Garon
J.T.C.C.
(orally):—
These
reasons
deal
with
a
motion
made
by
the
appellant
for
answers
to
the
following
questions
as
set
out
in
his
notice
of
motion
dated
November
22,
1994:
1.
Did
the
respondent’s
filing
with
the
relevant
trustee
of
a
document
entitled
“The
Bankruptcy
Act:
Proof
of
Claim
(Property)”
with
attachment,
claiming
thereby
$747,075.33,
within
six
months
of.
the
date
of
assignment
into
bankruptcy
of
the
estate
of
Brunswick
Drywall
(Ontario)
Ltd.,
constitute
for
purposes
of
paragraph
227.1(2)(c)
of
the
federal
Income
Tax
Act
proof
of
the
corporation’s
liability
for
the
said
amount?
2.
Is
the
appellant
liable
under
subsection
227.1(1)
of
the
Income
Tax
Act,
Canada
for
the
Federal
tax
amounts
set
out
in
Exhibit
“A”
of
the
Proof
of
Claim
(property)
filed
by
the
respondent
with
the
Trustee
of
the
Estate
of
Brunswick
Drywall
(Ontario)
Ltd.?
An
agreed
statement
of
facts
and
an
accompanying
Exhibit
Book
were
filed
with
the
Court
for
the
purpose
of
this
motion.
The
agreed
statement
of
facts
reads
as
follows:
1.
The
appellant,
Y
von
Roy,
resides
in
the
community
of
Ste-
Marie,
in
the
County
of
Kent
and
Province
of
New
Brunswick.
2.
Brunswick
Drywall
(Ontario)
Ltd.
(“Brunswick
Ontario”)
was
a
body
corporate
under
and
by
virtue
of
the
laws
of
the
Province
of
Ontario.
3.
Brunswick
Ontario
carried
on
the
business
of
a
dry
wall
contractor
in
the
Province
of
Ontario
from
its
offices
in
the
City
of
Mississauga,
Ontario
until
it
made
an
assignment
in
bankruptcy
on
July
12,
1989,
(the
“date
of
assignment”)
under
the
provisions
of
the
Bankruptcy
Act
R.S.C.
1985,
c.
B-3.
(the
“Bankruptcy
Act"
which
is
now
the
Bankruptcy
and
Insolvency
Act,
R.S.C.
1985
c.
B-3)
4.
The
appellant
held
the
capacity
of
director
in
Brunswick
Ontario
from
1982
to
the
date
of
assignment
on
July
12,
1989.
5.
In
1989
Brunswick
Ontario
deducted
but
failed
to
remit
sums
of
money
to
the
Receiver
General
under
section
153
of
the
Income
Tax
Act,
Canada.
6.
Brunswick
Ontario
was
assessed
under
the
Income
Tax
Act,
Canada
for
its
failure
to
remit
section
153
tax
by
the
following
notices
of
assessment:
Date
/
Assessment
No.
I
Amount
31/5/89
/
859380
/
$713,867.55
14/6/89
/
859419
/
$388,045.55
29/6/89
/
859485
/
$607,608.74
19/7/89
/
891052
/
$806,260.13
20/7/89
/
891054
/
$923,836.21
7.
The
respondent,
through
Revenue
Canada,
Taxation,
issued
a
notice
of
assessment
under
Number
4413
(the
“Assessment”)
dated
March
28,
1991,
to
the
appellant,
advising
of
the
appellant’s
liability
for
$807,783.29
under
four
different
statutes
for
the
taxation
year
1989.
8.
The
assessment
assessed
the
appellant
for
liability
under
Subsection
227.1(1)
of
the
Income
Tax
Act,
Canada
and
Section
36A
of
the
Income
Tax
Act,
Ontario
and
Section
22.1
of
the
Canada
Pension
Plan
and
68.1
of
the
Unemployment
Insurance
Act,
1971
in
the
amount
of
$807,783.29
alleging
to
be
the
amount
of
unpaid
deductions,
interest
and
penalties
payable
by
the
Estate
of
Brunswick
Ontario
in
Bankruptcy
in
respect
of
notices
of
assessment
dated
May
31,
1989,
June
14,
1989,
June
29,
1989,
July
19,
1989
and
July
20,
1989.
9.
Plaskett
&
Associates
Limited
(the
“Trustee
in
bankruptcy”),
at
all
times
material,
was
the
Trustee
of
the
Estate
of
Brunswick
Dry
wall
(Ontario)
Ltd.,
a
bankrupt,
pursuant
to
the
Bankruptcy
Act.
