Commodity tax and customs practice encompasses the HST, provincial sales taxes, customs and excise, and related matters. Because the area is so specialized, commodity tax lawyers often practice within the whole range of services, from solicitor-client mandates to advocacy up to and including the Supreme Court of Canada.
In the wake of the Supreme Court of Canada's early 2012 decision in Toronto-Dominion Bank v. The Queen, secured creditors may find themselves instituting insolvency proceedings more expeditiously where borrowers have significant GST or HST arrears. The Court ruled that the Crown becomes the owner of monies held by a third party immediately on the issue of a garnishment notice, known as a Requirement to Pay, to a taxpayer. This is so even if the taxpayer commences insolvency proceedings before payment is made to the Crown.
The case arose when the Crown issued a Requirement to Pay to a TD customer whose account had a positive balance. Section 317(3) of the Excise Tax Act states that the money immediately becomes the property of the Crown despite any security interest in the money. The provision further states that it operates despite any other Canadian legislation apart from the Bankruptcy and Insolvency Act.
The customer followed by filing a notice of intention to make a proposal under the BIA. The proposal trustee advised TD to stay payment to the Crown. When TD did not pay, the Crown assessed TD personally.
TD objected, arguing that as it had not yet paid when the proposal proceedings commenced, s. 70(1) of the BIA applied. The section provides that a bankruptcy takes precedence over all garnishments and executions but those that had been paid before the bankruptcy.
The Tax Court dismissed TD's objection and the Federal Court of Appeal dismissed the appeal from that decision reasoning that the effect of s. 317(3) is to transfer ownership to the Crown of the monies owing immediately upon receipt of the Requirement to Pay. The Court also confirmed that the reference to the BIA in s. 317(3) did not give precedence to the BIA but existed to prevent the Crown from issuing Requirements to Pay after bankruptcy proceedings against a taxpayer had commenced.
Secured creditors should therefore carefully monitor the GST or HST arrears of a borrower in difficulty. Indeed, TD means that accounts receivable intended to satisfy security may become uncollectable if the Crown issues a Requirement to Pay before the commencement of bankruptcy proceedings.
Early last December, Canada and the US announced the implementation of two action plans furthering the Beyond the Border Agreement, a North American perimeter approach aimed at enhancing security while accelerating cross-border trade and travel.
The Action Plan on Perimeter Security and Economic Competitiveness and The Action Plan on Regulatory Cooperation are intended to facilitate trade, improve infrastructure, reduce non-tariff barriers and create cross-border economic opportunities arising from the $500 billion annual worth of two-way trade between Canada and the US. Critics were skeptical about what, if anything, would come of these grand designs, citing a series of plans under the 2005 Security and Prosperity Partnership that never came to fruition. One important difference in the current plans is the existence of realistic goals, specific timelines and concrete objectives, all pointing to achievable practical initiatives even as the governments continue to work on larger issues like information sharing and security.
What's also different this time is that the two countries are committed to harmonization whereas past efforts focused on corresponding program where companies had to set up customized and sophisticated systems that proved worthwhile only to large importers. The new regime should be much more widely accessible.
At the core of the current initiative are a series of immediate efficiencies offered to cross-border players. Among the most significant is the perimeter harmonization, which will allow goods that have cleared one country's border from offshore to cross the US-Canada border more easily. Otherwise, the program is responsive to complaints from businesses who must satisfy the requirements of various regulators quite apart from the border agencies.
The upshot is that affected companies should begin preparations now by reviewing the action plans to determine what portions are relevant to them. They might also start thinking about initiatives relating to supply chain security programs and the impact of selective pre-clearance procedures.
Also meriting attention is the Joint Statement of Privacy Principles, released by the Canadian and US governments in June 2012. The Statement, which marks a significant step forward by creating common rules for the cross-border sharing of personal information, is said to be inspired by similar international standards such as the Organization for Economic Co-Operation and Development Guidelines on the Protection of Privacy and Transborder Flow of Personal Data.
The Statement consists of 12 principles, including commitments to maintaining reasonable efforts to ensure the accuracy of information and the continued right to have access and correct errors; proper security safeguards for information; relevance and necessity in the collection of personal information; redress for infringement; and effective oversight in the form of public supervisory bodies.