GST/HST Deemed Trust Is Rendered Ineffective Against Secured Creditors Post-Bankruptcy

In its decision in The Queen v. Callidus Capital Corporation¹, rendered on August 17, 2015, the Federal Court of Canada examined, on a retrospective basis, the Crown's absolute priority regarding proceeds remitted to secured creditors from the assets of a tax debtor that are deemed to be held in trust (deemed trust) under section 222 of the Excise Tax Act (the "ETA") prior to such tax debtor's bankruptcy. Although the ETA is clear that this deemed trust does not survive bankruptcy, to our knowledge this is the first time that a tribunal has had to apply that rule in a situation where proceeds from the sale of a tax debtor's assets (deemed to be held in trust) were actually remitted to a secured creditor and then claimed in that creditor's hands by the Crown pre-bankruptcy but where the Crown did not, and was arguably unable to, bring an enforcement action until after the tax debtor's bankruptcy.