Deemed Trust For Unremitted GST Primes Bank's Security Interest

On April 29, 2020, the Federal Court of Appeal (the "FCA") released their decision in The Toronto-Dominion Bank v Canada¹ ("TD v Canada"), in which the FCA concluded that a deemed trust in respect of unremitted goods and sales tax ("GST") pursuant to the Excise Tax Act² (the "ETA") primes a secured lender's security interest, outside of a bankruptcy or Companies' Creditors Arrangement Act³ (the "CCAA") proceeding. The FCA also concluded that a secured creditor who receives proceeds from a tax debtor's property, at a time where the tax debtor owes GST to the Crown, is required to pay the proceeds equalling the amount of the tax debt to the Crown.

In reaching this conclusion, the FCA considered three central issues: (1) whether the deemed trust requires a triggering event to cause the trust to crystallize around specific assets, (2) whether secured creditors can avail themselves of the bona fide purchaser for value defence, and (3) whether the Federal Court failed