Section 62.1
Paragraph 62.1(b)
Subparagraph 62.1(b)(ii)
Administrative Policy
Pending Default of a Proposal under the BIA where the Canada Revenue Agency is a majority creditor: April 23, 2020 OSB Webpage
COVID-19 context
The CRA has heard from Licensed Insolvency Trustees (LITs) and the Office of the Superintendent of Bankruptcy (OSB) about debtors who have suffered a loss of employment or a reduction of income as a result the COVID-19 outbreak and their concerns over defaulting on their proposals.
The CRA is proposing a solution to assist taxpayers and LITs in circumstances where the CRA is the majority creditor and the debtor is experiencing financial hardship.
Waiver, where CRA the majority creditor, of ITA s. 224(1.2) amounts under BIA s. 62.1 until September 1, 2020
For proposals filed under Division 1 of the Bankruptcy and Insolvency Act (BIA), the CRA is offering a waiver of the default pursuant to section 62.1 of the BIA and granting a deferral of payments to the estate up to September 1, 2020. This will also apply to any amounts subject to section 60(1.1) of the BIA as per our existing Administrative Agreement policy with LITs.
For consumer proposals under the BIA, the CRA offers the acceptance of an amended proposal that calls for a deferral of payments up to September 1, 2020.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 224 - Subsection 224(1.2) | deferral of payments under a Bankruptcy proposal until September 1, 2020 | 194 |
Section 50.6
Subsection 50.6(3)
Cases
Attorney General of Canada v. Richter Advisory Group Inc., 2023 QCCA 1295
On October 26. 2021, two debtors filed a notice of intention to make a proposal pursuant to s. 50.4 of the Bankruptcy and Insolvency Act (“BIA”) and, a day later, the Quebec Superior Court issued an order for interim financing of the debtors by a bank (CIBC) to sustain their operations during a sale process, with such financing ordered to have a super-priority charge. The net proceeds of the sale totalled about $2.2 million, the super-priority charges totalled approximately $2.4 million and the unremitted federal and Quebec source deductions of the debtors totalled approximately $3.2 million.
In finding that the Superior Court had the jurisdiction to provide that the super-priority charges ranked ahead of the deemed trust for the federal source deductions under ITA s. 227(4.1) (and also for the Quebec source deductions under s. 20 of the Quebec Tax Administration Act, for which the analysis was stated to be the same), Schrager JA noted:
- Canada North decided that CCAA courts could grant super-priority charges ranking in priority to s. 227(4.1) deemed trusts.
- Callidus indicated that the “proposal provisions in the BIA serve … the same remedial purpose as those in the CCCA – i.e., the financial rehabilitation of an insolvent corporate debtor” and “to the extent possible, the two statutes should be treated in a harmonized fashion” (para. 46).
- Regarding BIA s. 50.6(3), which was the basis of the “judge’s power to establish the rank of the charge to secure an interim loan” (para. 49), and provided that the “court may order that the … charge rank in priority over the claim of any secured creditor,” the arguments of Attorney General that this provision had no application because s. 227(4.1) did not create a security interest, “it would seem nonsensical in the overall scheme of the BIA that a court could order that the interim lending charge take priority over the claim of any hypothecary or mortgage creditor but not over the claim of an unsecured creditor benefiting from a sui generis non-proprietary right akin to a floating charge, that is, the ITA Deemed Trust” (para. 51).
- If the above interpretation of s. 50.6(3) was incorrect, “the judge’s power to order the creation of priming charges is justified by his inherent jurisdiction” (para. 54): “Judgments of this Court have acknowledged the existence of this inherent jurisdiction under the BIA” (para. 57).
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 227 - Subsection 227(4.1) | s. 227(4.1) could be subordinated by court for super-priority interim financing re proposal in bankruptcy | 328 |
Section 69
Subsection 69(4)
Administrative Policy
2 November 2023 APFF Roundtable Q. 13, 2023-0982941C6 F - APFF - Congrès 2023 - Table ronde sur la fiscalité
Trustee of Girard, 2014 QCCA 1922, stated, in connection with the Bankruptcy and Insolvency Act ("B.I.A.") and CRA notices of assessment:
[68] In conclusion, if the CRA files a claim with the trustee, it may follow it up with a notice of assessment. However, since this notice of assessment constitutes a procedure for the collection of a provable claim, it will not have the legal effects conferred on it by the ITA, unless the CRA obtains the authorization of the court. In other words, if the CRA wishes the ITA's procedure for contesting a notice of assessment to apply, particularly as regards the time limit for contesting it, it must apply to the court and obtain the court's consent, in accordance with section 69.4 of the BIA.
Regarding Girard, CRA stated:
The CRA does not consider that it must apply to the court in all cases where it issues a notice of assessment following a bankruptcy or the filing of a proposal for a tax debt relating to a taxation year ending on a day preceding the date of the bankruptcy or proposal, in order to ensure sound administration and reasonable use of judicial resources.
For example, the CRA will not seek court authorization where the trustee does not contest its proof of claim. Similarly, the CRA will not seek leave where the debtor (in a proposal) or the trustee (in a bankruptcy) does not intend to object to the assessment.