10.
The
respondent,
through
Revenue
Canada,
Taxation
filed
with
the
Trustee
in
Bankruptcy,
within
6
months
from
the
date
of
assignment,
the
following:
(a)
A
proof
of
claim
in
the
amount
of
$176,780.88
(the
“proof
of
claim”)
and
(b)
A
proof
of
claim
(property)
in
the
amount
of
$747,075.33
(the
“proof
of
claim
(property)”).
11.
The
respondent
did
not,
at
any
time,
file
with
or
submit
to
the
trustee
in
bankruptcy
any
other
proof
of
claim
except
the
proof
of
claim
and
the
proof
of
claim
(property)
nor
did
it
prove
any
further
claim
for
the
liability
of
Brunswick
Ontario
with
the
trustee
in
bankruptcy.
12.
The
appellant
objected
to
the
assessment
for
liability
under
Subsection
227.1(1)
of
the
Income
Tax
Act,
Canada
by
Notice
of
Objection
dated
June
12,
1991
and
forwarded
within
the
required
time
period
to
the
Deputy
Minister
of
National
Revenue.
13.
The
respondent,
through
the
Chief
of
Appeals
for
the
Minister
of
National
Revenue,
confirmed
the
assessment
by
Notification
of
Confirmation
by
The
Minister
dated
November
3,
1992.
The
appellant
appealed
the
assessment
for
liability
under
Subsection
227.1(1)
of
the
Income
Tax
Act,
Canada
to
the
Tax
Court
of
Canada
by
notice
of
appeal
dated
January
15,
1993
(the
“notice
of
appeal”)
and
filed
with
the
Tax
Court
of
Canada
on
the
January
21,
1993.
14.
The
respondent
filed
a
reply
dated
March
25,
1993
with
the
Tax
Court
of
Canada
on
March
25,
1993.
15.
The
appellant
specifically
pleaded
the
issues
sought
to
be
determined
in
this
motion
and
the
sections
of
the
Income
Tax
Act,
Canada
and
Bankruptcy
Act
relied
upon,
at
paragraphs
21,
22,
23,
36
and
37
of
its
notice
of
appeal.
16.
The
facts
agreed
to
herein
were
prepared
for
the
purpose
of
determining
the
legal
issues
set
out
in
the
notice
of
motion
attached
as
Exhibit
10.
The
parties
acknowledge
that
other
facts
may
be
relevant
to
the
determination
of
matters
not
included
in
the
issues
set
out
in
Exhibit
10.
17.
Attached
hereto
is
an
Exhibit
Book
agreed
to
by
the
parties
containing
the
following
documentation
with
respect
to
this
matter:
[Not
reproduced.]
The
pertinent
elements
of
the
agreed
statement
of
facts
can
be
summarized
in
a
few
statements:
•
The
appellant
was
a
director
of
Brunswick
Drywall
(Ontario)
Ltd.
(“Brunswick
Drywall”)
until
it
made
an
assignment
in
bankruptcy
on
July
12,
1989.
•
During
1989,
Brunswick
Dry
wall
deducted
but
failed
to
remit
in
particular
sums
of
money
to
the
Receiver
General
under
section
153
of
the
Income
Tax
Act.
•
Within
six
months
of
the
assignment
the
respondent
filed
two
proofs
of
claim
with
the
trustee
in
bankruptcy:
(1)
A
proof
of
claim
for
$176,
780.88
pursuant
to
section
124
of
the
Bankruptcy
Act,
and
(2)
a
proof
of
claim
(property)
for
$747,075.33
pursuant
to
section
81
of
the
Bankruptcy
Act.
•
The
appellant
was
assessed
for
$807,783.29
under
subsection
227.1(1)
of
the
Income
Tax
Act
and
three
other
Statutes
for
the
amount
of
unpaid
deductions,
interest
and
penalties
allegedly
payable
by
the
estate
of
the
bankrupt
Brunswick
Drywall.
The
appellant’s
submission
is
that
the
respondent’s
proof
of
claim
(property)
that
was
filed
with
the
trustee
in
bankruptcy
does
not
comply
with
the
requirements
of
subsection
227.1(2)(c)
of
the
Income
Tax
Act
and
consequently
the
appellant
is
not
liable
as
a
director
of
Brunswick
Dry
wall
because
compliance
with
subsection
227.1(2)(c)
“is
a
condition
precedent
to
the
liability
of
the
appellant”.
