Canada: Secured Creditors Beware: Crown GST/HST Garnishment MayTrump Your Security Interest In An Account Receivable


9161-3505 Quebec Inc. ("9161") maintained a bank account with Toronto-Dominion Bank ("TD"). The bank account had a positive balance, resulting in the creation of a creditor-debtor relationship between 9161 and TD. 9161 was in arrears of GST/HST under the Excise Tax Act (Canada) (the "ETA") during the relevant period of time.

The Crown issued a Requirement to Pay to TD pursuant to subsection 317 of the ETA. Where a taxpayer is in arrears of GST/HST, section 317(3) of the ETA permits the Crown to deliver a Requirement to Pay to any party that the Crown has knowledge or suspects is, or will become within one year, liable to make a payment to the taxpayer or to a secured creditor who has a right to receive a payment that, but for a security interest, would be payable to the taxpayer.

The Requirement to Pay requires the account debtor to pay the money otherwise payable to the taxpayer or the secured creditor to the Crown. Section 317(3) states that upon receipt of the Requirement to Pay, the amount of money payable becomes the property of the Crown, despite any security interest in the money. Section 317(3) further states that it operates despite any other legislation of Canada other than the Bankruptcy and Insolvency Act (the "BIA"), among other things. If the account debtor fails to remit the amount under the Requirement to Pay, the Crown may personally assess the recipient for payment of the amount.

Following the issuance and receipt of the Requirement to Pay, 9161 filed a notice of intention to make a proposal under the BIA. The proposal trustee sent a notice to TD to stay payment of the Requirement to Pay pursuant to section 69 of the BIA. TD did not pay the amount under the Requirement to Pay to the Crown prior to, or following, the commencement of the proposal proceeding. As a result of the failure to pay, the Crown assessed TD personally, which assessment was objected to by TD. TD's objection was dismissed by the Tax Court of Canada. TD appealed that decision to the Federal Court of Appeal.

TD argued before the Federal Court of Appeal that, as it had not made payment as of the date when 9161 commenced proposal proceedings, the Requirement to Pay was ineffective as a result of section 70(1) of the BIA. Section 70(1) of the BIA provides that a bankruptcy takes precedence over all garnishments and executions against the property of the bankrupt, except for garnishments and executions that had been completely executed by payment prior to the bankruptcy. TD relied on the decision of the Quebec Court of Appeal in Sous-ministre du Revenu du Québec, where the Quebec Court of Appeal had held that section 70(1) of the BIA took priority over a Requirement to Pay under a Quebec statute analogous to the ETA that had been delivered prior to the commencement of a bankruptcy proceeding, as it had not been satisfied as of the date of the commencement of the proceeding.

The Quebec Court of Appeal also held that for the Crown's right of ownership to prevail, payment would have to have been made by the account debtor prior to the proceeding.


Justice Noël of the Federal Court of Appeal considered the relevant provisions of the BIA and ETA and reviewed Supreme Court of Canada and various appellate decisions that dealt with the interaction of the two statutes and the relevant sections. Justice Noël held that the effect of section 317(3) of the ETA is to transfer ownership to the Crown of the moneys subject to the Requirement to Pay on receipt by the account debtor. Justice Noël further held that reference to the BIA in section 317(3) of the ETA was not intended to give precedence to the BIA in the event of conflict between the two statutes, but to confirm that the Crown cannot use its power to issue Requirements to Pay after bankruptcy proceedings had been initiated against the taxpayer. Justice Noël did not follow the analysis of the Quebec Court of Appeal, but rather agreed with the analysis of the Supreme Court of Canada, the Ontario Court of Appeal and other courts.

As a result of the decision of Justice Noël, as accepted by the Supreme Court of Canada, it is clear that, once a Requirement to Pay is received by an account debtor, any funds it owes to the taxpayer becomes the property of the Crown, even if the taxpayer subsequently enters into bankruptcy proceedings and even if the account debtor did not make payment to the Crown at the time of the commencement of the bankruptcy proceedings.

This case should serve as a warning to secured creditors that have security over the accounts receivable of its borrowers, especially lenders that have provided asset-based financing that relies upon the collectability of the borrower's accounts receivable. Secured creditors should carefully monitor situations where their borrowers are in financial difficulty and may have significant GST/HST arrears owing, as large accounts receivables that the secured creditor intends to collect to satisfy its loans may become uncollectable if the Crown issues a Requirement to Pay to the account debtor prior to the commencement of any bankruptcy proceeding. As a result, secured creditors may need to move quickly to commence insolvency proceedings before the Crown can issue Requirements to Pay to account debtors.

About BLG

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions