10 November 1998 GST/HST Interpretation HQR0001357 - Bankruptcy and Insolvency: The Superintendent's Levy

Thank you for your memorandum of September 30, 1998 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the Superintendent's Levy imposed under the Bankruptcy and Insolvency Act (BIA).

Our understanding of the facts is as follows:

Under section 147 of the BIA there is a levy, payable to the Receiver General, to defray costs incurred by the Superintendent of Bankruptcy (Superintendent) in administering an estate. This levy is payable, with some exceptions, on all payments made by a trustee to a creditor. The exceptions include solicitor's fees, sheriff's fees, land registrations, and property claims. The withholding rate varies depending on the total amount of the bankrupt estate.

Part X of the BIA outlines the Orderly Payment of Debt (OPD) provisions. The OPD provision apply only to those provinces and territories which have agreed to be governed by the legislation, namely, British Columbia, Alberta, Saskatchewan, Manitoba, Nova Scotia, Prince Edward Island and the Northwest Territories. The OPD provisions allow debtors who cannot meet their obligations as they become due, to apply directly to a Clerk of a County or District Court to fix an amount to be paid into Court and distributed to the creditors on a pro-rata basis. This provision applies to the Crown. The withholding rate for the Superintendent's fee on OPD accounts is set at 15% for payments made after April 1, 1998.

Our Comments

Subsection 147(1) of the BIA states that for the purpose of defraying the expenses of the supervision by the Superintendent, a levy is payable to the Superintendent for deposit with the Receiver General on all payments made by the trustee by way of dividend or otherwise on account of the claims of creditors. The exceptions are noted in subsection 70(2) of the BIA. Under the OPD provisions, the trustee, distributes part of the payment to the creditor and the other 15% to the Superintendent.

Subsection 123(1) of the Excise Tax Act (ETA) defines "supply" as, subject to section 133 and 134, the provision of property or service in any manner, including sale, transfer, barter, exchange, license, rental, lease, gift or disposition. A "taxable supply" is defined as a supply made in the course of commercial activity. "Commercial activity" of a person means, in part, a business carried on by the person (other than a business carried on without a reasonable expectation of profit by an individual, a personal trust or a partnership, all of the members of which are individuals), except to the extent to which the business involves the making of exempt supplies by the person. A "business" includes a profession, calling, trade, manufacture or undertaking of any kind whatever, whether the activity or undertaking is engaged in for profit, and any activity engaged in on a regular or continuous basis that involves the supply of property by way of lease, license or similar arrangement, but does not include an office or employment.

It appears that this fee is in respect of a supply of the service of supervision being provided by the Superintendent in the course of a commercial activity. Therefore, the fee is a taxable supply for purposes of the GST/HST. Subsection 165(1) of the ETA states that every recipient of a taxable supply made in Canada shall pay tax in respect of the supply calculated at the rate of 7% on the value of the consideration for the supply. On April 1, 1997, the harmonized sales tax (HST) replaced the goods and services tax (GST) and the provincial sales tax (PST) in the three participating provinces of Nova Scotia, New Brunswick and Newfoundland with a harmonized tax rate of 15%. Subsection 165(2) of the ETA states that every recipient of a taxable supply made in a participating shall pay, in addition to the tax imposed by subsection (1), tax in respect of the supply calculated at the tax rate for that province on the value of the consideration for the supply.

Should you have any questions please do not hesitate to contact me at 952-9577 or Duncan Jones at 952-9210.

Marilena Guerra
Rulings Officer
Financial Institutions and Real Property Division
GST/HST Rulings and Interpretations Directorate
Policy and Legislation Branch