The Supreme Court of Canada determines the right of financial
institutions to effect set-off in reimbursement of a loan despite
the enhanced deemed trust in favor of Revenue Canada or Revenue
Quebec.
In a decision released today, the Supreme Court of Canada
settled the ongoing controversy concerning the liability of a
financial institution to the tax authorities when it repays its
loans by way of set-off against its own term deposit at a time when
the borrower is also indebted to the tax authorities for payroll
source deductions.
The Federal and Quebec Provincial Tax Authorities have a first
ranking deemed trust in all the property of a tax debtor for an
amount equal to the amounts deducted from employee salaries, which
arises upon failure of the employer to remit same to the tax
authorities. That deemed trust takes priority over all security
interests held by a financial institution and, as such, would have
priority over the pledge of a term deposit from a third
