Caisse populaire Desjardins de l'Est de Drummond v. Canada

Caisse populaire Desjardins de l'Est de Drummond v. Canada
Collection
Supreme Court Judgments
Date
2009-06-19
Neutral citation
2009 SCC 29
Report
[2009] 2 SCR 94
Case number
31787
Judges
McLachlin, Beverley; Binnie, William Ian Corneil; LeBel, Louis; Deschamps, Marie; Fish, Morris J.; Charron, Louise; Rothstein, Marshall
On appeal from
Federal Court of Appeal
Subjects
Taxation
Notes
SCC Case Information: 31787
Decision Content
SUPREME COURT OF CANADA
Citation: Caisse populaire Desjardins de l’Est de Drummond v. Canada, 2009 SCC 29, [2009] 2 S.C.R. 94
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)
______________________________
Caisse populaire Desjardins de l’Est de Drummond v. Canada, 2009 SCC 29, [2009] 2 S.C.R. 94
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. It is open to Parliament to define a term in an area of its own legislative competence in order to ensure that there is a rule of general application across all of the provinces. [12] [14] [15]
Whether a contract providing for a right to compensation (in Quebec) or a right to set‑off (in the common law provinces) also gives rise to a security interest within the meaning of s. 224(1.3) requires that the terms of the contract be carefully considered to determine whether the parties intended to confer on one party an interest in the property of the other party that secures payment or performance of an obligation. If the substance of the agreement demonstrates that the parties intended an interest in property to secure an indebtedness, then a security interest exists within the meaning of s. 224(1.3) . In this case, it was the five‑year term and the maintenance and retention of the $200,000 deposit, as well as Camvrac’s agreement not to transfer or negotiate the deposit and that the deposit could only be used as security with the Caisse, that created the Caisse’s interest in Camvrac’s property for the purposes of s. 224(1.3) ITA . In the absence of these encumbrances on Camvrac’s deposit, Camvrac could have withdrawn the deposit at any time. Should it have done so and still been indebted to the Caisse, the Caisse’s right to compensation would be ineffective because it would not be indebted to Camvrac at the time the Caisse had to resort to the remedy of compensation. [23] [25] [30]
The Caisse is liable to pay to the Crown the amounts for employment insurance premiums and income tax deducted at source by Camvrac up to, and including, any deductions not remitted as of February 21, 2001 — the date on which the Caisse realized on its security. The trust created by s. 227(4.1) ITA and s. 86(2.1) EIA is deemed to be in effect at any time. It does not matter that the term deposit became the property of Camvrac only after some of the employment insurance premiums and income tax deductions went unremitted since the deemed trust encompasses property which comes into the hands of the tax debtor after the trust arises. The proceeds of Camvrac’s term deposit are therefore available to the Crown to discharge all of the outstanding employment insurance premiums and income tax deducted at source by Camvrac, whether the unremitted deductions occurred before or after Camvrac entered into the “Term Savings Agreement” and until February 21, 2001. Interest is calculated in accordance with ss. 36(2) and 37(2) of the Federal Courts Act from February 21, 2001, when the Caisse effected compensation, to the date of payment. [59] [61] [63]
Per LeBel and Deschamps JJ. (dissenting): Compensation is not a “security interest” as that term is defined in s. 224(1.3) ITA . For the purposes of s. 224(1.3) , it is not enough that compensation offers protection similar to that of a security interest: it must also confer a real right. To limit the concept of security interest in s. 224(1.3) to rights that are real in nature is consistent both with the shared meaning of the terms (“security interest” and “garantie”) used in the two versions of the provision and with Parliament’s purpose of giving the deemed trust priority over the security interests referred to in s. 224(1.3) . This deemed trust was created to ensure that employers remit income tax deducted from their employees’ salaries to the Receiver General for Canada. [65] [98] [101]
