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August 24, 2021

Supreme Court of Canada rules that CCAA charges take priority

The Supreme Court of Canada (SCC) released its decision in The Queen v. Canada North Group Inc., 2021 SCC 30 on July 28. In its decision, the SCC dismissed the Crown's appeal of an order made under the Companies' Creditors Arrangement Act (CCAA), rejecting the position that court-ordered super-priority charges (or "priming charges") could not take priority over the deemed trust for unremitted source deductions created by subsection 227(4.1) of the Income Tax Act (ITA). A narrow majority of the SCC agreed with the taxpayer that the priming charges prevailed over the deemed trust. The reasons for judgment indicated that a court-ordered super-priority charge under the CCAA was not a security interest within the meaning of subsection 224(1.3) of the ITA, and that subsection 227(4.1) did not create a proprietary interest in a tax debtor's property. A concurring decision reasoned that the broad discretionary power under section 11 of the CCAA permitted a court to rank priming charges ahead of the Crown's deemed trust for unremitted source deductions.

A Tax Alert prepared by Ernst & Young Canada, and attached below, provides additional details.


Full text of Tax Alert