Counsel
for
the
appellant
recognizes
that
the
respondent
had
a
proprietary
interest
in
the
property
represented
by
the
amounts
deemed
to
be
held
in
trust
by
subsections
227(4)
and
(5)
of
the
Income
Tax
Act
but
he
urged
the
Court
that
“the
section
81
proof
of
claim
(property)
does
not
meet
the
precondition
of
proving
“a
claim
for
the
amount
of’
Brunswick
Drywall’s
liability
on
the
ground
that
a
section
81
proof
of
claim
(property)
is
a
claim
for
a
property
interest
in
an
asset
in
the
possession
of
the
Trustee
at
the
time
of
the
bankruptcy
and
not
a
claim
for
a
debt
or
a
liability
as
required
by
paragraph
227.1(2)(c)
of
the
Act.
Counsel
for
the
appellant
made
it
clear
that
in
his
view
subsection
227.1(2)(c)
contemplates
a
debtor/creditor
relationship
while
in
the
present
case
the
respondent
in
essence
claims
a
proprietary
interest
as
a
beneficiary
under
a
trust.
In
the
course
of
advancing
this
submission,
the
appellant
commented
as
follows
in
paragraph
28
of
his
brief:
28.
The
respondent
intentionally
elected
not
to
claim
the
“liability”
from
Brunswick
Ontario
created
by
subsection
227(9.4),
which
“liability”
may
only
be
“proved”
by
filing
a
section
124
proof
of
claim
pursuant
to
the
Bankruptcy
Act.
Instead
it
elected
to
take
the
high
road
and
claim
a
proprietary
interest
to
the
amounts
that
were
withheld
or
deducted
by
Brunswick
Ontario
pursuant
to
the
deemed
trust
provisions
of
subsections
227(4)
and
227(5)
of
the
Income
Tax
Act,
Canada.
Legislation
It
is
appropriate
first
to
refer
to
the
provisions
of
the
Income
Tax
Act
(in
the
version
applicable
throughout
the
1989
year),
that
may
have
a
bearing
on
the
questions
in
issue.
Subsection
227.1(1)
of
the
Income
Tax
Act
makes
a
director
jointly
and
severally
liable
with
a
corporation
in
respect
of
inter
alia
amounts
that
the
corporation
failed
to
remit
to
the
Receiver
General.
Subsection
227.1(2)
of
the
Income
Tax
Act
provides
that
a
director
is
not
liable
under
subsection
227.1(1)
unless
certain
steps
have
been
taken,
which
steps
vary
depending
upon
the
particular
circumstances
of
the
matter.
Of
the
three
types
of
circumstances
that
are
described
in
paragraphs
(a),
(b)
and
(c)
of
subsection
227.1(2),
it
is
common
ground
that
paragraph
(c)
is
the
only
one
applicable
here.
Subsection
227.1(2)
reads
thus:
227.1(2)
A
director
is
not
liable
under
subsection
(1),
unless
(a)
a
certificate
for
the
amount
of
the
corporation’s
liability
referred
to
in
that
subsection
has
been
registered
in
the
Federal
Court
of
Canada
under
section
223
and
execution
for
such
amount
has
been
returned
unsatisfied
in
whole
or
in
part;
(b)
the
corporation
has
commenced
liquidation
or
dissolution
proceedings
or
has
been
dissolved
and
a
claim
for
the
amount
of
the
corporation’s
liability
referred
to
in
that
subsection
has
been
proved
within
six
months
after
the
earlier
of
the
date
of
commencement
of
the
proceedings
and
the
date
of
dissolution;
or
(c)
the
corporation
has
made
an
assignment
or
a
receiving
order
has
been
made
against
it
under
the
Bankruptcy
Act
and
a
claim
for
the
amount
of
the
corporation’s
liability
referred
to
in
that
subsection
has
been
proved
within
six
months
after
the
date
of
the
assignment
or
receiving
order.
Subsections
227(4)
and
227(5)
of
the
Income
Tax
Act
are
of
particular
interest.
Subsection
227(4)
establishes
the
rule
that
the
moneys
withheld
under
the
Income
Tax
Act
are
held
in
trust
for
Her
Majesty
in
these
terms:
227(4)
Every
person
who
deducts
or
withholds
any
amount
under
this
Act
shall
be
deemed
to
hold
the
amount
so
deducted
or
withheld
in
trust
for
Her
Majesty.
