Principal Issues: Whether the GST pre insolvency refund should be remitted to the monitor.
Position: No.
Reasons: The assets of a corporation, in protection under the CCAA, do not vest in the monitor.
November 20, 2009
XXXXXXXXXX Tax Services Office HEADQUARTERS Income Tax Rulings Attention: XXXXXXXXXX Directorate Lindsay Frank (613) 948-2227
2009-034449
Disposition of a GST Refund in a CCAA Proceeding
This is in reply to an email from XXXXXXXXXX . At issue is whether a refund pertaining to a pre-insolvency taxation year should be remitted to the monitor or to the taxpayer.
XXXXXXXXXX is of the view that the Canada Revenue Agency ("CRA") is not obliged to remit the refund to the monitor; rather, the refund should be remitted directly to the taxpayer. He is also of the view that before the CRA releases the refund, it should be verified that the taxpayer is not liable for any amount against which the refund could be set off. We share his views.
On XXXXXXXXXX and its affiliates ("XXXXXXXXXX ") filed a petition for relief, pursuant to Chapter 11 of the United States Bankruptcy Code ("Chapter 11 Proceedings"). Subsequently, on XXXXXXXXXX obtained an order under section 18.6 of the Companies' Creditors Arrangement Act ("CCAA"), in which, among other matters, the Ontario Superior of Justice recognised the Chapter 11 Proceedings as a "foreign proceeding" for the purposes of that section. As of XXXXXXXXXX was no longer insolvent. Since then, an audit has confirmed that it is entitled to a refund of GST in respect of a pre-insolvency taxation year.
Pursuant to section 11.7 of the CCAA, a court granting an order in respect of proceedings under the CCAA, is required to appoint a person as a monitor. The role of the monitor is to supervise the debtor company's business and finances, and to prepare reports for the court and the creditors. The monitor does not divest the debtor company of its assets or wrest control of its property from it, see Re Mine Jeffery Inc., 40 C.B.R. (4th) 95 (Que. C.A.). Since the monitor does not wrest control from a company over its assets, the refund should be remitted to XXXXXXXXXX .
However, section 18.1 of the CCAA recognises set-off. Accordingly, before the refund is released, the CRA may reduce the amount of the refund by an amount for which the taxpayer is liable to the fisc.
Should you need clarification or additional information, please do not hesitate to contact Lindsay Frank at the number provided above.
B.J. Skulski
Manager
Insolvency and Administrative Law
Business and Partnerships Division
Income Tax Rulings Directorate
c.c. XXXXXXXXXX
Taxpayer and Debt Management Section
XXXXXXXXXX Tax Services Office