McGovern v. The Queen, 94 DTC 6527, [1994] 2 CTC 231 (FCTD)

Jerome A.C.J.:—This is an appeal by the plaintiffs from a decision of the Tax Court of Canada dated July 19, 1990, dismissing their appeal from a reassessment by the Minister of National Revenue for the 1984 taxation year. At the hearing of this matter on February 22, 1994, I allowed the plaintiffs’ appeal indicating these written reasons would follow.

In 1980, the plaintiffs were engaged in the business of manufacturing and selling furniture. In an effort to diversify their business interests, they began to actively pursue and investigate the acquisition of rental property. In December of 1980, Mr. and Mrs. McGovern purchased a three bedroom condominium unit located at Paul Lake, near Kamloops, British Columbia. The condominium, which qualified as a multiple-unit residential building (MURB) under paragraph 1114(a) of the Income Tax Regulations, was purchased for $87,659, financed by way of a cash payment of approximately $12,000 and a first mortgage of approximately $76,000. The monthly payment of principal and interest on the mortgage was $933.

The condominium, situated at the foot of the family ski hill and on the shore of a medium size lake, was ideal for year-round family vacationing. The McGoverns therefore furnished and equipped it with a washing machine, dryer, stove, refrigerator, television and radio in the hope of attracting full families on one or two week stays.

However, in February of 1981, a condominium association was formed in the complex and one of its first steps was to pass by-laws prohibiting short-term rentals by owners. Units were to be owner-occupied or rented to long-term tenants and children under twelve years of age were not to be allowed as residents. The economy of the Kamloops area also suffered a significant decline, including layoffs, high rates of unemployment, high housing vacancy rates and a poor real estate market. As a result of the by-laws passed by the condominium association and the local economic conditions, it became difficult to rent a fully furnished, executive type condominium. The plaintiffs did rent their unit however in 1981, 1982 and 1983 earning income of $3,200, $1,500 and $3,300 respectively. No tenants were found for 1984 and the unit remained vacant. In 1985, the McGoverns lost the property as a result of foreclosure proceedings by the mortgagee.

During the 1981, 1982 and 1983 taxation years, the Minister of National Revenue accepted the purpose of the condominium investment as a rental business and allowed the plaintiffs to claim deductions for expenses and capital cost allowance in respect of the unit. In their 1984 tax return, Mr. and Mrs. McGovern each claimed a loss from the condominium of $6,947.31, being one-half of the following amounts:

By notice of reassessment dated July 17, 1987, the Minister reassessed the plaintiffs for their 1984 taxation year, disallowing the rental loss claimed by each of them in connection with the condominium. The plaintiffs objected to the reassessment by notice of objection dated October 9, 1987. After receiving notice of confirmation from the Minister, the plaintiffs appealed to the Tax Court of Canada on February 3, 1989. By decision dated July 19, 1990, the Tax Court dismissed the plaintiffs’ appeal from the reassessment of their 1984 taxation year.

The plaintiffs now appeal from that decision on the grounds the Tax Court erred in disallowing the rental loss insofar as the losses claimed in respect of the condominium were incurred for the purpose of gaining or producing income from a business or property. They submit at the time the condominium was purchased, they had a reasonable expectation of realizing a profit from its rental since the location and the unit's features indicated it would be a fruitful business venture. Although the by-laws passed by the condominium association, as well as the poor local economy, made it difficult to rent the unit, the plaintiffs maintain they actively endeavoured to find tenants until they lost the property in 1985.

The Minister submits the claimed rental loss was properly disallowed in respect of the plaintiffs’ 1984 taxation year, since by 1983, they had abandoned any intention of obtaining a profit from the property and made no serious attempts to find a tenant after May of 1983. Furthermore, given the economic conditions of the area, the plaintiffs objectively had no reasonable expectation of making a profit from the condominium. Accordingly, it is argued, the expenses and capital cost allowance claimed by the plaintiffs in their 1984 taxation years with respect to the property were not made or incurred for the purpose of gaining or producing income from a business or property within the meaning of paragraph 18(1)(a) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act"), but rather were personal or living expenses.