Although compensation can be likened to a security interest, it cannot be equated with one in the sense that the term “security interest” must be given in the context of s. 224(1.3) ITA . Where compensation may be effected between two debts, the effect is clearly analogous to that of a “security interest” in the broad sense of the term; nevertheless, compensation or set‑off is not regarded, in the positive law of either Quebec or the common law provinces, as having the characteristics of a real right. The automatic extinction of mutual debts is an effect of compensation, but it does not constitute the enforcement of a real right in the property in question. Furthermore, a conclusion that compensation is a “security interest” as that term is defined in the federal statute would conflict with the meaning given to the term in provincial personal property security statutes, which exclude set‑off. Such an interpretation would also be inconsistent with the common law concept of “set‑off”, on which numerous business transactions are based. Finally, whether considered in isolation or as a whole, the term for repayment of the deposit amount, the obligation to maintain, the right to withhold and the limits on the right to transfer, hypothecate or negotiate the deposit created only personal obligations. [102] [107] [122] [132]
Insofar as the amounts had not been deducted at the time the agreement was entered into, the Caisse’s right to conventional compensation may be set up against Her Majesty because Her Majesty cannot have more rights than Camvrac itself had. In Quebec civil law, as at common law, the rule for asserting contractual rights against third‑party assignees is based on the general principles governing obligations. The right to conventional compensation is assessed as of the time the right is granted, not as of the time it is exercised. The protection of third parties, codified in art. 1681 C.C.Q., applies to rights acquired before the compensation agreement was signed. Thus, where the trust applies to a claim, it attaches to a legal relationship that corresponds to an active contractual situation, which explains why the beneficiary of the trust may assert only those rights held by the tax debtor. When Parliament wished to give the deemed trust more teeth, it took care to give Her Majesty priority over secured creditors. It did not alter the general rules governing the rights a debtor can assert against its original creditor. [65] [147] [148] [150] [152]
Camvrac’s right to recover its claim was subject to the right to compensation that had been granted to the Caisse in September 2000 in the agreement to give savings as security. In the context of that agreement, the right to compensation was a right held by the Caisse that could not be negated solely by the fact of the deemed trust becoming effective. Her Majesty, as a third party, could not demand that the Caisse discharge its debt to Camvrac if the conditions for repayment had not been met. The Caisse’s right had to be respected by third parties who acquired rights after the agreement was signed. Consequently, Her Majesty must abide by the compensation agreement, given that her right is subsequent to it. [153]
Her Majesty may, however, claim from the Caisse the amount owed by Camvrac before the compensation agreement was signed in September 2000. The claims of the Caisse and Camvrac have distinct sources: one is based on the variable credit contract, the other, on the term savings agreement. The Caisse’s claim against Camvrac dates from September 18, 2000 and Camvrac’s claim, from September 25, 2000. On the latter date, Camvrac undertook, first in the term savings agreement, “to make, on the date of acquisition, a deposit in the amount of $200,000”, and then in the agreement to give savings as security, to “maintain” a deposit in the amount of $200,000. For Camvrac to be able to undertake in the agreement to give savings as security to “maintain” the deposited amount, its claim resulting from the term savings agreement had to take on an independent existence, if only at the time the deposit was made. Given that the deposit was made before the right to compensation was granted, the deemed trust could have become effective in respect of Camvrac’s claim up to the total of the amounts owed to Her Majesty as of September 25, 2000. This is not a case in which the respective debts have the same source and the claim is subject to a right to compensation. Just as Her Majesty’s rights are subordinated to the right to compensation for deductions subsequent to the signing of the agreement, the Caisse’s right must give way to Her Majesty’s pre‑existing right. [154] [156]
On the interest issue, there is no need to vary the decision of the Federal Court of Appeal. [157]
Cases Cited
By Rothstein J.
Referred to: Saulnier v. Royal Bank of Canada, 2008 SCC 58, [2008] 3 S.C.R. 166; Husky Oil Operations Ltd. v. Minister of National Revenue, [1995] 3 S.C.R. 453; Royal Bank of Canada v. Sparrow Electric Corp., [1997] 1 S.C.R. 411; Dagg v. Canada (Minister of Finance), [1997] 2 S.C.R. 403; Holt v. Telford, [1987] 2 S.C.R. 193; DaimlerChrysler Financial Services (debis) Canada Inc. v. Mega Pets Ltd., 2002 BCCA 242, 212 D.L.R. (4th) 41; Caisse populaire Desjardins de Val‑Brillant v. Blouin, 2003 SCC 31, [2003] 1 S.C.R. 666; First Vancouver Finance v. M.N.R., 2002 SCC 49, [2002] 2 S.C.R. 720; Markevich v. Canada, 2003 SCC 9, [2003] 1 S.C.R. 94.
