Credit Laws
CRA Trust Overrides Contractual Right To Set Off
Adapted from an article by David Mann and David Legeyt, lawyers at the Fraser, Milner Casgrain LLP, Calgary Restructuring Group
In a recent decision involving the Canada Revenue Agency (CRA), and the Caisse populaire du bon Conseil (Caisse), the Supreme Court of Canada, (SCC) considered whether a lender’s contractual rights in respect of its customer’s term deposit account could be overridden by a deemed statutory trust in favor of the Crown.
The issue was whether the Caisse, by virtue of its contractual arrangement with its customer, Camvrac Enterprises Inc, held an iron clad security interest over the proceeds of its deposit account that could not be overruled.
The CRA relied on that section of the Income Tax Act, RSC 1985 which says that unremitted source deductions by the taxpayer are deemed to be held in trust for the Crown pursuant to the Income Tax Act and the Employment Insurance Act.
Camvrac filed for bankruptcy in 2001 and there was $26,863.53 in unremitted employment insurance premiums and income tax deducted at source by Camvrac. The Caisse had granted Camvrac a $277,000 line of credit. Camvrac also held a Term Savings Agreement with the Caisse for $200,000, whose terms stated that it could not be negotiated or transferred and could only be given in security in favour of the Caisse. Another agreement entered into stated that the Caisse was entitled to set off amounts owed to it by Camvrac to secure repayment of the line of credit.
In a 5-2 decision, the Supreme Court held that the term deposit agreement between the Caisse and Camvrac constituted a ‘security interest’ as defined by the Income Tax Act and as such, the CRA was entitled to collect the amount owed in unremitted source deductions.
CONCLUSION:
The majority ruling of the court held that Parliament intended that the meaning of ‘security interest’ be interpreted very broadly under the Income Tax Act; and that this includes ‘any interest in property that secures payment or performance of an obligation.’
Furthermore, the decision shows that a lender’s contractual right to set-off amounts owed to it by a creditor against the creditor’s (encumbered) term deposit account will be overridden by a deemed trust in favour of the Crown.
Changes To Ontario Small Claims Court Rules And Forms
Adapted from an article by David Mann and David Legeyt, lawyers at the Fraser, Milner Casgrain LLP, Calgary Restructuring Group
On January 1, 2010 some very significant changes came into effect in Ontario regarding the filing of claims in small claims court.
The monetary limits for small claims court filing have been at $25,000 in several jurisdictions across Canada for quite some time, but Ontario businesses and consumers are waiting to see how the new limits and procedures work themselves out now that the limit has been increased to $25,000 from $10,000.
The goal of the government committee working on the changes was to make the civil justice system more accessible and affordable by streamlining many aspects of the small claims court process. In addition to increasing the monetary limit of small claims court filings, the changes also include the following:
- The monetary limit of simplified or streamlined procedure has been increased from $50,000 to $100,000
- Unless the parties agree or the court orders an extension, the pre-trial examination for discovery has been limited to one day
- The Rules of Civil Procedure now include a general principle of proportionality so the time and expense of each case reflects what is at stake
Changes of Special Interest to the Credit Industry:
(1) Removal of the option to serve a claim to the last known address of an individual
The new rule allows service of a claim by an alternative to personal service, by registered mail or courier with verification (by Canada Post or the courier company) that the document was received, rather than by service to the last known address by regular letter mail.
(2) Writ of Seizure and Sale of Personal Property – Holding Period
The holding period for seized personal property prior to sale at public auction, has been reduced from 30 days to 10 days
(3) Notice of Termination of Garnishment
A creditor that has had a notice of garnishment issued is now required to send a Notice of Termination of Garnishment (form 20R) to the garnishee and the court when the debt has been paid in full.
(4) Duration and Renewal of Notice of Garnishment
A notice of garnishment remains in force for 6 years from the date it was issued by the court rather than the date served on the garnishee. The notice can also be renewed before it expires.
(5) Permission to Issue Garnishment and Writ of Seizure and Sale of Land
If 6 years or more have passed since the date of judgment, a creditor must ask the court permission to issue a writ of seizure and sale of property and land as well as issuing a garnishment if these hadn’t been done within the 6 year period after the judgment was made.
(6) Discontinuance by Plaintiff in an Undefended Action:
If a plaintiff no longer wishes to proceed with a claim, and the defendant has failed to file a defence, then the plaintiff can file a Notice of Discontinued Claim (Form 113A)
(7) Amending a Claim or Defence:
Parties only need a clerk’s order when they wish to change a claim or defence within 30 days of the originally scheduled trial date. Changes made more than 30 days before the originally scheduled trial date can be filed without a clerk’s order.
(8) Improvements to Small Claims Court Forms:
Changes were designed to make the forms simpler to complete
For more information about these changes and small claims court procedures in general, visit: http://www.attorneygeneral.jus.gov.on.ca