I am satisfied the plaintiffs’ appeal should be allowed. There is no question the Minister is entitled to disallow losses with respect to a business venture which have been accepted in previous taxation years. Generally, this will occur where the project, which may have initially possessed a reasonable expectation of profit, suffers consecutive losses such as would indicate it has become a losing proposition. However, where the business venture, under normal circumstances, would have realized a profit but fails to do so because of a dramatic change in conditions, a taxpayer should be granted a reasonable period of time in which to ascertain that no income is likely to be earned.

This was the principle applied by the Tax Court of Canada in Aucoin v. M.N.R.,

[1991] 1 C.T.C. 2191, 91 D.T.C. 313. In that case, the taxpayer purchased a condominium in Florida for the purpose of earning rental income. He rented the condominium for a one year period at a monthly rental of $750, but owing to a sharp decline in property values throughout Florida, the taxpayer was forced to reduce the monthly rent to $525. Shortly thereafter, Mr. Aucoin attempted, without success, to sell the property but finally decided to withdraw it from the market because of poor real estate market conditions. In computing his income for his 1984, 1985 and 1986 taxation years, the taxpayer sought to deduct rental losses generated from the property which the Minister disallowed on the grounds Mr. Aucoin had no reasonable expectation of profit. In allowing the appeal from the Minister's reassessment, Garon J. made the following comments at page 2195 (D.T.C. 316):

. it would be unreasonable, in my view, to conclude that the appellant ceased overnight to have a reasonable expectation of profit in connection with the rental of the subject property as soon as the slump in the real estate market surfaced. He could have reasonably believed that the drop in the rental market was temporary and there is some suggestion in the evidence to this effect. On the other hand, it would not be realistic for the appellant to expect say, in 1989 to earn income from that property after a string of five years of losses and no real improvement in the market situation. It seems to me that there is a point between these two extremes where a prudent and reasonably informed person would have realized that no income would likely be earned for quite some time from that property. I would believe that point must have been reached two or three years after the occurrence of the drastic change in the real estate market.

[Emphasis added.]

Accordingly, while the Minister is entitled to disallow rental losses which have been accepted in previous taxation years, fairness and consistency require that where there has been a dramatic change in circumstances, a reasonable period of time be granted before such losses are disallowed.

In the present case, there is no question the plaintiffs had a reasonable expectation of profit from rental income when they purchased the condominium. The unit had eminent appeal for that purpose and possessed several attributes which would qualify it for a likely success. It was located on a lake, a small family ski hill facility was right at the back door, it featured a private dock, a freestanding building and was a reasonable distance from the Kamloops market. In fact, the McGoverns managed to rent the unit for the first three years at a reasonable rate. Furthermore, the MURB factor is significant insofar as it rendered the purchase of the condominium an even more sensible and appealing investment for individuals in the situation of these taxpayers.

However, there were sudden and dramatic changes in circumstances beyond the control of the plaintiffs which ultimately led to the demise of the business venture. The by-laws passed by the condominium association made it impossible for the McGoverns to realize their objective of renting the unit to families for one or two week vacation periods. In addition, the economic conditions of the area were severe and unprecedented. The combination of these extraordinary circumstances had a disastrous effect on the laintiffs’ project. Based on these facts, and in accordance with the principle established in Aucoin, supra, it is my view the Minister should have allowed the deductions for expenses and capital cost allowance claimed by the plaintiffs in their 1984 taxation year.

For these reasons, the plaintiffs’ appeal is allowed with costs.

Appeal allowed.

The Town Council of the Town of Bonavista v. Atlantic Technologists

[Indexed as: Bonavista (Town) v. Atlantic Technologists Ltd.]