By Deschamps J. (dissenting)
Markevich v. Canada, 2003 SCC 9, [2003] 1 S.C.R. 94; Canada (Attorney General) v. Caisse populaire d’Amos, 2004 FCA 92, 324 N.R. 31; Royal Bank of Canada v. Sparrow Electric Corp., [1997] 1 S.C.R. 411; Quebec North Shore Paper Co. v. Canadian Pacific Ltd., [1977] 2 S.C.R. 1054; McNamara Construction (Western) Ltd. v. The Queen, [1977] 2 S.C.R. 654; R. v. S.A.C., 2008 SCC 47, [2008] 2 S.C.R. 675; Reagan v. Murphy, 105 So.2d 210 (1958); Harwood Oil & Mining Co. v. Black, 124 So.2d 764 (1960); Alberta (Treasury Branches) v. M.N.R., [1996] 1 S.C.R. 963; First Vancouver Finance v. M.N.R., 2002 SCC 49, [2002] 2 S.C.R. 720; Royal Bank of Canada v. First Pioneer Investments Ltd., [1984] 2 S.C.R. 125; 518718 Alberta Ltd. v. Canadian Forest Products Ltd., 1998 ABQB 619, 63 Alta. L.R. (3d) 371; Caisse populaire Desjardins de Val‑Brillant v. Blouin, 2003 SCC 31, [2003] 1 S.C.R. 666; A. L. Green Ltd. v. Michaud, [1975] C.A. 432; Banque Royale du Canada v. Béliveau, [1976] C.A. 539; Bandera Investment Co. v. Société immobilière du Québec, J.E. 98-1667, SOQUIJ AZ-98021774; Seigneur v. Immeubles Beneficial Ltée, [1994] R.J.Q. 1535; Banque Nationale du Canada v. Notre‑Dame‑du‑Lac (Ville) (1990), 31 Q.A.C. 45; Banque de Montréal v. Walsh & Brais Inc., [1990] R.L. 119; D.I.M.S. Construction inc. (Trustee of) v. Quebec (Attorney General), 2005 SCC 52, [2005] 2 S.C.R. 564; Ching v. Jeffery (1885), 12 O.A.R. 432; Canadian Admiral Corp. v. L. F. Dommerich & Co., [1964] S.C.R. 238; Toronto‑Dominion Bank v. Block Bros. Contractors Ltd. (1980), 118 D.L.R. (3d) 311; Board of Industrial Relations v. Avco Financial Services Realty Ltd., [1979] 2 S.C.R. 699; Dauphin Plains Credit Union Ltd. v. Xyloid Industries Ltd., [1980] 1 S.C.R. 1182; Cass. civ., 13 juillet 1942, J.C.P. 1943.II.2157, note Houin; Cass. com., 3 juin 1997, D. 1998.Jur.61, note François; Cass. com., 9 décembre 1997, Bull. civ. IV, no 327.
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APPEAL from a judgment of the Federal Court of Appeal (Desjardins, Létourneau and Pelletier JJ.A.), 2006 FCA 366, 361 N.R. 77 (sub nom. Minister of National Revenue v. Caisse populaire du Bon Conseil), [2007] 3 C.T.C. 70, 2007 D.T.C. 5220, [2006] F.C.J. No. 1775 (QL), 2006 CarswellNat 5050, affirming a decision of Pinard J., 2005 FC 1563, [2007] 2 C.T.C. 44, 2007 D.T.C. 5664, [2005] F.C.J. No. 1933 (QL), affirming a decision by Mireille Tabib, Prothonotary, 2005 FC 731, 293 F.T.R. 166, 2006 D.T.C. 6385, [2005] F.C.J. No. 900 (QL). Appeal dismissed, LeBel and Deschamps JJ. dissenting.
