, lien, pledge, charge, deemed or actual trust,
assignment or encumbrance of any kind whatever, however or whenever arising,
created, deemed to arise or otherwise provided for;
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17. 224. Income Tax Act
• "similar provision"
– «disposition semblable » "similar provision" means a provision, similar to subsection
227(10.1), of any Act of a province that imposes a tax similar to the tax imposed under
this Act, where the province has entered into an agreement with the Minister of Finance
for the collection of the taxes payable to the province under that Act.
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19. February 29, 2008
$26,863.53
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20. 20

21. Caisse Populaire Desjardins de l’Est de
Drummond, aux droits de la Caisse
populaire du Bon conseil
v. Her Majesty the Queen in Right of
Canada
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22. Caisse populaire Desjardins
de l’Est de Drummond
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23. Caisse populaire Desjardins
de Drummondville
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24. 31771
Caisse Populaire Desjardins de Drummondville c. Banque
Nationale de Grèce (Canada)
Leave denied
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25. 25

26. The Honourable Mr. Justice
Frank Iacobucci
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27. The Floating Charge Analogy
• Similar in principle to a floating charge
• Similarly, property which the tax debtor disposes of is thereby released
from the deemed trust. This mutuality of treatment between incoming and
outgoing property relating to the deemed trust is supported by both the
plain language of the provisions as well as their purpose and intent.
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28. A Priority on the Property of the Tax Debtor
• It is apparent from these changes that the intent of Parliament when
drafting ss. 227(4) and 227(4.1) was to grant priority to the deemed trust
in respect of property that is also subject to a security interest (…)
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29. Federal Court of Appeal
• National Bank of Canada cases
‘‘The only property that may be immune to it is property that
the tax debtor alienates in the normal course of its business’’
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30. Roger P. Simard
roger.simard@fmc‐law.com
514 878 5834