AROUND THE COURTS
Mortgage lender lost out to borrower’s pre-existing GST debt
In The Queen v. Toronto-Dominion Bank, 2018 FC 538, a Mr. Weisflock was in the landscaping business as a sole proprietor. In 2007-2008, he accumulated some $68,000 of unremitted GST, which he had collected but did not remit.
In 2010, Weisflock and his wife took a line of credit from TD Bank, secured by their home, which was registered in his name. A year later he sold the home and repaid the loan to the bank, discharging the mortgage.
The CRA then sued the bank in Federal Court for the $68,000 that the bank received back from Weisflock. This was because section 222 of the Excise Tax Act (the GST/HST legislation) imposes a deemed trust on Weisflock’s property despite any security interest, and required “proceeds” of the property to be paid to CRA “in priority to all security interests”.
The Court agreed with the CRA, and ordered the bank to pay the $68,000 to the CRA, along with pre- and post-judgment interest.
The bank has appealed this decision to the Federal Court of Appeal, so this issue is not yet finally resolved.