Where the particular context of a case so requires, in applying Girard, the CRA will seek leave of the court under section 69.4 B.I.A. to lift the stay of proceedings. …
In Girard, the presumption of validity of notices of assessment under subsection 152(8) I.T.A. was not at issue. …
In the event that a trustee contests the CRA's proof of claim, the legal effects of the notice of assessment, including the procedure for contesting the assessment and the time limits associated with it, are suspended until the CRA obtains the lifting of the suspension of proceedings under section 69.4 B.I.A., pursuant to the Girard decision.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 152 - Subsection 152(8) | stay of proceedings under the BIA is a procedural limitation that does not affect an assessment’s validity | 284 |
Section 121
Subsection 121(1)
Cases
Leo Beauchesne Inc. v. The Queen, 77 DTC 5308, [1977] CTC 398 (FCTD)
A discharge order based on a proposal made under Part III of the Bankruptcy Act discharged the taxpayer's liability relating to deductions which it had erroneously taken in prior years in respect of which no reassessment action yet had been taken by the Minister.
Section 172.1
Subsection 172.1(8)
Cases
Schnier v. Canada (Attorney General), 128 O.R. (3d) 537, 2016 ONCA 5
At the time of his bankruptcy, the taxpayer had unpaid income tax assessments of $4.478 million of which$4.424 million were under appeal to the Tax Court of Canada. At issue was whether the full assessed amount qualified as an “amount payable, within the meaning of subsection 223(1) of the Income Tax Act … by an individual,” in which case s. 172.1 of the Bankruptcy and Insolvency Act would have been applicable.
In finding that the taxes under appeal did not so qualify under s. 223(1), Brown JA noted the Attorney General’s arguments that ITA s. 158 deems an assessed amount to thereupon be “payable forthwith,” and s. 152(8) deems an assessment to be “valid and binding,” and stated (at paras. 41, 49-50)
Both ss. 152(8) and 248(2) indicate that until the objection or appeal process is concluded, the amount of tax the Minister can compel a taxpayer to pay cannot be known. The assessed amount can change from time to time by virtue of judicial decisions or new assessments... .
...The restraints placed by ITA s. 225.1 on the enforceability of an assessed amount of tax that is under appeal are strong indicators that a claim based on those amounts would not be provable in a bankruptcy.
Consequently, where amounts of income tax assessed against an individual bankrupt taxpayer remain under appeal at the time of his discharge hearing, the existence of the outstanding appeal entitles the trustee to classify the claim based on the unpaid assessed amounts as a contingent, unprovable one.
He then noted (at para. 63) that
to qualify as “personal income tax debt” within the meaning of s. 172.2(1), the tax debt must be a proven claim.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 223 - Subsection 223(1) | appealed assessment not an amount payable | 144 |
| Tax Topics - Income Tax Act - Section 152 - Subsection 152(8) | assessed amount under appeal not an amount payable | 295 |
Section 173
Subsection 173(1)
Paragraph 173(1)(a)
Cases
In re Katari, 89 DTC 5324 (S.C.O.)
The taxpayer, who made an assignment in bankruptcy primarily as a result of his failure to make quarterly remittances of income tax instalments, failed to establish the onus set out in s. 173(1)(a), and pursuant to s. 172(2) of the Bankruptcy Act, his discharge was made conditional on repaying the amount owing in 80 monthly instalments without interest. Granger J. noted that as a result of the taxpayer's failure to make instalments, he had been able to enjoy a higher standard of living than he would have enjoyed if he had complied with his statutory duty like most Canadians.
Section 243
Cases
British Columbia v. Peakhill Capital Inc., 2024 BCCA 246
The Province appealed from an order pronounced in a receivership under the Bankruptcy and Insolvency Act (Canada) approving a reverse vesting order (“RVO”), under which the shares of the insolvent debtor were sold to a purchaser after removal of unwanted assets and liabilities. This share sale avoided the imposition of property transfer tax (“PTT”) under the Property Transfer Tax Act (B.C.) thereby enhancing the value of the estate to be distributed to the secured creditors. The judge below had indicated that “[i]t is uncontested that the purpose for structuring the Transaction in this way, as opposed to through a conventional [asset sale], was to avoid paying PTT of approximately $3.5 million” (quoted at para. 5).
In finding that the judge had jurisdiction pursuant to s. 243 of the BIA to authorize the RVO, Harris JA stated (at para. 24):
[T]here is a clear jurisdiction to authorize an RVO found in s. 243, provided that the vesting order in question is incidental and ancillary to the receiver’s power to liquidate the assets by sale. The shares of the insolvent company are assets within the receivership. The receiver has taken possession and control of them. They are capable of being sold or liquidated just as underlying assets held by the company can be sold or liquidated. Just as the company’s underlying assets can be prepared for the sale in a manner intended to maximize their fair market value (as in an AVO [asset sale]), so too can arrangements be made to enhance the value of the shares by transferring the liabilities that serve to depress the value of those shares to another entity. I can see no reason to conclude that an RVO is not incidental or ancillary to a receiver’s power to sell. An RVO advances the same goals as an AVO — albeit by employing a different transaction structure. The Province was not able to explain why the RVO at issue here was not incidental or ancillary to powers of the court and receiver under s. 243.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 245 - Subsection 245(3) | structuring a receiver’s sale of B.C. real property as a share sale to avoid LTT was not an avoidance transaction | 442 |