Canada: The Taxman Cometh: CRA Priorities In Insolvency Proceedings

Last Updated: September 11 2015
Article by Robin Aitken, Sean Glover, Caitlin Mahoney, Jay R. Phinney and Mark A. Russell

Courts and lawmakers often refer to Canada Revenue Agency ("CRA") as an involuntary creditor when businesses fail to make required tax payments to the governmental authority. The timely collection of taxes and payroll deductions also plays a fundamental role in the financing of government. Accordingly, federal statutes give CRA significant and powerful status, rights and remedies to assist in collecting amounts owing from tax debtors. CRA can in many cases claim priority over the property of the tax debtor against other creditors. Lenders, trustees in bankruptcy, other creditors and their respective lawyers require an understanding of CRA priority rights to effectively manage an insolvency, security enforcement or debt collection proceeding. This newsletter focuses on CRA's rights to assert claims against a debtor's property.

Generally, there are three main amounts that a tax debtor may owe to CRA: (1) corporate income tax; (2) employee source deductions for income tax, employment insurance and Canada Pension Plan amounts; and (3) GST/HST collected. While the most powerful collection remedies have been assigned to the recovery of source deductions and GST/HST, each of the three main amounts requires consideration.

CRA as Secured Creditor

Amounts owing for corporate income tax, penalties and interest (including penalties and interest on source deductions and GST/HST) are typically unsecured claims, ranking equal with all other general creditors of a debtor. However, CRA has the ability to obtain a lien or charge against the real property and personal property of a debtor by filing the appropriate documents in the applicable registries. By doing so, CRA will be treated as a secured creditor for those claims.

When a tax debtor owes CRA money, applicable federal law permits CRA to "certify" the amount owing in a certificate. The certificate can then be registered in the Federal Court. The registered certificate is referred to as a "memorial." The memorial may then be registered in a province's land title system or personal property security registry to create a lien in favour of CRA on the tax debtor's real property or personal property, respectively. By this method, CRA can convert its otherwise unsecured debt claim to a secured claim against all of the property of a debtor.

Note that this process does not create a "running" charge – the lien created will only secure the amounts that were the subject of the certificate. If the debtor incurs further debt to CRA, a new certificate, memorial and registrations for those amounts would be required to obtain the benefit of the lien.

The priority of CRA's lien for certificated amounts is based on first-in-time principles. Any creditor that has taken all steps necessary to perfect its security interest before CRA registers a certificate in the land registry or personal property registry will have priority over CRA's claims.

Deemed Trust and Deemed Trust Lien

As alluded to above, the recovery of source deductions and GST/HST has been enhanced by the imposition of statutory deemed trusts for these amounts. There are two elements to the deemed trust remedy. Firstly, any person who is required to deduct or withhold source deductions, or collect GST/HST, is deemed to hold that amount in trust for Her Majesty, separate and apart from all other property of the person and in priority to all secured creditors. Secondly, where any amounts are owed for source deductions or GST/HST, property of the tax debtor equal to that amount is deemed to be held in trust for Her Majesty, again in priority to all secured creditors (subject to the exceptions discussed below). This is commonly referred to as a deemed trust lien. The priority of the deemed trust and the deemed trust lien operates even if a creditor has properly perfected its security interest before a deemed trust arises. This intrusive nature of the deemed trust greatly impacts the recovery options available to lenders and other creditors on enforcement.

However, the super-priority of the deemed trust lien is subject to "prescribed security interests," which are defined as mortgage security against real property. The amount of a creditor's prescribed security is subject to a calculation that considers payments received by the secured creditor after the debtor failed to pay CRA and the value of any collateral security, such as personal property security or guarantees, held by the secured creditor. The exact calculation of the prescribed security interest is often an issue between CRA and a secured creditor holding a mortgage.

The bankruptcy of the tax debtor will also eliminate the deemed trust for GST/HST. Encouraging the debtor to make an assignment into bankruptcy, or obtaining a bankruptcy order against the debtor, is often a worthwhile tactic for a secured creditor where the debtor owes a large amount of GST/HST.

Practical Tips for Creditors

Information - as early as possible - is the key to understanding the potential CRA exposure and to managing any super-priority issues. The nature and quantum of amounts owing to CRA will often dictate what type of enforcement proceeding a creditor should choose to recover a debt. Contact with the appropriate CRA representative should be made as quickly as possible.

Lenders should consider obtaining consents from the borrower authorizing CRA to release information to the lender at the time a loan is first being placed. This will allow regular monitoring of CRA account balances and avoid any roadblocks to getting information at the onset of insolvency.

While the priority rules surrounding CRA amounts can be disruptive, a creditor armed with sufficient information and sound legal advice will be in the best position to manage CRA priorities and realize the highest recovery possible in a commercial insolvency.

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.

Robin Aitken
Sean Glover
Jay R. Phinney
In association with
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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.