Attorney General of Canada v. Bank of British Columbia, [1987] 1 CTC 153

Davies, J. [Orally]:—The plaintiff claims the sum of $9,840.14 under subsection 52(10) of the Excise Tax Act. Subsection 52(10) reads as follows:

When the Minister has knowledge that any person has received from a licensee any assignment of any book debt or of any negotiable instrument of title to any such debt, he may, by registered letter, demand that such person pay over to the Receiver General out of any moneys received by him on account of such debt after the receipt of such notice, a sum equivalent to the amount of any tax imposed by this Act upon the transaction giving rise to the debt assigned.

The following facts have been agreed upon by counsel:

1. Oxford Products Ltd. (hereinafter referred to as "Oxford”) was at all material times a Company licensed under the Excise Tax Act, R.S.C. 1970,c. E-13, as amended.

2. Bank of British Columbia (hereinafter referred to as the "Bank”) was at all material times banker to Oxford.

3. The Bank, at all material times held a Debenture (hereinafter referred to as the “Debenture”) issued by Oxford on December 12, 1980, to secure the indebtedness of Oxford to the Bank with a face value of $200,000.

4, As at December 21, 1982, Oxford was indebted to the Bank in excess of $112,500.

5. On December 21, 1982, Oxford voluntarily assigned itself into bankruptcy pursuant to the Bankruptcy Act, R.S.C. 1970, c. B-3, as amended, and Thorne Riddell Inc. (hereinafter referred to as the “Trustee”) was named Trustee in Bankruptcy of the Estate of Oxford.

6. On December 29, 1982, a demand expressed to be made pursuant to the provisions of subsections (10) and (11) of section 52 of the Excise Tax Act, R.S.C. 1970, c. E-13, was made on the Bank in respect of any excise tax arising from any sales of Oxford prior to December 21, 1982, in respect of which that tax remained unpaid to Her Majesty which demand purported to require the Bank to pay if, after receipt of that demand, it received payment pursuant to any assignment or assignments of book debts, up to the amount of any excise tax unpaid with respect to the transaction giving rise to each debt so assigned.

7. The Bank, as a creditor secured as aforesaid and entitled to priority under the Bankruptcy Act did, after receiving the said demand, receive payment from the Trustee in respect of accounts receivable of Oxford in respect of which excise tax had become payable to Her Majesty prior to December 21, 1982, but had not been remitted to Her Majesty.

8. Such payments so received by the Bank did include amounts of not less than the amount payable but as yet not paid Her Majesty's Receiver General for Canada for excise tax in respect of each of five pre-bankruptcy sales by Oxford, particulars of which are:

9. No payment has been received by the Minister in respect of any of the aforesaid amounts.

The defendant disputes the plaintiff's claim on the ground that as its customer, Oxford Products Ltd., was a bankrupt at the time it received the demand and when it received moneys from the Trustee under a Debenture it held, the provisions of section 107 of the Bankruptcy Act must apply rather than the Excise Tax Act. The defendant's position is that the intention of Parliament was to establish a scheme of distribution under the Bankruptcy Act which would apply notwithstanding any statutory difference to the contrary. If the defendant is right in its contention, Her Majesty's claim under the Bankruptcy Act would fall under paragraph 107(1 )(j). If that was the case, Her Majesty would not enjoy the apparent priority of section 52 of the Excise Tax Act.

This matter is a question of interpretation of the two Acts, the Bankruptcy Act and the Excise Tax Act, and further, how they are to be applied in this particular situation.

I find that the Bankruptcy Act should apply to these funds paid to the Bank by the Trustee, as Parliament must have intended that Act to govern the affairs of Oxford once it was in bankruptcy.

Subsection 107(1), which deals with the priority of claims, reads in part as follows:

Sec. 107. Priority of Claims — (1) Subject to the rights of secured creditors, the proceeds realized from the property of a bankrupt shall be applied in priority of payment as follows:

(a) in the case of a deceased bankrupt, the reasonable funeral and testamentary expenses incurred by the legal personal representative of the deceased bankrupt;

(b) the costs of administration, in the following order,

(i) the expenses and fees of the trustee,

(ii) legal costs;

(c) The levy payable under section 118;

(d) wages, salaries, commissions or compensation of any clerk, servant, travelling salesman, labourer or workman for services rendered during three months next preceding the bankruptcy to the extent of five hundred dollars in each case; together with in the case of a travelling salesman, disbursements properly incurred by him in and about the bankrupt’s business, to the extent of an additional three hundred dollars in each case, during the same period; and for the purposes of this paragraph commissions payable when goods are shipped, delivered or paid for, if shipped, delivered or paid for within the three-month period, shall be deemed to have been earned therein;

(e) municipal taxes assessed or levied against the bankrupt within two years next preceding his bankruptcy and that do not constitute a preferential lien or charge against the real property of the bankrupt, but not exceeding the value of the interest of the bankrupt in the property in respect of which the taxes were imposed as declared by the trustee;

(f) the landlord for arrears of rent for a period of three months next preceding the bankruptcy and accelerated rent for a period not exceeding three months following the bankruptcy if entitled thereto under the lease, but the total amount so payable shall not exceed the realization from the property on the premises under lease, and any payment made on account of accelerated rent shall be credited against the amount payable by the trustee for occupation rent;

(g) the fees and costs referred to in subsection 50(2) but only to the extent of the realization from the property exigible thereunder;

(h) all indebtedness of the bankrupt under any Workmen's Compensation Act, under any Unemployment Insurance Act, under any provision of the Income Tax Act or the Income War Tax Act creating an obligation to pay to Her Majesty amounts that have been deducted or withheld, pari passu;

(i) claims resulting from injuries to employees of the bankrupt to which the provisions of any Workmen's Compensation Act do not apply, but only to the extent of moneys received from persons or companies guaranteeing the bankrupt against damages resulting from such injuries;

(j) claims of the Crown not previously mentioned in this section, in right of Canada or of any province, pari passu notwithstanding any statutory preference to the contrary.

In applying this section, the first consideration is the rights of secured creditors. After determining the rights of secured creditors, one then considers the priorities listed in subsections (a) to (j). By paragraph 7 of the agreed statement of facts, the parties agree that the Bank received payment from the Trustee as a secured creditor. The amount paid was pursuant to an assignment and included accounts receivable of Oxford in respect of which excise tax had become payable.

In my judgment, the prerequisites of subsection 52(10) of the Excise Tax Act have been met and Her Majesty is entitled to the tax claimed.

I have considered the following decisions in reaching my decision: Prowest Fabrications Ltd., and Balzer's Mechanical (1978) Ltd v. The Queen (1983), 50 C.B.R. 102, and Canadian Imperial Bank of Commerce v. The Queen, [1984] C.T.C. 442; 52 C.B.R. 145.

Neither decision dealt with the particular issue which was before me.

I might say that I considered the wording of subsection 52(10) and in particular the phrase “a sum equivalent to the amount of any tax imposed by this Act upn the transaction giving rise to the debt assigned”. I have concluded that such wording covers the situation in this case. Here, the parties agree that the payments received by the Bank did include payments on transactions on which excise tax was due. This particular phrase was considered in Canadian Imperial Bank of Commerce but under a different situation. There, the purchaser had not yet paid for the goods.

There will be judgment for the plaintiff accordingly.

Judgment for the plaintiff.