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Court upheld recognition of corrective amendments to tax-planning contracts; revenue appeals dismissed.
These consolidated tax-planning appeals concerned errors in transactional documents that failed to reflect the parties’ common contractual intentions under Quebec civil law.
The Court held that, where parties mutually recognize drafting or implementation errors and amend their acts to align with their true agreement, courts may interpret and recognize those amendments under art. 1425 C.C.Q. The Court emphasized the distinction between exchange of consents and written expression, and rejected any acquired right of tax authorities to benefit from contractual errors once corrected by mutual consent, subject to third-party rights.
It also clarified that civil courts in such proceedings do not adjudicate the validity of tax assessments, which remain for competent tax forums.
The appeals were dismissed with costs throughout.
Tax collection requirement retained priority despite later insolvency proposal filing.
In a tax enforcement appeal, the Court considered whether a statutory requirement to pay issued to a bank lost priority after the tax debtor later filed a notice of proposal under federal insolvency legislation.
The Court endorsed the Federal Court of Appeal's reasoning that the subsequent insolvency filing did not displace the earlier requirement to pay under the tax statute.
The appeal was dismissed.
No costs were awarded.
Statutory deemed trusts for unremitted sales taxes are ineffective in bankruptcy; Crown ranks as ordinary creditor.
Several businesses went bankrupt while holding unremitted federal and provincial sales tax (GST and QST).
The federal and provincial tax authorities claimed ownership of these amounts, arguing they were held in a deemed trust and did not form part of the bankrupts' estates.
The trustees in bankruptcy and secured creditors argued that under the Bankruptcy and Insolvency Act, the Crown ranks only as an ordinary unsecured creditor.
The Supreme Court of Canada dismissed the Crown's appeals, holding that the 1992 amendments to the Bankruptcy and Insolvency Act rendered the statutory deemed trusts ineffective upon bankruptcy.
Consequently, the tax authorities are ordinary creditors, and the unremitted tax amounts remain part of the bankrupts' estates subject to the priority scheme of the bankruptcy legislation.
