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GOODS AND SEVICES TAX (GST) - Collection and remittance - Deemed trust

Tuesday, July 17, 2018 @ 9:58 AM  


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Application by the Crown for money that a bank received from a customer in payment of a loan secured by a mortgage. The customer collected but failed to remit GST. The bank granted him a mortgage secured upon his house, without being aware of the GST debt. He sold the house and paid the mortgage from the proceeds of the sale. The Crown sought payment from the bank on the basis of the deemed trust mechanism of the Excise Tax Act (ETA). The bank said that it was a bona fide purchaser for value.

HELD: Application allowed. The Act imposed an obligation on the bank to repay the money to the Crown and excluded the defence of bona fide purchaser for value. The money obtained by the customer for the sale of the house constituted “proceeds” of property that was the subject matter of the deemed trust. The customer had an obligation to pay the tax debt with the money, but repaid the bank, a secured creditor, instead. The bank therefore had to repay the money to the Crown. The defence of bona fide purchaser for value could not be invoked by a secured creditor in the context of the deemed trust of the ETA. Parliament chose to disregard the proprietary interests of secured creditors and grant the Crown an absolute priority.

Canada v. Toronto-Dominion Bank, [2018] F.C.J. No. 612, Federal Court, S. Grammond J., May 25, 2018. Digest No. TLD-July162018003