Reynald Auger and Jean‑Patrick Dallaire, for the appellant.
Pierre Cossette and Guy Laperrière, for the respondent.
The judgment of McLachlin C.J. and Binnie, Fish, Charron and Rothstein JJ. was delivered by
[1] Rothstein J. — The primary issue in this appeal is whether the agreements between the Caisse populaire (“Caisse”) and its customer, Camvrac Enterprises Inc. (“Camvrac”), give rise to a “security interest” within the meaning of that term in s. 224(1.3) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp .) (“ITA ”). The definition of “security interest” in s. 224(1.3) ITA has also been incorporated by reference in s. 86(2.1) of the Employment Insurance Act, S.C. 1996, c. 23 (“EIA ”). If the agreements between the Caisse and Camvrac do fall within the definition of “security interest” in s. 224(1.3) ITA , then the property of Camvrac that is subject to the security interest of the Caisse is 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 by Camvrac.
[2] In my view, the agreements 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 was property that was subject to the Crown’s deemed trust. I would dismiss the appeal.
I. Facts
[3] On September 18, 2000, the Caisse granted Camvrac a line of credit up to $277,000. On September 25, 2000, Camvrac deposited $200,000 with the Caisse in accordance with a “Term Savings Agreement” providing that the deposit would mature on October 16, 2005. The “Term Savings Agreement” sets out the terms of Camvrac’s entitlement to the deposit and the Caisse’s obligation to pay Camvrac $200,000. The relevant portions of the “Term Savings Agreement” stated:
[translation]
Date of maturity: October 16, 2005
. . .
PROVISIONS GOVERNING THE PRINCIPAL
2. The member [Camvrac] agrees to make, on the date of acquisition, a deposit in the amount of $200,000 (hereinafter referred to as the “initial amount of deposit”).
3. On the date of issue associated with the applicable term (“date of issue”), the initial amount of deposit and the interest then accrued on that amount shall be reinvested in the form of a deposit maturing on the maturity date associated with the applicable term (“date of maturity”).
4. This deposit may neither be negotiated nor transferred. No amount in principal or interest shall be redeemable or payable before the date of maturity.
5. This deposit may be hypothecated or given as security only in favor of the issuing Caisse.
. . .
[4] The Caisse and Camvrac also entered into a “Security Given Through Savings” agreement. The most relevant terms read:
[TRANSLATION]
1. RIGHT TO WITHHOLDING AND COMPENSATION
To secure the repayment of any sum in principal, interest, costs and accessories owed or to be owed the Caisse by:
: the Depositor [Camvrac]
. . .
under:
: (a) a line of credit agreement in the amount of $277,000.00 granted to him (her) on 2000‑09‑18;
. . .
: and under any debts or obligations, present or future, direct or indirect held by:
: the Depositor
. . .
(hereinafter referred to as “the Credit Contract[s]”)
the Depositor undertakes to maintain and consents to the withholding by the Caisse, in the account(s) or on the certificate(s) of deposit mentioned below, of the amount of $200,000.00 distributed as follows:
Account or certificate of deposit Sum withheld by the Caisse
identification
(for deposit certificates, state date
issued amount and certificate number)
ALTERNATIVE TERM SAVINGS
5 YEARS IN THE AMOUNT OF
$200,000.00 $200,000.00
______________________________ $____________________
. . .
The Caisse may withhold the sums shown above, . . . as long as all the amounts due under the Credit Contract(s) have not been fully repaid and, in the case of a line of credit, as long as it has not been cancelled. In cases of default as provided for below, there shall be compensation between the Credit Contract(s) and the certificate(s) of deposit or the amounts deposited defined above, as provided for in Section 7.
2. SAFEKEEPING OF CERTIFICATES
For the whole term of this agreement, the above-mentioned certificate(s) of deposit shall be kept by the Caisse.