Subsection
227(5),
now
repealed,
in
turn
provides
that
notwithstanding
any
provision
in
the
Bankruptcy
Act
the
moneys
held
in
trust
for
Her
Majesty
shall
be
deemed
to
form
no
part
of
the
estate
of
a
bankrupt.
This
subsection
read
as
follows
at
the
relevant
time:
227(5)
Notwithstanding
any
provision
of
the
Bankruptcy
Act,
in
the
event
of
any
liquidation,
assignment,
receivership
or
bankruptcy
of
or
by
a
person,
an
amount
equal
to
any
amount
(a)
deemed
by
subsection
(4)
to
be
held
in
trust
for
Her
Majesty,
or
(b)
deducted
or
withheld
under
an
Act
of
a
province
with
which
the
Minister
of
Finance
has
entered
into
an
agreement
for
the
collection
of
taxes
payable
to
the
province
under
that
Act
that
is
deemed
under
that
Act
to
be
held
in
trust
for
Her
Majesty
in
right
of
the
province
shall
be
deemed
to
be
separate
from
and
form
no
part
of
the
estate
in
liquidation,
assignment,
receivership
or
bankruptcy,
whether
or
not
that
amount
has
in
fact
been
kept
separate
and
apart
from
the
person’s
own
moneys
or
from
the
assets
of
the
estate.
I
shall
now
turn
to
the
appropriate
provisions
of
the
Bankruptcy
Act
(now
the
Bankruptcy
and
Insolvency
Act)
as
they
applied
in
1989.
It
is
to
be
noted
first
that
the
term
“property”
used
in
many
sections
of
the
Bankruptcy
Act
is
defined
in
section
2
thereof
and
includes,
among
other
things,
“money,
goods
and
things
in
action”.
Section
67
of
the
Bankruptcy
Act
describes
the
property
of
a
bankrupt
that
is
divisible
among
his
creditors
as
follows:
67.
The
property
of
a
bankrupt
divisible
among
his
creditors
shall
not
comprise
(a)
property
held
by
the
bankrupt
in
trust
for
any
other
person,
(b)
any
property
that
as
against
the
bankrupt
is
exempt
from
execution
or
seizure
under
the
laws
of
the
province
within
which
the
property
is
situated
and
within
which
the
bankrupt
resides,
but
it
shall
comprise
(c)
all
property
wherever
situated
of
the
bankrupt
at
the
date
of
his
bankruptcy
or
that
may
be
acquired
by
or
devolve
on
him
before
his
discharge,
and
(d)
such
powers
in
or
over
or
in
respect
of
the
property
as
might
have
been
exercised
by
the
bankrupt
for
his
own
benefit.
Section
81
sets
out
the
procedure
to
be
followed
where
a
person
claims
a
proprietary
interest
in
a
property
in
the
possession
of
a
bankrupt
at
the
time
of
the
bankruptcy.
Subsection
81(1)
is
couched
in
these
terms:
81(1)
Where
a
person
claims
any
property,
or
interest
therein,
in
the
possession
of
a
bankrupt
at
the
time
of
the
bankruptcy,
he
shall
file
with
the
trustee
a
proof
of
claim
verified
by
affidavit
giving
the
grounds
on
which
the
claim
is
based
and
sufficient
particulars
to
enable
the
property
to
be
identified.
Section
96
of
the
Bankruptcy
Rules
provide
that
“where
a
person
claims
any
property
or
interest
therein
by
virtue
of
subsection
81(1)
of
the
Act,
he
shall
file
with
the
trustee,
as
evidence
thereof,
a
proof
of
claim
in
Form
63”.
Section
121
deals
with
claims
provable
under
the
Bankruptcy
Act.
Subsection
121(1)
reads
thus:
121(1)
All
debts
and
liabilities,
present
or
future,
to
which
the
bankrupt
is
subject
at
the
date
of
the
bankruptcy
or
to
which
he
may
become
subject
before
his
discharge
by
reason
of
any
obligation
incurred
before
the
date
of
the
bankruptcy
shall
be
deemed
to
be
claims
provable
in
proceedings
under
this
Act.
Section
121
is
completed
by
section
124,
which
is
hereafter
reproduced:
124(1)
Every
creditor
shall
prove
his
claim,
and
a
creditor
who
does
not
prove
is
claim
is
not
entitled
to
share
in
any
distribution
that
may
be
made.
(2)
A
claim
shall
be
proved
by
delivering
to
the
trustee
a
proof
of
claim
in
the
prescribed
form.
