Caisse populaire Desjardins de l'Est de Drummond v. Canada, 2009 SCC 29 (2009)

Supreme Court of Canada

Docket Number: 31787

Linked as:

Extract

Caisse populaire Desjardins de l'Est de Drummond v. Canada, 2009 SCC 29 (2009)

SUPREME COURT OF CANADA

Citation: Caisse populaire Desjardins de l'Est de Drummond v. Canada, 2009 SCC 29

Date: 20090619

Docket: 31787

Between:

Caisse populaire Desjardins de l'Est de Drummond and in right of the Caisse populaire du Bon Conseil

Appellant and

Her Majesty The Queen in Right of Canada

Respondent

Official English Translation: Reasons of Deschamps J.

Coram: McLachlin C.J. and Binnie, LeBel, Deschamps, Fish, Charron and Rothstein JJ.

Reasons for Judgment:

(paras. 1 to 64)

Dissenting Reasons:

(paras. 65 to 158)

Rothstein J. (McLachlin C.J. and Binnie, Fish and Charron JJ. concurring)

Deschamps J. (LeBel J. concurring)

Note: This document is subject to editorial revision before its reproduction in final form in the Canada Supreme Court Reports.

______________________________

c.p. desjardins de l'est de drummond v. canada

Caisse populaire Desjardins de l'Est de Drummond,

in Right of the Caisse populaire du Bon Conseil Appellant v.

Her Majesty The Queen in Right of Canada Respondent

Indexed as: Caisse populaire Desjardins de l'Est de Drummond v. Canada

Neutral citation: 2009 SCC 29.

File No.: 31787.

2008: February 29; 2009: June 19.

Present: McLachlin C.J. and Binnie, LeBel, Deschamps, Fish, Charron and Rothstein JJ.

on appeal from the federal court of appeal

Taxation - Income tax - Trust for moneys deducted - Employer defaulting on line of credit and financial institution exercising right of compensation on employer's term deposit pursuant to agreement - Deemed trust in favour of Crown over property of employer that has deducted income tax and employment insurance premiums at source - Crown seeking to collect amount due by employer for unremitted source deductions from proceeds of term deposit - Whether compensation agreement between financial institution and employer created "security interest" within meaning of s. 224(1.3) of Income Tax Act - Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), ss. 224(1.3) "security interest", 227(4.1).

On September 18, 2000, the Caisse granted Camvrac a line of credit up to $277,000. A week later, Camvrac deposited $200,000 with the Caisse in accordance with a "Term Savings Agreement". Under the agreement, the deposit was neither negotiable nor transferable. On the same day, the Caisse and Camvrac entered into a "Security Given Through Savings" agreement in which Camvrac agreed to maintain and permit the Caisse to retain the deposit of $200,000 for the duration of its indebtedness to the Caisse. It also agreed that, in the event it defaulted, there would be compensation between the credit agreement and the term deposit. Camvrac defaulted on the loan on November 25, 2000, and later made an assignment in bankruptcy. The Caisse noted on its copy of the "Term Savings Agreement": "To be closed on 21/2/2001 to realize on security". Since Camvrac had failed to remit to the Crown income tax and employment insurance premiums deducted at source, the Crown gave the Caisse notice to pay the amount owing to the Crown from the proceeds of the deposit. Section 227(4.1) of the Income Tax Act ("ITA") and s. 86(2.1) of the Employment Insurance Act ("EIA") create a deemed trust in favour of the Crown over property of the employer that has deducted income tax and employment insurance premiums at source. This trust applies to property of an employer and property held by any secured creditor of the employer that, but for its security interest, would be property of the employer. The property is impressed with the deemed trust at the time the unremitted amounts were deducted at source by the employer. The Caisse unsuccessfully challenged the recovery process. The Prothonotary, the Federal Court and the Federal Court of Appeal held that the Crown was entitled to recover the amounts due and the interest paid at the rate provided for in ss. 36(2) and 37(2) of the Federal Courts Act.

Held (LeBel and Deschamps JJ. dissenting): The appeal should be dismissed.

Per McLachlin C.J. and Binnie, Fish, Charron and Rothstein JJ.: The agreement between the Caisse and Camvrac gave rise to a "security interest" for the purposes of s. 224(1.3) ITA. Camvrac's property subject to the security interest is thus deemed to be held in trust for the Crown under s. 227(4.1) ITA and s. 86(2.1) EIA because Camvrac did not remit to the Crown income tax and employment insurance premiums deducted at source. [1][2]

The definition of "security interest" in s. 224(1.3) does not require that the agreement between the creditor and debtor take any particular form, nor is any particular form expressly excluded. So long as the creditor's interest in the debtor's property secures payment or performance of an obligation, there is a security interest within the meaning of this section. Parliament has chosen an expansive definition of security interest in s. 224(1.3) in order to enable maximum recovery by the Crown under its deemed trust for unremitted income tax and employment insurance premiums deducted at source by employers. I...

See the full content of this document