Newfoundland Supreme Court (Trial Division), (Orsborn J.), December 3, 1993 (Court File No. 2761).

Income tax—Federal—Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72,

C. 63)—224(1.2), (1.3)—Mechanics’ Lien Act, R.S.N. 1990, c. M-3—Requirement to pay—

The Court held $19,301.01, representing holdback funds paid in by the town, as owner, to vacate various mechanics’ liens filed against the town arising out of its contract with A Ltd. There were three claimants. The first claimant, Revenue Canada, claimed under a requirement to pay served on the town on July 2, 1993. Priority was claimed under subsection 224(1.2) of the Income Tax Act. The second claimant was the assignee of the holder of a valid mechanics’ lien ("the lien claimant”). The third claimant was a bank which claimed under a specific assignment from A Ltd. of the contract proceeds. The assignment was dated July 6, 1992, and notice of the assignment was given to the town on September 22,1992.

HELD:

Revenue Canada’s claim enjoyed priority over that of the lien claimant. The clear wording of the definition of “secured creditor” in subsection 224(1.3) of the Income Tax Act easily embraced a mechanics’ lien. Similarly, the definition of secured creditor—a person who holds a security interest in the property of another person—encompassed the holder a mechanics’ lien. Accordingly, subsection 224(1.2) expropriated the security of mechanics’ lienholders and vested in the Crown moneys otherwise payable to lienholders. In similar fashion, Revenue Canada’s claim enjoyed priority over that of the bank. The bank’s assignment contemplated that it would operate as a security interest. It vested in the bank title to the debts owed to A Ltd., but such vesting was for the purpose of security; it was not to transfer ownership, as that term is commonly understood. As with the mechanic’s lien, the assignment of book debts came within the definition of “security interest". The bank was a “secured creditor”. The nature of the interest held by the bank, even if considered to be an absolute assignment, could not be divorced from the circumstances in which it arose. The commercial reality was that the bank held a security interest in the property of A Ltd. A Ltd. transferred its receivable to the bank to secure payment of money A Ltd. owed to the bank. Once A Ltd. paid the bank, it was entitled, not to a reassignment of the debt, but, by the wording of the assignment, "to the cancellation hereof". The bank was therefore a secured creditor holding a security interest. Accordingly, the bank suffered the same fate as the lien claimant. Priority to Revenue Canada.

R. Barry Learmonth for the Department of National Revenue, Taxation.

Jean V. Dawe for the Guarantee Co. of North America and H.T. Durdle Ltd.

John G. Furey for the Bank of Nova Scotia.

Cases referred to:

Transgas Ltd. v. Mid-Plains Contractors Ltd., [1993] 1 C.T.C. 280, 93 D.T.C. 5391;

Berg v. Parker Pacific Equipment, [1991] 1 C.T.C. 442;

Coopers & Lybrand et al. v. Bank of Montreal et al., July 20, 1993 (Nfld. Supreme

Court (Trial Division), (unreported);

Pigott Project Management v. Canada, [1994] 1 C.T.C. 108;

Bank of Nova Scotia v. Newfoundland Rebar Company (1987), 67 Nfld. & P.E.I.R.

165;

Imperial Oil Ltd. v. Crane (1962), 5 C.B.R. (N.S.) 80;

Toronto Dominion Bank v. Canada, May 21, 1993 (MacLeod J.), Alta. Q.B. (unreported).

Orsborn J.:—The Court holds $19,301.01, representing holdback funds paid in by the Town of Bonavista, as owner, to vacate various mechanics’ liens filed against the town arising out of its contract with Atlantic Technologists Ltd. (Atlantic). There are three claimants:

1. The Department of National Revenue, Taxation (Revenue Canada), claims under a requirement to pay served on the town on July 2, 1993. (Atlantic had been assessed on June 23, 1993, for unpaid taxes in excess of $100,000.) Priority was claimed under subsection 224(1.2) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act").

