Lender Beware: Secured Creditors May Be Responsible For A Borrower's Tax Debt

The enforcement by Canada Revenue Agency ("CRA") of its super priority position for deemed trust liabilities has long been an issue of uncertainty for secured creditors. While the Excise Tax Act (the "ETA") has carved out "prescribed security interests" from that super priority, the calculation of the funds that continue to rank in priority to a prescribe security interest is less than clear. Further, and with some irony, CRA's strict adherence to privacy prevents a secured creditor from obtaining any information about unpaid obligations in an ordinary course payout, so as to determine if there are obligations that rank in priority. A secured creditor discharging its security after payout was left with the concern that CRA could assert its super priority over the payout after the secured creditor had discharged its security, leaving the secured creditor unsecured.