Does a seller's unremitted GST/HST or payroll deductions survive its bankruptcy ahead of a secured lender?

The rule

The split is explicit in the statute, not inferred. BIA s.67(2) strips most statutory deemed trusts of their protection in a bankruptcy; s.67(3), headed “Exceptions,” saves the ones it lists by section number — and it lists “subsection 227(4) or (4.1) of the Income Tax Act” (source deductions) but not the GST/HST trust. The Excise Tax Act agrees from its own side: s.222(3)'s extension of trust applies “Despite any other provision of this Act … any other enactment of Canada (except the Bankruptcy and Insolvency Act) …” — excepting the BIA by name from its own override. BIA s.86(1)–(3) then demotes Crown claims generally to unsecured status, and its own exceptions list, naming ITA s.224(1.2)/(1.3) and the CPP/EI provisions, does not reach GST/HST either.

When this changes

Formal bankruptcy is the pivot, not insolvency generally. A company that is simply behind and being wound down through a receivership or an ordinary asset sale, not a bankruptcy, stays under the general Crown-trust rules, where both amounts rank ahead of a secured lender's collateral: ETA s.221 makes every registrant a statutory agent of the Crown who collects GST/HST “as agent of Her Majesty,” and s.222(3) puts the proceeds “to the Receiver General in priority to all security interests.” Only amounts actually collected are trust property, though — tax that was owed but never charged carries no deemed trust at all and ranks as an ordinary claim either way.

Where this played out — from the Case Files

• • The deemed trust that fell away in bankruptcy — the file this rule comes from: a trustee's sale ahead of a secured lender, where $402,000 of GST/HST fell to an ordinary claim and $166,000 of source deductions did not
• • The Crown trust that sat ahead of the bank — the non-bankruptcy version: both trusts intact, but only the amounts actually collected — $128,000 that was never charged carried no trust at all

Sources

• • Bankruptcy and Insolvency Act, s.67(2)–(3) — the general stripping of deemed-trust protection and the named exceptions that preserve it.
• • Bankruptcy and Insolvency Act, s.86(1), (3) — Crown claims demoted to unsecured status, and its own exceptions list.
• • Excise Tax Act, s.222(1), (3) — the GST/HST trust and its own exception of the Bankruptcy and Insolvency Act from its extension.
• • Income Tax Act, s.227(4), (4.1) — the source-deductions trust and its extension overriding the BIA.
• • Treadstone Law — the HST deemed trust rule.