3. HYPOTHEC
To further secure the repayment of any sum owed or to be owed under the Credit Contract(s), the Depositor hypothecates and pledges the above‑mentioned certificate(s) of deposit and sums deposited, for an amount equal to the total amount of the sums withheld. The parties also agree that the clause shown on the certificate(s) of deposit stipulating that such certificate(s) are neither negotiable nor transferable shall be deemed cancelled, effective from the date of these presents.
. . .
7. DEFAULT
The Depositor shall be in default in any of the following cases:
(a) if any of the commitments under the Credit Contract(s) or these presents is not fulfilled;
(b) if the Depositor or the Borrower becomes insolvent or goes bankrupt, or if he(she) makes a proposal and it is rejected or annulled;
. . .
In the event of any default:
(a) any sums owing under the Credit Contracts shall immediately become payable;
(b) the Caisse may use the sums deposited or the certificate(s) of deposit contemplated herein, regardless of its(their) having matured or not, to compensate its claim under the Credit Contract(s);
. . .
The consequences of a default are for the exclusive benefit of the Caisse and the latter may waive them expressedly. The Caisse may, among others, without any prejudice to its rights, wait for the maturity date of the certificate(s) of deposit before exercising its rights as provided for in paragraphs (b) and (c) above.
8. RESERVE OF RECOURSES
. . . Furthermore, failure by the Caisse to avail itself of any of its rights in case of default shall not be interpreted as a waiver of such rights.
[5] Camvrac failed to pay the interest on its line of credit on November 25, 2000 and so was technically in default on that date. However, the Caisse took no steps as a result of the default and, according to the Caisse’s account summaries, Camvrac’s line of credit continued to accrue interest until January 31, 2001. On February 7, 2001, Camvrac made an assignment in bankruptcy. On February 21, 2001, the Caisse made the following note on its copy of the “Term Savings Agreement” : [translation] “To be closed on 21/2/2001 to realize on security.” Finally, on June 12, 2001, the Crown gave the Caisse notice to pay the amount owing to the Crown for unremitted employment insurance premiums and income tax deducted at source by Camvrac from the proceeds of the term deposit the Crown said was subject to its deemed trust.
[6] Prothonotary Tabib of the Federal Court, Justice Pinard of the Federal Court, and Justice Létourneau writing for the Federal Court of Appeal found in favour of the Crown: 2005 FC 731, 2006 D.T.C. 6385, aff’d 2005 FC 1563, 2007 D.T.C. 5664, aff’d 2006 FCA 366, 361 N.R. 77. The Caisse now appeals to this Court.
II. The Primary Issue
[7] Under the “Security Given Through Savings” agreement, the Caisse was entitled to effect compensation to reduce or eliminate Camvrac’s indebtedness to it if Camvrac defaulted on its line of credit. The Caisse did so. The issue is whether the Crown is the beneficial owner of Camvrac’s term deposit to the extent of the unremitted employment insurance premiums and income tax deducted by Camvrac at source as a result of the deemed trust created by s. 227(4.1) ITA and s. 86(2.1) EIA .
III. Analysis
A. The Definition of “Security Interest” in Section 224(1.3) of the Income Tax Act
[8] Parliament has defined “security interest” in s. 224(1.3) ITA . This definition provides that:
“security interest” means any interest in property that secures payment or performance of an obligation and includes an interest created by or arising out of a debenture, mortgage, hypothec, lien, pledge, charge, deemed or actual trust, assignment or encumbrance of any kind whatever, however or whenever arising, created, deemed to arise or otherwise provided for;
[9] Section 227(4.1) ITA and s. 86(2.1) 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. The deemed trust applies to property of the 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. Section 227(4.1) ITA provides:
Notwithstanding any other provision of this Act, the Bankruptcy and Insolvency Act (except sections 81.1 and 81.2 of that Act), any other enactment of Canada, any enactment of a province or any other law, where at any time an amount deemed by subsection (4) to be held by a person in trust for Her Majesty is not paid to Her Majesty in the manner and at the time provided under this Act, property of the person and property held by any secured creditor (as defined in subsection 224(1.3) ) of that person that but for a security interest (as defined in subsection 224(1.3) ) would be property of the person, equal in value to the amount so deemed to be held in trust is deemed
(a) to be held, from the time the amount was deducted or withheld by the person, separate and apart from the property of the person, in trust for Her Majesty whether or not the property is subject to such a security interest, and
(b) to form no part of the estate or property of the person from the time the amount was so deducted or withheld, whether or not the property has in fact been kept separate and apart from the estate or property of the person and whether or not the property is subject to such a security interest
and is property beneficially owned by Her Majesty notwithstanding any security interest in such property and in the proceeds thereof, and the proceeds of such property shall be paid to the Receiver General in priority to all such security interests.
