Companies' Creditors Arrangement Act

Section 21


Métaux Kitco Inc. v. ARQ and AG, 2016 QCCS 444

CRA precluded from setting off assessed amount for pre-CCAA filing periods against post CCAA ITC claims of taxpayer

The appellant (“Kitco”), a gold refiner, went into protection under the CCAA, after the CRA and ARQ (the “Agencies”) reassessed it for $313 million to deny input tax credits and input tax refunds ("ITCs/ITRs") on its purchases of scrap gold - on the basis that the purchases were fictitious (which Kitco denied). Following its insolvency filings, Kitco continued to operate and claim ITCs/ITRs, whose validity was not challenged. However, the Agencies set off these subsequent claims against the disputed claims (i.e., effected “compensation”), rather than paying them.

After noting (at para. 102) that s. 97(3) of the Bankruptcy and Insolvency Act permitted recourse to compensation in the context of an insolvency, Paquette J quoted from para. 55 of D.I.M.S. Construction Inc. (Trustee of) v Québec (Attorney General), [2005] 2 S.C.R. 564:

Since s. 97(3) BIA is an exception to the rule of equality between creditors, it must be interpreted narrowly. It must therefore be read in conjunction with ss. 121, 136(3) and 141 BIA as implicitly requiring that the mutual debts come into existence before the bankruptcy.

She then stated (at para. 105):

There is no need to distinguish between the compensation mechanism in the context of an insolvency and of a proposal in the context of an arrangement.

She accordingly concluded that the Agencies could not set off the uncontested ITCs/ITRs against the disputed claims under s. 21 of the CCAA.

She also stated (at para. 122) that “the presumptions of validity and exigibility arising under tax statutes in favour of the Agencies are not applicable in the context of insolvency proceedings under the CCAA,” as such presumptions go against the principle of equality among creditors and the Crown's status as an unsecured creditor under the CCAA.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 318 no set-off of assessment of pre-CCAA filing periods against post CCAA ITC claims 113
Tax Topics - Excise Tax Act - Section 299 - Subsection 299(3) no presumption of validity in CCAA proceedings 119
Tax Topics - Income Tax Act - Section 152 - Subsection 152(8) no presumed validity in CCAA proceedings 87