(3)
The
proof
of
claim
may
be
made
by
the
creditor
himself
or
by
a
person
authorized
by
him
on
behalf
of
the
creditor,
and,
if
made
by
a
person
so
authorized,
it
shall
state
his
authority
and
means
of
knowledge.
(4)
The
proof
of
claim
shall
contain
or
refer
to
a
statement
of
account
showing
the
particulars
of
the
claim
and
any
counter-claim
that
the
bankrupt
may
have
to
the
knowledge
of
the
creditor
and
shall
specify
the
vouchers
or
other
evidence,
if
any,
by
which
it
can
be
substantiated.
(5)
The
proof
of
claim
shall
state
whether
the
creditor
is
or
is
not
a
secured
or
preferred
creditor.
The
form
to
be
used
in
respect
of
a
claim
coming
within
section
124
of
the
Bankruptcy
Act
is
Form
61.
In
light
of
the
above
provisions
of
the
Income
Tax
Act
and
the
Bankruptcy
Act,
the
precise
question
to
be
solved
is
whether
the
respondent
by
filing
a
proof
of
claim
(property),
followed
a
procedure
which
comes
within
the
purview
of
paragraph
227.1(2)(c)
of
the
Income
Tax
Act
in
respect
of
her
claim
in
the
amount
of
$747,075.33
where
a
corporation
had,
for
instance,
made
an
assignment
under
the
Bankruptcy
Act,
as
is
the
case
here.
The
associate
Chief
Judge
Christie
of
this
Court
has
commented
on
the
import
of
subsection
227.1(2)
of
the
Income
Tax
Act
in
his
decision
affirmed
by
the
Federal
Court
of
Appeal
in
the
case
of
Kennedy
v.
Minister
of
National
Revenue,
[1991]
2
C.T.C.
2333,
91
D.T.C.
1037
(T.C.C.),
at
page
2336
(D.T.C.
1040):
As
I
perceive
it
the
object
of
subsection
227.1(2)
is
to
require
as
a
condition
precedent
to
making
a
director
liable
under
subsection
227.1(1)
the
taking
of
appropriate
steps
by
the
Minister
to
recover
the
debt
incurred
by
a
corporation
by
reason
of
its
having
failed
to
deduct
or
withhold
tax
at
source,
or
having
failed
to
remit
such
deductions.
It
is
the
appellant’s
contention
that
fulfilling
the
requirements
of
paragraph
227.1(2)(a)
is
not
compliance
with
the
condition
precedent
in
all
cases.
Whether
there
must
be
observance
of
paragraph
227.1(2)(a)
or
(b)
or
(c)
in
order
to
do
so
will
depend
on
the
facts
of
each
case.
If
a
corporation
has
commenced
liquidation
or
dissolution
proceedings
or
has
been
dissolved,
the
route
designated
under
paragraph
227.1(2)(b)
must
be
followed.
If
a
corporation
has
made
an
assignment
or
a
receiving
order
has
been
made
against
it
under
the
Bankruptcy
Act,
paragraph
227.1(2)(c)
governs.
In
other
circumstances,
paragraph
227.1(2)(a)
is
applicable.
I
think
that
the
foregoing
is
the
proper
approach.
By
virtue
of
subsection
227(4)
the
amounts
withheld
but
not
remitted
to
the
Receiver
General
were
held
in
trust
for
Her
Majesty.
These
amounts
held
in
trust
formed
no
part
of
Brunswick
Dry
wall’s
estate
upon
the
assignment
in
bankruptcy
on
July
12,
1989
by
virtue
of
subsection
227(5)
of
the
Income
Tax
Act.
The
latter
subsection
is
applicable,
as
it
is
expressly
provided
therein,
“notwithstanding
any
provision
of
the
Bankruptcy
Act.”
This
notional
trust
created
by
subsection
227(4)
and
(5)
of
the
Income
Tax
Act
has
been
the
subject
of
an
interesting
analysis
by
the
Manitoba
Court
of
Appeal
in
the
case
of
Roynat
Inc.
v.
Ja-Sha
Trucking
&
Leasing
Ltd.,
[1992]
2
W.W.R.
641,
89
D.L.R.
(4th)
405
(Man.
C.A.).
The
following
excerpt
from
the
head-note
accurately
summarizes
the
material
facts;
it
reads
thus:
The
plaintiff
held
a
perfected
security
interest,
pursuant
to
the
provisions
of
the
Personal
Property
Security
Act,
R.S.M.
1987,
C.P35,
on
the
undertaking
of
the
defendant
debtor.
The
plaintiff
caused
a
receiver
and
manager
to
be
appointed
when
default
occurred.
