The powers available to HMRC to request information or documents from a third party (a Third Party Notice) where it is reasonably required by HMRC for checking the tax position of a taxpayer are generally well known. What is not so well known is the limited opportunities available to a third party who might wish to challenge the terms or scope of a Third Party Notice.

Secured creditors should take note of Callidus,¹ wherein the Federal Court (the “Court”) held that the bankruptcy of a tax debtor rendered a statutory deemed trust under section 222 of the Excise Tax Act (the “ETA”) ineffective as against a secured creditor who, prior to the bankruptcy, received proceeds from the tax debtor’s assets.

Background

Unremitted source deductions are subject to a deemed trust in favour of the Crown under Section 227 of the Income Tax Act (the “ITA”), Section 86 of theEmployment Insurance Act (the “EIA”) and Section 23 of the Canada Pension Plan (the “CPP”). Subsection 227(4) of the ITA creates the trust for income tax deductions and Subsection 227(4.1) creates a super-priority lien in favour of the Crown, in the amount of the trust, over all the debtor’s assets.

In our last Financial Services Flash, we emphasized the issue that lenders need to be aware of specific restrictions that may apply to the liquidation of inventory over which they have security. This Flash considers the general notion that a lender needs to be cognizant of some unique and sometimes unexpected liabilities of the borrower which may take priority over such lender’s security. There are, of course, many ‘priority payables’ which are commonly known, whether they relate to unpaid wages, certain sales taxes, pension plan obligations, etc.

It is not uncommon for companies, often property related joint ventures or single purpose vehicles, to be incorporated abroad for tax reasons but carry on much of their business in Scotland or elsewhere in the U.K. This can result in difficulties when determining where to initiate insolvency proceedings.