Secured Lenders Proceed With Caution – Borrowers And HST

On November 8, 2018, the Supreme Court of Canada removed some of the problems that secured lenders have had to face recently regarding possible liability for HST obligations of their borrowers.  While that is a welcome development, the limits of what it means, and the other problems that remain, are worth bearing in mind.

What did the Supreme Court decide?  The decision held that in effect, a later bankruptcy can retroactively solve the HST liability of a secured lender for money that it collects from the borrower beforehand.

What does this case not do?  A fair bit.  For example:

• If the borrower cannot be put into bankruptcy, then this decision does not apply.
• Otherwise, secured lenders who had security before any HST is owing, but receive payments from borrower afterwards, can still be liable for HST that the borrower collects but does not remit.  The Supreme Court went out of its way not to comment on wider issues of lender liability for borrower HST