The
receiver
held
certain
moneys
and
brought
this
application
for
advice
and
directions
concerning
their
disposition.
Revenue
Canada
claimed
priority
over
the
plaintiff
by
reason
of
the
deemed
trusts
created
by
subsections
23(3)
and
(4)
of
the
Canada
Pension
Plan,
R.S.C.
1985,
c.
C-8,
subsections
227(4)
and
(5)
of
the
Income
Tax
Act,
S.C.
1970-71-72,
c.
63,
and
subsections
57(2)
and
(3)
of
the
Unemployment
Insurance
Act,
R.S.C.
1985,
c.
U-1,
over
moneys
withheld
by
the
defendant.
The
following
passages
in
the
majority
judgment
of
the
Manitoba
Court
of
Appeal
at
pages
646-47
(D.L.R.
410-11)
are
noteworthy:
The
difficulty
arises
when
the
moneys
have
been
misappropriated
by
the
employer.
The
subject
of
the
trust
is
gone.
The
receiver
on
his
appointment
acquires
no
trust
property
at
all.
Under
the
second-quoted
subsection
of
each
statute,
the
receiver’s
appointment
triggers
what
appears
to
be
a
second
trust;
this
a
deemed
one.
The
subject
of
this
trust
is
said
to
be
an
amount
equal
to
the
amount
which
was
held
in
trust
by
the
employer
previously.
There
is
thus
certainty
as
to
the
amount
due
to
the
beneficiary
of
the
trust,
but
no
certainty
as
to
which
of
the
employer’s
assets
are
subject
to
it.
I
would
ordinarily
have
thought
that
even
Parliament
could
not
create
a
trust
without
a
res:
see
Clarkson
Gordon
Inc.
v.
Manitoba
(1986),
31
D.L.R.
(4th)
701,
35
B.L.R.
27,
[1986]
6
W.W.R.
655,
sub
nom.
Robinson,
Little
&
Co.
(Man.
C.A.).
Yet,
if
the
legislative
language
means
what
it
says,
that
is
what
happens
here.
Her
Majesty’s
claim
would
then
be
that
of
a
beneficiary
under
a
non-existent
trust.
The
purist’s
point
of
view
was
expressed
by
Huband
J.A.
in
Manitoba
(Minister
of
Labour)
v.
Omega
Autobody
Ltd.
(Receiver
of)
(1989),
59
D.L..R
(4th)
34,
75
C.B.R.
(N.S.)
185,
33
E.T.R.
66,
sub
nom.
Manitoba
(Minister
of
Labour)
v.
Minister
of
National
Revenue
(Man.C.A.).
He
said
(at
page
36):
Legislators
can
call
the
arrangement
whatever
they
choose,
but
by
calling
it
a
deemed
trust,
it
does
not
make
it
a
real
trust
unless
the
moneys
have
been
specifically
set
aside.
Huband
J.A.
was,
however,
in
the
minority
on
this
point.
Philp
J.A.
delivered
the
majority
judgment.
As
I
understand
his
reasons,
he
was
of
the
view
that
the
trust
deemed
to
exist
under
federal
legislation
similar
to
that
involved
in
this
case
was
a
mechanism
for
tracing
the
original
trust
moneys
which
had
been
misappropriated.
He
explained
it
in
this
way
at
page
42
(C.B.R.
194):
If
the
person
making
the
deductions
under
the
Income
Tax
Act
keeps
them
separate
and
apart,
it
would
appear
that
an
effective
trust
has
been
created.
However,
if
liquidation,
assignment,
bankruptcy
or
receivership
has
not
occurred
...
the
problem
of
identifying
or
tracing
the
property
that
is
the
subject
of
the
deemed
trust
arises.
In
the
event
of
liquidation,
assignment,
bankruptcy
or
receivership,
the
requirement
upon
the
beneficiary
of
the
trust
to
identify
or
trace
the
property
subject
to
the
trust
is
eliminated;
on
the
happening
of
any
of
those
events
the
enactment
deems
the
trust
property
to
be
separate
from
and
form
no
part
of
the
estate...
This
rationale
to
me
makes
sense.
The
deemed
trust
arising
on
the
appointment
of
a
receiver
is
not
a
trust
at
all.
It
is
a
mechanism
for
tracing.
Her
Majesty
has
a
statutory
right
of
access
to
whatever
assets
the
employer
then
has,
out
of
which
to
realize
the
original
trust
debt
due
to
Her.
