[2018] 4 F.C.R. D-9
Customs and Excise
Excise Tax Act
Action by plaintiff seeking to recover money that defendant received from customer in payment of loan secured by mortgage — Customer, business owner, collecting but failing to remit GST — Defendant granting customer home equity line of credit, mortgage secured upon customer’s house — Defendant not aware of customer’s GST debts — Customer later selling house, fully repaying outstanding debt of line of credit, mortgage — Defendant not enforcing its securities against customer, discharging security interests against house — Canada Revenue Agency (CRA) issuing demand letter to defendant seeking payment of $67 854 on basis of deemed trust mechanism pursuant to Excise Tax Act, R.S.C., 1985, c. E-15 (ETA), s. 222 with respect to customer’s failures to remit GST — Defendant refusing to pay amount — Main issues whether s. 222 imposing on defendant obligation to repay amount received from customer, whether defendant may assert, in defence, that it is bona fide purchaser for value of money received from customer, whether defendant no longer secured creditor when obligation to pay triggered — Defendant having statutory obligation to repay money to plaintiff — Amounts paid by customer to defendant “proceeds” of sale of his property, which was subject of deemed trust — ETA, s. 222, Income Tax Act, R.S.C., 1985 (5th Supp), c. 1 (ITA), s. 227 similar, both establishing deemed trust, delineating what property subject to it — Both also creating obligation (“statutory obligation”) to pay proceeds of trust property to Receiver General — Word “proceeds” usually understood in broader sense, not limited to proceeds of forced sale or realization of security interests — Phrase “the proceeds of the property shall be paid to the Receiver General” in ETA, s. 222(3) encompassing proceeds flowing from voluntary sale of tax debtor’s property — Upon such sale, tax debtor having obligation to pay proceeds to Receiver General — If tax debtor failing to do so, paying secured creditor instead, that creditor having obligation to repay money to plaintiff — Money obtained by customer in consideration for transfer of house to third party constituting “proceeds” of property being subject matter of deemed trust — Customer having obligation to pay his tax debt with that money — Defence of bona fide purchaser for value cannot be invoked by secured creditor in context of deemed trust of ETA, ITA — Supreme Court foreclosing that possibility in First Vancouver Finance v. M.R.N., 2002 SCC 49, [2002] 2 S.C.R. 720 — Supreme Court therein not creating statutory version of defence of bona fide purchaser for value entirely independent from its equitable counterpart — Nothing in First Vancouver suggesting that Supreme Court relying on something other than equitable defence — Defence of bona fide purchaser for value not limited to “purchasers” who obtain property through contract of sale — 1998, 2000 amendments to ITA, ETA deemed trust provisions based on premise that secured creditor cannot invoke bona fide purchaser for value defence when enforcing its security or receiving payment from its debtor — If that defence available, secured creditors would almost always be able to invoke it to defeat mechanism of deemed trust — Secured creditors often unaware of existence of tax debt when receiving a payment — Immaterial that customer voluntarily paid debt to defendant, rather than defendant realizing upon its security — Supreme Court’s comments in First Vancouver with respect to crystallizing events applying to both deemed trust, statutory obligation imposed on third parties receiving “proceeds” of trust property —Statutory obligation inextricably linked to deemed trust — No basis in wording of ETA, s. 222 for distinction — Defendant’s loss in this case result of operation of rules establishing priorities among creditors, not attempt of one creditor to expropriate other — Action allowed.
Canada v. Toronto-Dominion Bank (T-1834-15, 2018 FC 538, Grammond J., judgment dated May 25, 2018, 27 pp.)