A Big Win for the Crown — Deemed Trusts Take Priority over Security Interests

It was a big win for the Crown in the recent case of Her Majesty The Queen v. The Toronto-Dominion Bank, 2018 FC 538. Mr. Justice Grammond of the Federal Court of Canada held that a statutory deemed trust for unremitted GST amounts took priority over money received by a bank in payment of a loan secured by a mortgage. In reaching this decision, the Court reviewed the history of the deemed trust provisions in the Income Tax Act (the “ITA”) and the Excise Tax Act (the “ETA”) and considered the case law relating to the interpretation of these provisions. The Court analysed the bank’s obligations to pay to the Crown the money received by the bank, the bank’s defence as a bona fide purchaser for value, and the policy or fairness arguments raised by the bank. As a consequence of this decision, secured creditors will need to pay attention to these statutory deemed trusts in assessing their lending risk.

This article was originally published in Ontario Real Estate Law Developments, published by Lexis Nexis. Click here to view the complete article.