It
is
well
established
that
a
trust
constitutes
a
proprietary
interest.
As
noted
by
D.W.M.
Waters,
Law
of
Trust
in
Canada,
citing
Underhill’s
Law
of
Trusts
and
Trustees.
A
trust
is
an
equitable
obligation
binding
a
person
(who
is
called
a
trustee)
to
deal
with
property
over
which
he
has
control
(which
is
called
the
trust
(property),
for
the
benefit
of
persons
(who
are
called
the
beneficiaries
or
cestuis
que
trust),
of
whom
he
may
himself
be
one,
and
anyone
of
whom
may
enforce
the
obligation.
It
should
be
mentioned
that
the
moneys
held
in
trust
constitute
property
having
regard
to
the
definition
of
this
term
in
section
2
of
the
Bankruptcy
Act,
as
noted
earlier.
However,
by
virtue
of
section
67
of
the
Bankruptcy
Act,
the
property
of
the
bankrupt
divisible
among
his
creditors
does
not
comprise
property
held
by
the
bankrupt
in
trust
for
any
other
person.
It
follows
from
the
above
that
the
respondent
could
not
use
Form
61
to
prove
her
claim
against
these
moneys
held
in
trust
but
had
to
resort
to
the
proof
of
claim
form
relating
to
claims
for
proprietary
interest
that
is,
Form
63
made
pursuant
to
section
96
of
the
Bankruptcy
Rules.
The
respondent
therefore
acted
properly
in
filing
the
proof
of
claim
(property)
in
respect
of
the
moneys
held
in
trust
for
her.
These
observations
do
not
however
dispose
of
the
question
at
hand.
Was
the
proof
of
claim
(property)
filed
by
the
respondent
a
proof
of
the
claim
for
the
amount
of
Brunswick
Drywall’s
liability
within
the
meaning
of
paragraph
227.1(2)(c)?
In
other
words
is
the
language
used
in
paragraph
227.1(2)(c)
broad
enough
to
cover
the
situation
where
the
claim
made
by
the
respondent
is
in
respect
of
a
property
interest
against
the
estate
of
the
bankrupt?
In
my
view,
the
words
used
in
paragraph
227.1(2)(c)
“a
claim
for
the
amount
of
the
corporation’s
liability”
are
apt
to
cover
a
proof
of
claim
(property)
or,
in
other
words,
a
claim
under
subsection
81(1)
of
the
Bankruptcy
Act
for
property
in
the
possession
of
the
bankrupt
at
the
time
of
the
assignment.
Paragraph
227.1(2)(c)
speaks
of
the
liability
of
the
corporation
referred
to
in
subsection
227.1(1).
The
liability
of
the
corporation
mentioned
in
227.1(1)
is
in
part
to
pay
to
the
Receiver
General
the
source
deductions
or,
in
other
words,
to
pay
a
sum
of
money
representing
these
source
deductions.
The
moneys
were
deemed
to
be
held
in
trust
by
Brunswick
Drywall
for
the
benefit
of
Her
Majesty
by
virtue
of
subsection
227(4)
of
the
Income
Tax
Act.
The
nature
of
the
claim
in
the
amount
of
$747,075.33,
which
was
the
subject
matter
of
a
proof
of
claim
(property),
is
a
claim
for
moneys
held
in
trust
for
Her
Majesty
to
be
paid
to
Her
Majesty
as
a
beneficiary
under
the
trust
created
by
subsection
227(4).
I
am
persuaded
that
as
a
matter
of
language,
it
could
be
said
that
Brunswick
Drywall
was
liable
for
the
payment
of
that
amount
to
Her
Majesty.
The
proof
of
claim
(property)
filed
by
the
respondent
within
the
required
time
proved
that
claim
as
required
by
paragraph
227.
l(2)(c).
In
coming
to
this
conclusion,
I
posit
that
the
words
used
in
paragraph
227.1(2)(c)
“a
claim
for
the
amount
of
the
corporation’s
liability”
should
be
construed
in
accordance
with
their
plain
meaning.
Counsel
for
the
appellant
has
placed
much
emphasis
on
the
word
“liability”
in
paragraph
227.1(2)(c);
equal
emphasis
should
be
placed
on
the
word
“amount”
in
the
sense
that
as
long
as
there
is
a
claim
for
the
amount
the
precondition
for
the
director’s
joint
liability
has
been
met.