2. The Guarantee Company of North America (Guarantee) claims as assignee of H.T. Durdle Limited, the Fifth Respondent. Durdle held a valid mechanics’ lien.

3. The Bank of Nova Scotia (the bank) claims under a specific assignment from Atlantic of the contract proceeds. The assignment was dated July 6, 1992, and notice of the assignment was given to the town on September 22, 1992.

Conclusion

Both the mechanics' lien and the assignment are security interests as defined in subsection 224(1.3) of the Income Tax Act. The bank and Guarantee are secured creditors. The wording of subsection 224(1.2) is clear. Revenue Canada’s claim enjoys priority over those of Guarantee and the bank.

Analysis of claims

Revenue Canada

Revenue Canada's claim was founded on subsections 224(1.2) and (1.3) of the Income Tax Act:

224 (1.2) Notwithstanding any other provision of this Act, the Bankruptcy Act, any other enactment of Canada, any enactment of a province or any law, where the Minister has knowledge or suspects that a particular person is or will become, within 90 days, liable to make a payment:

(a) to another person (in this subsection referred to as the "tax debtor”) who is liable

to pay an amount assessed under subsection 227(10.1) or a similar provision, or

(b) to a secured creditor who has a right to receive the payment that, but for a security interest in favour of the secured creditor, would be payable to the tax debtor,

the Minister may, by registered letter or by a letter served personally, require the particular person to pay forthwith, where the moneys are immediately payable, and in any other case, as and when the moneys become payable, the moneys otherwise payable to the tax debtor or the secured creditor in whole or in part to the Receiver General on account of the tax debtor’s liability under subsection 227(10.1) or a similar provision, and on receipt of that letter by the particular person, the amount of those moneys that is required by that letter to be paid to the Receiver General shall, notwithstanding any security interest in those moneys, become the property of Her Majesty and shall be paid to the Receiver General in priority to any such security interest.

(1.3) "secured creditor".—"secured creditor" means a person who has a security interest in the property of another person or who acts for or on behalf of that person with respect to the security interest and includes a trustee appointed under a trust deed relating to a security interest, a receiver or receiver-manager appointed by a secured creditor or by a court on the application of a secured creditor, a sequestrator, or any other person performing a similar function;

"security interest".—"security interest" means any interest in property that secures payment or performance of an obligation and includes an interest created by or arising out of a debenture, mortgage, hypothec, lien, pledge, charge, deemed or actual trust, assignment or encumbrance of any kind whatever, however or whenever arising, created, deemed to arise or otherwise provided for;

Service of the notice to pay on the town effectively expropriates any funds payable by the town either to the tax debtor (Atlantic) or to a secured creditor of Atlantic.

This legislation was enacted in 1990 to counter judicial reluctance to give effect to confiscatory legislation unless the intention were clearly and unequivocally expressed. Since 1990, the courts, with one exception, have upheld the priority of Revenue Canada. See, for example, Transgas Ltd. v. Mid-Plains Contractors Ltd., [1993] 1 C.T.C. 280, 93 D.T.C. 5391 (Sask. C.A.); Berg v. Parker Pacific Equipment, [1991] 1 C.T.C. 442 (B.C.S.C); Coopers & Lybrand et al. v. Bank of Montreal et al., July 20, 1993 (Nfld. Supreme Court (Trial Division), (unreported). The one exception is Pigott Project Management v. Canada, [1994] 1 C.T.C. 108 (Alta. Q.B.). This decision has not been followed within Alberta.

Revenue Canada argued, quite simply, that both Guarantee and the bank are secured creditors of Atlantic, holding security interests. But for these security interests, the town would have paid the funds to Atlantic, the tax debtor. Upon service on the town of the requirement to pay, the moneys held by the town became "the property of Her Majesty in right of Canada”, and the rights of the secured creditors to their security were extinguished.

