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.