The
nature
of
the
liability
is
not
important
(be
it
debtor/creditor
or
trustee/beneficiary)
for
the
purposes
of
paragraph
227.1(2)(c)
of
the
Income
Tax
Act
but
what
is
important
is
that
the
director
is
only
liable
for
the
amount
of
the
claim
against
the
corporation
that
has
been
properly
proved
within
the
required
time.
I
am
fortified
in
my
conclusion
that
the
wording
of
paragraph
227.1(2)(c)
does
not
necessarily
connote
the
existence
of
the
debtor/creditor
relationship,
as
has
been
suggested
by
counsel
for
the
appellant
because
this
narrow
interpretation
placed
on
the
words
“claim
for
the
amount
of
the
corporation’s
liability”
propounded
by
the
appellant
leads
to
an
undesirable
and
unintended
results
and
consequences.
In
effect,
according
to
this
interpretation,
the
directors
of
a
corporation
would
be
jointly
and
severally
liable
together
with
the
corporation
to
pay
to
the
Receiver
General,
for
instance,
amounts
described
in
subsection
227.1(1)
but
only
if
the
Crown’s
claim
is
one
which
can
be
the
subject
matter
of
a
proof
of
claim
contemplated
by
section
124
of
the
Bankruptcy
Act.
This
liability,
according
to
this
interpretation,
would
not
extend
to
a
claim
which
can
properly
be
proved
by
a
proof
of
claim
(property).
This
would
mean
in
the
present
case
that
a
director
of
Brunswick
Dry
wall
would
be
liable
with
the
latter
corporation
only
for
the
portion
of
the
claim
that
relates
to
interest
and
penalties
payable
under
the
Income
Tax
Act
as
a
result
of
the
failure
to
remit
the
subject
source
deductions.
The
director
of
Brunswick
Drywall
would
be
absolved
from
liability
in
respect
of
the
portion
of
the
Crown’s
claim
against
the
corporation
to
the
extent
that
it
relates
to
the
amounts
deducted
from
the
wages
of
its
employees.
This
result
that
the
portion
of
the
Crown’s
claim
involving
the
unremitted
source
deductions
would
not
be
caught
by
the
words
used
in
paragraph
227.1(2)(c)
of
the
Income
Tax
Act
would
be
most
amazing
and
startling
if
the
following
considerations
regarding
the
impact
of
such
interpretation
are
taken
into
account.
In
effect,
it
must
be
borne
in
mind
that
Parliament
enacted
subsections
227(4)
and
(5)
of
the
Income
Tax
Act
for
the
purpose
of
granting
special
protection
to
the
Crown’s
interest
in
the
property
represented
by
the
unremitted
source
deductions
by
impressing
this
property
with
a
trust
mechanism
aimed
at
safeguarding
for
the
Crown’s
benefit
these
moneys
deducted
by
the
corporation
from
the
employees’
remuneration.
Despite
these
provisions
found
in
subsections
227(4)
and
(5),
the
Crown
in
the
event
of
a
bankruptcy,
for
instance,
would
enjoy
a
lesser
measure
of
protection
than
it
would
with
respect
to
the
amounts
of
penalties
and
interest
assessed
against
a
corporation
as
a
result
of
the
failure
to
remit
these
source
deductions,
which
amounts
of
penalties
and
interest
are
not
subject
of
any
particular
protective
measure.
In
connection
with
the
amounts
of
penalties
and
interest
relating
to
those
unremitted
source
deductions
assessed
against
the
corporation,
it
was
aknowledged
by
the
appellant
that
they
could
properly
be
the
subject
matter
of
a
valid
claim
against
the
appellant,
the
requirements
of
paragraph
227.1(2)(c)
having
been
met
in
the
present
case.
In
view
of
the
above
observations,
I
am
therefore
of
the
opinion
that
such
an
interpretation
could
not
be
accepted
unless
clear
and
unmistakable
language
adopted
by
Parliament
leads
to
no
other
conclusion.
The
other
interpretation
which
I
have
accepted
supra
does
not
carry
with
it
any
anomalous
or
undesirable
results.
In
view
of
the
above,
I
therefore
come
to
the
conclusion
that
the
answer
to
Question
1
should
be
in
the
affirmative.
With
respect
to
Question
2,
it
was
agreed
by
counsel
for
both
parties
in
the
course
of
a
conference
call
held
on
the
Court’s
own
initiative
shortly
after
the
hearing
of
this
appeal
that
I
should
not
answer
Question
2.
Consequently,
I
conclude
that
no
answer
should
be
given
to
Question
2.
Costs
are
awarded
to
the
respondent.
Order
accordingly.
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