Supreme Court Affirms Crown as Ordinary Creditor

On October 30, 2009, the Supreme Court of Canada released its decision in Quebec (Revenue) v. Caisse Populaire Desjardins de Montmagny. The case involved a number of businesses which had gone bankrupt and had failed to remit GST and QST (Quebec Sales Tax) they had collected prior to going bankrupt. The Crown sought to collect the unremitted tax from the trustee-in-bankruptcy, who refused the request. The issue before the Supreme Court was whether collected but unremitted GST and QST is part of the bankrupt’s estate or whether it is property of the Crown.

The Supreme Court examined the legislative history of the Bankruptcy and Insolvency Act and found that it had been amended in 1992 to remove provisions which gave the Crown priority over other creditors. The Supreme Court then referred to the Excise Tax Act, which states that the deemed trust provisions within it cease to apply when the supplier becomes bankrupt. Finally, the Supreme Court examined the legal characteristics of the Crown’s rights and rejected its argument that collected but unremitted GST or QST is property of the Crown and affirmed the decision of the Quebec Court of Appeal.