HST Arrears Ahead of Mortgages

Her Majesty the Queen V. Toronto Dominion Bank, Federal Court of Appeal Decision Released April 29, 2020

Linda Stern
| 5/8/2020
HST Arrears Ahead of Mortgages


  • In November 2018, the Supreme Court of Canada overturned the Federal Court of Appeal decision in Callidus Capital Corp. v. Canada
  • In effect, in the event of a bankruptcy of a debtor, HST debt ranks behind the payment to a secured creditor and HST loses its status as a “deemed trust claim” (a trust claim that ranks ahead of all security interests)
  • Prior to the Supreme Court of Canada’s decision in Callidus Capital Corp., a case was heard by the Federal Court in the matter of Her Majesty the Queen v. Toronto Dominion Bank. The Federal Court was asked to decide whether a mortgagee that provided mortgage financing and had subsequently been paid on its mortgage could, subsequent to repayment, be required to account for HST arrears owing at the time that the mortgagee was repaid.
  • In Her Majesty the Queen v. Toronto Dominion Bank, the Federal Court held that the mortgagee (in this case the Toronto-Dominion Bank) was required to account for the mortgagor’s unpaid HST at the time that the mortgagee was repaid.
  • Toronto Dominion Bank appealed to the Federal Court of Appeal
  • On April 29, 2020, the Federal Court of Appeal dismissed the appeal
  • The Federal Court of Appeal concluded that, in instances where a mortgage is granted and registered while HST is outstanding, the mortgage remains subject to CRA’s deemed trust claim for HST arrears

In summary, a lender who provides financing when HST arrears are owed, runs the risk of having to account (ensure payment) for HST in a payout of the financing, in the event that the arrears remain owing.

This case of outstanding HST extends to corporations; self-employed individuals and directors of corporations who are assessed personally pursuant to Section 323 of the Excise Tax Act for unpaid HST.  Mortgagees should consider obtaining Clearance Certificates, or other verification from the mortgagor prior to repayment to verify if there are HST arrears.

This article has been prepared for the general information of our clients. Specific professional advice should be obtained prior to the implementation of any suggestion contained in this article. Please note that this publication should not be considered a substitute for personalized tax advice related to your particular situation.

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Linda Stern Crowe Soberman Toronto
Linda Stern
Senior Manager, Licensed Insolvency Trustee, Corporate Recovery & Turnaround, Personal Debt Solutions