Section 86(2.1) EIA is to the same effect with respect to employment insurance premiums deducted by employers at source.
[10] While the definition of “security interest” is similar to legal terminology used in the personal property security and other legislation of the provinces, the definition in s. 224(1.3) ITA is the only relevant definition of “security interest” for the purposes of s. 227(4.1) ITA and s. 86(2.1) EIA . Both s. 227(4.1) ITA and s. 86(2.1) EIA , which incorporate by reference the definition of “security interest” from s. 224(1.3) ITA , apply
[n]otwithstanding any other provision of this Act, the Bankruptcy and Insolvency Act (except sections 81.1 and 81.2 of that Act), any other enactment of Canada, any enactment of a province or any other law . . . . [s. 227(4.1) ITA ]
[n]otwithstanding the Bankruptcy and Insolvency Act (except sections 81.1 and 81.2 of that Act), any other enactment of Canada, any enactment of a province or any other law . . . . [s. 86(2.1) EIA ]
This is a clear indication that the scope of the deemed trust created by these provisions over property of the tax debtor is to be defined in terms of the statutory definition of “security interest” provided by Parliament in s. 224(1.3) ITA and not as the term security interest may be used in provincial legislation.
[11] As Binnie J. recently noted in Saulnier v. Royal Bank of Canada, 2008 SCC 58, [2008] 3 S.C.R. 166, at para. 16, “[f]or particular purposes Parliament can and does create its own lexicon.” Parliament’s authority to define terms without reference to provincial law in areas of federal legislative competency was considered with respect to bankruptcy in Husky Oil Operations Ltd. v. Minister of National Revenue, [1995] 3 S.C.R. 453. Gonthier J. held for the majority, at para. 32, that
the definition of terms such as “secured creditor”, if defined under the Bankruptcy Act, must be interpreted in bankruptcy cases as defined by the federal Parliament, not the provincial legislatures. Provinces cannot affect how such terms are defined for purposes of the Bankruptcy Act.
[12] It is therefore open to Parliament to define a term in an area of its own legislative competence (Constitution Act, 1867, s. 91 (2A) “Unemployment Insurance” and s. 91(3) “The raising of Money by any Mode or System of Taxation”), as it has done here, in order to ensure that there is a rule of general application across all of the provinces. Were provincial law used to define the meaning of “security interest” in s. 224(1.3) ITA and, in turn, the scope of the deemed trust created by s. 227(4.1) ITA and s. 86(2.1) EIA , uniformity could not be achieved. Rather, what constituted a “security interest” for the purposes of s. 224(1.3) ITA could be different from province to province. The Minister’s ability to recover unremitted source deductions would then vary depending on an employer’s location.
[13] Further, if provincial law were used to define the meaning of a “security interest” under s. 224(1.3) ITA , a change in the provincial law of property security would affect the scope of the deemed trust created by s. 227(4.1) ITA and s. 86(2.1) EIA from time to time. This level of uncertainty cannot have been what Parliament intended with the words “any interest in property that secures payment or performance of an obligation” in s. 224(1.3) ITA . This definition is incorporated by reference in s. 227(4.1) ITA and s. 86(2.1) EIA which create the deemed trust in favour of the Crown “[n]otwithstanding . . . any enactment of a province”.
[14] In this case, Parliament has chosen an expansive definition of “security interest” in s. 224(1.3) ITA 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. Parliament did so, in part, in response to this Court’s decision in Royal Bank of Canada v. Sparrow Electric Corp., [1997] 1 S.C.R. 411, which interpreted the former deemed trust prov