Guarantee Co. of North America

Guarantee, as assignee of Durdle, held a valid mechanic's lien. The amount is less than the amount paid into court, but this would be relevant only if I were required to adjudicate as between the bank and Guarantee.

It is not disputed that the funds paid into court represented the statutory holdback required of an owner by section 12 of the Mechanics’ Lien Act, R.S.N. 1990, c. M-3. Subsection 12(5) confirms that the lien upon the estate of the owner is a charge upon the holdback, and subsection 12(9) prohibits the holdback from being applied to the completion of the contract or in satisfaction of a claim against the contractor or subcontractor. Statutory priority of the lien is given by subsection 15(1) over “all judgments, executions, assignments, attachments, garnishments and receiving orders recovered, issued or made after the lien arises . . . .”

The funds paid into court to vacate the lien take the place of the property discharged. (Subsection 26(4)).

Counsel for Guarantee argued that the holder of a mechanic’s lien is an owner of property subject to the lien, and hence does not come within the definition in subsection 224(1.3) of a secured creditor: "a person who has a security interest in the property of another person . . . .”

Counsel pointed to section 21 of the Mechanics’ Lien Act:

21. Where a claim is registered, the person entitled to a lien shall be considered to be a purchaser to the extent of the value of the lien and a purchaser for valuable consideration within the provisions of the Registration of Deeds Act, but,except as otherwise provided here, that Act does not apply to a lien arising under this Act.

Essentially the argument was that the mechanics’ lien legislation gives to a person who has enhanced the value of property ownership of that property to the extent necessary to realize an in rem remedy against the property. The holdback funds, as distinct from the general funds owing under the contract, represent the property which is subject to the lien. These funds, so long as there is an unpaid lien claim, never become the property of the contractor (the tax debtor), and are not payable to the tax debtor while there is such a claim. Counsel argued that the funds were held back by the town because of the requirements of the Mechanics’ Lien Act. It would therefore be inequitable for Revenue Canada to be allowed to obtain a windfall from funds retained under a legislative scheme structured to protect contractors and workers.

I agree that the holdback funds take the place of the property charged, and that to the extent a lienholder has a claim against the land in question, that some claim is held against the holdback funds. But a lienholder is not an owner. A lienholder enjoys the benefit of a statutory scheme designed to provide a measure of protection to those who add value to property owned by others. The (eg.) subcontractor holds a "lien . . . upon the estate or interest of the owner" (subsection 6(1)). That lien is "a charge upon" the holdback. The wording of the legislation is directed to security, not to ownership. The fact that a lienholder may be considered a purchaser for the purposes of registration legislation does not convert that lienholder into an owner.

A mechanic's lien, in this case a charge upon holdback funds, is a security interest within the definition of subsection 224(1.3) of the Income Tax Act:

. . . any interest in property that secures payment or performance of an obligation and includes . . . lien . . . or encumbrance of any kind whatever, however or whenever arising, created, deemed to arise or otherwise provided for;

The whole purpose of the mechanics’ lien legislation is to secure payment to contractors and the like. The purpose is achieved by creating a statutory interest in the property or estate of the owner. The clear wording of the definition of "security interest" in the Income Tax Act easily embraces a mechanic's lien. Similarly, the definition of secured creditor—a person who holds a security interest in the property of another person—encompasses the holder of a mechanic's lien.

Subsection 224(1.2) expropriates the security of mechanic's lienholders and vests in the Crown moneys otherwise payable to lienholders.

The Bank of Nova Scotia

The bank's specific assignment of the contract proceeds was perfected by notice to the town on September 22, 1992. The bank argued that the assignment passed the property in the debt absolutely to the bank. As between the assignor and assignee, the transaction was complete. The bank owned the receivable and hence was not a secured creditor holding a security interest in the property of another person.

