INCOME TAX
Income Calculation
Deductions
Application of Income Tax Act and Employment Insurance Act provisions establishing deemed trust in favour of Her Majesty, to set‑off vehicle for loans secured by term deposit certificates—Deemed trust vehicle, established by Income Tax Act (ITA), s. 227(4.1) and Employment Insurance Act (EIA), s. 86(2.1) is one of measures instituted to ensure that employers’ source deductions on employees’ pay under ITA and EIA are in fact paid to Her Majesty—On September 25, 2000, as consideration for credit line of $277,000, Les Entreprises Camvrac Inc. (debtor) deposited with defendant, Caisse populaire du Bon Conseil, sum of $200,000 which will be held by defendant in form of term deposit certificate maturing October 16, 2005—On June 12, 2001, Her Majesty gave formal notice to defendant to pay her sums owing by debtor as proceeds from property covered by deemed trust— From wording of statutory provisions and interpretation thereof, Parliament’s intention to ensure secured creditor enforcing security interest required to remit to Crown in priority, from proceeds of realization of security interest, sums owing by debtor as source deductions—Conceded defendant holding $200,000 certificate of deposit as security for sums owing under line of credit, receipt of certificate of deposit constituting realization on defendant’s security as result of default and bank thereby receiving full benefit of realization on security—When defendant realized on its security, term deposit certificate subject to deemed trust—Defendant receiving benefit of term deposit certificate and this benefit should be considered “proceeds” from certificate of deposit— Being conventional instead of legal, compensation, if effected between defendant and debtor, not effected automatically and independently of their will upon actual date of default: required specific and palpable intention of defendant—This indicated by agreement executed between parties—Necessary to construe compensation clause in security agreement between debtor and defendant as clause allowing defendant to realize on its security in term deposit certificates by effecting conventional compensation between sums owing under credit agreements and unmatured term deposit certificates— Defendant ordered to pay plaintiff sum of $26,863.53 with interest—Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, s. 227(4.1) (as enacted by S.C. 1998, c. 19, s. 226)— Employment Insurance Act, S.C. 1996, c. 23, s. 86(2.1) (as enacted by S.C. 1998, c. 19, s. 266; S.C. 2001, c. 4, s. 77(F)).
M.N.R. v. Caisse populaire du Bon Conseil (T‑1253‑02, 2005 FC 731, Tabib P., judgment dated 20/5/05, 15 pp.)