The appellants (the “ARQ”) were owed approximately $13.4 million of tax by a corporation (“CQIM”) immediately before it was placed into protection under the CCAA. Over three years later, the monitor for CQIM made interim distributions including the partial payment of damages claims which generated input tax credit claims (the “ITC claims”) of approximately $7.5 million as a result of the deemed supplies occurring to CQIM pursuant to ETA s. 182 and QSTA s. 318 (the “Tax provisions”). Whether the ARQ could set off the ITC claims against the amount of tax owing to it (which clearly was a pre-CCAA filing claim) turned principally on whether the ITC claims were pre-filing claims (set-off available) or post-filing claims (set-off likely unavailable).
In summarizing an ARQ submission, Kalichman JA stated (at para. 24):
The ARQ places particular emphasis on s. 32(7) of the CCAA, which provides that parties, like the Suppliers, who suffer a loss in relation to disclaimed contracts, are considered to have provable claims. Since, according to s. 19(1)(b) of the CCAA, a provable claim is one that relates to debts or liabilities incurred before the initial order (i.e., pre-filing claims) and since CQIM’s contracts with the Suppliers were all entered into before the initial order, the judge erred in concluding that the Damage Claims were post-filing claims.
In rejecting this and other ARQ submissions and in finding that the ITC claims were post-filing claims, Kalichman JA stated (at paras. 29-30):
[I]t was only when the interim distribution was made three years after the initial CCAA filing, that payment for the supply of a taxable service was deemed to have been made and the taxes due in respect of that payment were deemed to have been collected. …
In also finding that the Court below had not erred in declining to exercise its residual discretion to permit the ITC claims (viewed as a post-filing claim) against the tax owing, he stated (at para. 48) that this would have been “inconsistent with the remedial objectives of the CCAA, regardless of whether the focus is on restructuring the debtor’s affairs or on liquidation.”