Telephone: (613) 954-8585
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XXXXX File: 11750-3
Dear XXXXX:
We are replying to your letter to Robert Wong dated June 30, 1993 in which you have posed a number of questions concerning receiverships. We apologize for the delay in responding to your submission.
We have reproduced below each of the questions presented and have responded to each of them in turn.
Question 1:
Should a separate account number (a branch number of the original registrant) be automatically given to a receiver who is appointed? Could you supply the appropriate authority/reference that requires/enables us to do this?
Response:
When a receiver is appointed over some, but not all of the assets of the registrant, para. 266(2)(c) of the Excise Tax Act provides that the assets over which the receiver has control (relevant assets) shall be deemed to be separate from the remainder of the business, properties, affairs or assets of the person as if those relevant assets were those of a separate person. In order to enable the receiver to account for activities which relate only to the relevant assets, and since the relevant assets do not constitute a separate person, Excise establishes a branch account of the debtor for these assets during the period of the receivership.
Alternatively, if the receiver is appointed over all of the assets of the person, then the receiver steps into the shoes of the person and conducts activities under the registration number of the registrant.
Question 2:
(i) Assume that a new account number is not given, and that the receivership is almost at a conclusion, will a credit amount claimed be offset by a pre-receivership outstanding debit? Again, can the appropriate authority, etc. be supplied to us?
(ii) Assume the same facts in (i) above except that the receivership is ongoing, far from completion, and operations may be affected by not receiving these funds, will the debit and credit be offset? Please supply the relevant authority.
Response:
(i) Except where a receivership and a bankruptcy coexist, the right of set-off under s. 318 of the ETA allows the Minister to apply any refunds or rebates generated during a receivership to pre-receivership liabilities if the receiver takes over all of the assets of the person.
F[o]r receivers appointed after 1992, if the receiver takes over relevant assets of the person, (i.e. some but not all of the assets of the person) the Department may only use refunds/rebates generated during a receivership to offset any pre-receivership debits that relate to those relevant assets. Because those assets are treated as if they were assets of a separate person, they are not available to satisfy any pre-receivership debt that is not attributable to the relevant assets. XXXXX. Therefore, there is no set-off available.
(ii) The comments to (i) remain applicable here. Where set-off may be carried out — usually situations in which a receiver is appointed over all of the debtor's assets — Collections may accept representation from a receiver that it is financially better for the Department to allow the receiver in a particular case to use credit amounts as operating funds. In that case, the Department would not exercise its discretion under s. 318 and no offset would occur.
Question 3:
Assume the same facts, except that a new separate number is given to XXXXX will the credit now be paid and NOT offset against the debit? Please supply the relevant authority.
Response:
As noted in the response to question 2, for receivers appointed after 1992, if the receiver takes over relevant assets of the person, (i.e. some but not all of the assets of the person) the Department may only use refunds/rebates generated during a receivership to offset any pre-receivership debits that relate to those relevant assets. Because those assets are treated as if they were assets of a separate person, they are not available to satisfy any pre-receivership debt that is not attributable to the relevant assets. From a practical standpoint, however, unless the Department actually audits the receiver for that file or can support an allocation of debt from the registrant's main account (e.g. the receiver takes over assets for which activities were already accounted for separately as a filing branch of the person), it will not be possible to establish any pre-receivership debt for those relevant assets. Therefore, there is no set-off available.
Question 4:
Is it a fact that if there is a fixed charge against specific assets that pre-receivership debits will not be offset against credit claims in the receivership period by the receiver?
Response:
Our responses to Question 2 are also applicable here. Unless the debtor somehow managed to give a secured creditor a net tax refund as security, the fact that other assets are subject to a charge, whether fixed or floating, is not relevant to the question of whether an offset could occur.
The nature of the security which covers other assets is only material if the Crown seeks to claim the priority to any proceeds of realization from those assets. While it is not possible to determine with certainty what is the Crown's priority in such cases without knowing their particular facts, the Crown will, generally speaking, rank behind a creditor holding a fixed charge over the assets. On the other hand, the Crown will generally rank in priority over a creditor holding a floating charge. However, it should be noted that, with respect to accounts receivable pledged to a secured creditor, the Department's position is that, at a minimum, the Crown is entitled to the tax content of those accounts receivable in priority to other creditors.
Question 5:
Is it a fact that if there is a floating charge against assets that pre-receivership debits may possibly be offset against credit claims in the receivership period by the receiver?
Response:
See our response to Question 4.
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This interpretation is based upon our current understanding of the ETA and regulations thereunder in their present form and does not take into account the effects of any proposed or future amendments thereto or future changes in interpretation.
Further, while we trust that our comments are of assistance to you, we would advise that they do not constitute a GST ruling and are, therefore, not binding upon the Department in respect of any particular fact situation.
We hope that you find our comments helpful. If you have any questions, please contact Robert Wong at (613) 952-9577.
Yours truly,
H.L. Jones
Director
General Tax Policy
GTP: XXXXX
| c.c.: |
D. Caron
P. Banham
A. Trattner
R. Wong |
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