The appellant, a self-employed lawyer, filed a proposal to creditors under the Bankruptcy and Insolvency Act.
The Canada Customs and Revenue Agency (CCRA) was an unsecured creditor for unpaid income tax.
After the proposal date, the appellant made installment payments for his current-year tax obligations and subsequently claimed a tax refund.
The CCRA prorated the installment payments over the entire year, applying a portion to the pre-proposal tax debt, which eliminated the refund.
The Court of Appeal held that the CCRA had no statutory basis to apply post-proposal installment payments to pre-proposal tax liability, as doing so would allow the CCRA to recover more than its pro rata share under the proposal.
The appeal was allowed and the CCRA was ordered to pay the refund.