Counsel pointed to a number of authorities which confirmed that an assignment of book debts passes ownership in the debt to the assignee, with the assignee then enjoying the right to sue for the debt in its own name. See, for example, Bank of Nova Scotia v. Newfoundland Rebar Co. (1987), 67 Nfld. & P.E.I.R. 165 (Nfld. S.C., T.D.); Imperial Oil Ltd. v. Crane (1962), 5 C.B.R. (N.S.) 80 (Nfld. C.A.)). In the latter case, Furlong C.J., said at page 83:

There can no longer be any doubt as to what an absolute assignment is. Shortly it is an assignment which fully and completely gives to the assignee all the rights and remedies for default of those rights which the assignor has, without any reservation or retention by the assignor of any of them. The purpose for which an assignment is made is not a material factor, so that the words in the section, which say the assignment may not be one that is by way of charge only, do not prevent a bank taking an assignment of debts as a security for loans made by it to the assignor. The parallel to such an instance is a mortgage, which is an absolute assignment without any reservation other than an expressed right of redemption.

To put it another way; an absolute assignment may be ascertained by the test as to whether or not the rights of the assignor pass absolutely or conditionally to the assignee. The form of words is not material except in so far as they cast light on the true intention of the parties. Thus a mortgage, though only by way of security, is an absolute assignment.

Neither of these two decisions involved consideration of whether an assignment, even an absolute assignment, by way of security was a security interest within the definition of subsection 224(1.3) of the Income Tax Act.

I do note however that Furlong C.J., concluded that a mortgage given for security was nonetheless an absolute assignment. In my view, a mortgage is clearly a security interest in the property of another person. The property is that of the mortgagor. Title has been vested in the mortgagee to enable it to realize on the property should the mortgagor default in his or her obligation. In this context, the fact that an assignment may be considered to be absolute does not take it out of the definition of security interest. To do so would be an affront to common sense and to the accepted understanding of those giving and taking mortgages.

Furlong C.J., also referred to the "true intention of the parties” as reflected in the wording of the assignment. The wording of the assignment before me does not reflect absolute ownership; to the contrary, it suggests that the bank holds the book debts as security for only so long as Atlantic owes money to the bank:

2. This assignment and transfer shall be a continuing collateral security to the bank without impairment or novation of any other existing or future security and shall operate as a general security for all present and future indebtedness and other liability of the customer to the bank so long as the customer shall remain indebted or otherwise liable to the bank or shall continue to be receiving advances from the bank; but the customer shall be entitled at any time, upon the discharge of all indebtedness and other liability of the customer to the bank, to the cancellation hereof.

3. The bank shall have power at the cost of the customer to collect, dispose of, realize or enforce any of the premises hereby assigned at such time and in such manner as the bank may deem advisable, either in its own name or in the name of the customer, without notice to the customer and without prejudice to any rights the bank may have against other parties or to the right the bank may have against the customer for any

deficiency; and upon a sale the bank shall have the right to buy in the whole or any portion of the premises hereby assigned offered for sale and the rights of the customer therein shall thereupon be extinguished.

[Emphasis added.]

One may ask, if the assignment is absolute to the point of ownership, why does it specifically give to the bank the power to collect or dispose of the debts. Are not such powers incidents of ownership? Similarly, if the assignment is absolute, what remaining rights reside in the customer that may be “extinguished” if the bank buys the accounts at a sale?

In my view, the assignment contemplates that it will operate as a security interest. It vests in the bank title to the debts owed to Atlantic, but such vesting is for the purpose of security; it is not to transfer ownership, as that term is commonly understood. As with the mechanic's lien, the assignment of book debts comes within the definition of "security interest". The bank is a "secured creditor". The nature of the interest held by the bank, even if considered to be an absolute assignment, cannot be divorced from the circumstances in which it arose. The commercial reality is that the bank held a security interest in the property of Atlantic. Atlantic transferred its receivable to the bank to secure payment of money Atlantic owed to the bank. Once Atlantic paid off the bank, it was entitled, not to a reassignment of the debt, but, by the wording of the assignment, "to the cancellation hereof". The bank was a secured creditor holding a security interest.

