A deemed trust is an arrangement whereby a business acts as a third party that holds monies on behalf of another. The harmonized sales tax or goods and services tax amounts that a business collects from its customers are deemed trust amounts to be remitted later to the Canada Revenue Agency.
These amounts must be held "separate and apart" from other funds used in the ordinary course of business. Companies are then obligated to remit these amounts to the CRA during the reporting period of the business.
The consequences for failing to submit the amounts can be severe. The CRA has the right to demand the full amounts owing and any interest and penalties that may apply.
In cases of continued failure to remit these payments, the CRA may take the following actions against the defaulting business:
- Seizing and selling the assets of the debtor business
- Garnishing income sources of the businesses by confiscating accounts receivable or freezing bank accounts
- Using any other legal processes the CRA deems appropriate
The CRA has priority over a number of other creditors, with five exceptions. These are:
- In certain cases, a creditor that holds a mortgage security against property before the deemed trust debt was realized
- Fishers, farmers and aqua culturists who supplied products to the debtor 15 days before bankruptcy
- Unpaid suppliers, who supplied goods 30 days before the business's bankruptcy
- By CRA policy, the fees for sheriffs and bailiffs who are responsible for selling and seizing a debtors assets
- Reasonable insolvency fees
An experienced lawyer can provide legal advice for debtors navigating insolvency and creditors seeking remedies for outstanding debt.
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.
