Case information

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Bankruptcy and insolvency - Provincial (QST) and federal (GST) sales taxes in respect of accounts receivable of now bankrupt suppliers - Whether, in case of bankruptcy of supplier of goods and services, Crown entitled to retain GST received directly from customers of supplier that had, at time of bankruptcy, not yet paid GST on prices of goods and services acquired from it and, in addition, to require trustee in bankruptcy and receiver having collected supplier’s accounts receivable to remit GST, which identifiable, that they had collected in so doing - Whether Crown may collect directly from customers of bankrupt supplier sales taxes that supplier had neither collected nor remitted to Crown before going bankrupt and that its customers were still required to pay - Whether trustee in bankruptcy of bankrupt supplier and any secured creditor holding security charged on supplier’s accounts receivable are required to remit to Crown sales taxes collected from recipient.

The Respondent trustee in bankruptcy claimed from a customer of the debtor an amount representing the balance of debts owed, including GST and QST. Upon learning of this, the Applicant Deputy Minister of Revenue of Quebec wrote to the customer to ask it to remit directly to him the amounts corresponding to the GST and QST payable.

Faced with these competing claims, the customer paid the trustee and asked it to keep the amount corresponding to the taxes in a trust account until the tax issue was resolved, which the trustee agreed to do. The trustee then decided that it would not pay the Deputy Minister that amount since, in its view, the taxes, which had been invoiced prior to the debtor’s bankruptcy, were an unsecured claim for the Deputy Minister within the meaning of the Bankruptcy and Insolvency Act. The Deputy Minister appealed the trustee’s decision to the Superior Court, which ruled in his favour. The Court of Appeal reversed the decision.