Two decisions from the Court of Queen's Bench of Alberta-Judicial District of Calgary have addressed the competing claims of an assignee of book debts and Revenue Canada. In Pigott Project Management, supra, filed April 20, 1993, Hunt J., concluded that a general assignment of book debts constituted an absolute assignment of property. The argument was then made, as it was here, that because of the absolute assignment, the tax debtor had no interest in the debts covered by the assignment, and the holder of the assignment therefore had no interest in the property of "another person". Hunt J., agreed with this submission, concluding that the wording of subsection 224(1.2) and (1.3) was not sufficiently clear to encompass unconditional assignments.

One month later, on May 21, 1993, MacLeod J., of the same Court filed a decision on the same issue in Toronto Dominion Bank v. Canada (Alta. Q.B., May 21, 1993, unreported). The bank had given notice under its general assignment of book debts prior to Revenue Canada's service of the requirement to pay. The bank naturally relied on Pigott Project Management. MacLeod J., wrote, at pages 3-4:

Mr. Vail is urges me to make the same distinction with respect to Canada Trust Co. as did Madam Justice Hunt and, in any event, to follow her analysis in Pigott and find that the bank here is not caught by the provisions of Section 317.

I find I am unable to do so. With the greatest respect to the conclusions of Madam Justice Hunt, I prefer the analysis of Mr. Justice MacDonald in the trial decision in Lloyd's Bank of Canada v. International Warranty Co., [1989] 3 W.W.R., page 152. In particular, his comments at page 164 as follows:

The definition of security interest is so broad as to include moneys which have been equitably assigned by the tax debtor to, for example, a bank. The ownership by the bank of the funds that are the subject of the assignment constitutes an interest in property. That interest in property is one which secures payment of the obligation of the tax debtor (I.W.). The provision of such security is the very purpose of the assignment of book debts. Moreover, the bank’s interest is one created by or arising out of an assignment of any kind however or whenever arising.

As Madam Justice Hunt points out, Mr. Justice MacDonald’s judgment was overturned by our Court of Appeal but the passage just quoted was not commented upon.

I also note that the general assignment itself in this case contains the following:

Provided always and it is hereby distinctly agreed, the presents are and shall be continuing in collateral security to the present and any future indebtedness of the assignor to the bank.

I might also say that I regard it as implicit in Mr. Justice Forsyth’s judgment in Canada Trusco that the holder of the general assignment is held to be a secured creditor within the meaning of subsection 317(4), otherwise Revenue Canada could not have prevailed over the general assignment.

Finally, I agree with the finding of Mr. Justice Forsyth in Canada Trusco that the “something further" has been met by the latest amendment in the Excise Tax Act and, accordingly, I find that Revenue Canada's claim takes priority over the bank’s claim under its general assignment.

I prefer the reasoning of MacLeod J.

The issue is whether the assignment, absolute or otherwise, is a “security interest" and whether the bank is a "secured creditor" within the definitions of subsection 224(1.3). In my opinion, they are. To conclude otherwise would be contrary to the intentions of both the bank and Atlantic, as those intentions are reflected in the assignment. It would also be contrary to the clearly-expressed intention of both the bank and Atlantic, as those intentions are reflected in the assignment. It would also be contrary to the clearly-expressed intention of Parliament. That clear intention, draconian and piratical though it may be, is to intercept moneys owing to creditors such as the bank, destroy the security given by the debtor to the creditor, and expropriate the moneys so intercepted. Expressed as clearly as it is, that intention must be respected.

Conclusion

Revenue Canada is entitled to be paid out of Court the sum of $19,301.01. Revenue Canada shall have its costs on a party-and-party basis, payable 50 per cent by each of Guarantee and the bank.

Order accordingly.