In a decision issued July 28, 2021, the Supreme Court of Canada (SCC) upheld the Alberta Court of Appeal’s majority decision in Canada v. Canada North Group Inc. (Canada North).1

As a result of the decision, interests secured by priming charges granted by a restructuring court can have priority over Crown interests in unremitted source deductions in appropriate cases.


Case facts

The Canada North decision deals with the Companies’ Creditors Arrangement Act (CCAA) proceedings of Canada North Group Inc. and affiliates. In those proceedings, the initial order granting protection to the debtors under the CCAA also granted “super-priority” charges to various parties: an administration charge, an interim lender’s charge, and a charge in favour of the applicants’ corporate directors (the Priming Charges). The initial order stated that the Priming Charges had priority over the claim of any secured creditor of the applicants and would not otherwise be limited by the provisions of any other federal or provincial statute.

About a month after the initial order was granted, the Crown applied to the court seeking to vary the initial order on the grounds that the Priming Charges failed to recognize the Crown’s legislative proprietary interest in unremitted source deductions. At that time, two of the applicants had failed to remit $685,542.93 in source deductions to the Crown. The Crown argued that unremitted source deductions had priority over the Priming Charges as a result of the deemed trust provisions of federal tax legislation (the Fiscal Statutes).2

The lower court decisions

The Chambers Judge dismissed the Crown’s application. She rejected the argument that the deemed trust provisions of the Fiscal Statutes created a proprietary interest rather than a security interest, finding instead that a “security interest” under the Income Tax Act (ITA) included deemed or actual trusts. The Chambers Judge read the CCAA and the Fiscal Statutes together as meaning that the Crown’s deemed trusts have priority over all security interests, except those ordered under the priming provisions of the CCAA.

The Crown appealed.

A majority of the Court of Appeal agreed with the chambers judge, finding that the Crown’s interest under the deemed statutory trust provisions of the Fiscal Statutes is a security interest—not a proprietary interest—that ranks ahead of the interests of all other secured creditors. The majority also agreed with the chambers judge that, when the Fiscal Statutes are read together with the CCAA, the Crown’s interest under the deemed trusts are rightly subordinate to the Priming Charges. The majority listed a number of reasons for this finding, including the “unacceptable level of uncertainty” that would be injected into insolvency proceedings if the Crown’s argument prevailed. 

The dissenting judge at the Court of Appeal found that the Fiscal Statutes bore “only one plausible meaning”: that the Crown’s deemed trust had priority to the Priming Charges. He would have allowed the appeal and amended the initial order as requested by the Crown.

The Crown applied for and was granted leave to appeal to the SCC. 

The SCC decision

Five of the nine SCC judges who heard the Crown’s appeal agreed that it should be dismissed, although those five judges authored two separate sets of reasons. The lead decision was authored by Côté J. (Wagner C.J. and Kasirer J. concurring).

The following determinations were key to the lead decision:

  • Section 11 of the CCAA grants a supervising court broad discretionary power to make any order that it considers appropriate in the circumstances. This is not restricted by other provisions of the CCAA that grant more specific powers to the supervising court. Section 11 is the source of the court’s authority to grant priming charges with priority over the Crown’s deemed trust interests.
  • A deemed trust under section 227(4.1) of the ITA does not remove property from a debtor’s estate. Property that is subject to a deemed trust under section 227(4.1) may therefore be subject to a priming charge under section 11 of the CCAA.
  • Section 227(4.1) of the ITA does not grant the Crown priority over all possible interests, but over security interests as defined by that Act. A court-ordered priming charge is not a “security interest” within the meaning of section 224(1.3) of the ITA and is therefore not automatically subordinated by the Crown’s deemed trust. 
  • The supervising court’s authority to subordinate a Crown interest to those interests protected by priming charges is discretionary. In exercising its discretion, a supervising court should recognize the distinct nature of the Crown’s interest and ensure that it grants a charge with priority over a deemed trust of the Crown only when necessary.

In separate concurring reasons, Karakatsanis and Martin JJ. agreed that the Court of Appeal’s decision should be upheld. They concluded that section 11 of the CCAA can be used to give priority to priming charges ahead of a Crown’s deemed trust for two reasons. First, ranking a priming charge ahead of the Crown’s deemed trust interest does not conflict with the Fiscal Statutes so long as the Crown stands to be paid in full under a plan of compromise (as is required under section 6(3) of the CCAA). Second, granting a priming charge with priority over the Crown’s deemed trusts may be necessary to facilitate the remedial objectives of the CCAA. When asked to grant a priming charge with such priority, the supervising court should be alive to this, and should consider evidence that such an order in fact furthers the CCAA’s objectives.

Two separate sets of dissenting reasons were also authored by the SCC; however, the dissenting judges all shared the view that only one plausible interpretation can be given to the Fiscal Statutes: the Crown’s deemed trust has priority over all other claims, including priming charges granted under the CCAA. The dissenting judges would have allowed the Crown’s appeal.


The SCC majority decision in Canada North confirms that, in some cases, priming charges in favour of parties such as the monitor, counsel, an interim lender, or directors and officers, may rank in priority to the Crown’s statutory deemed trusts, particularly in relation to unremitted source deductions.

With that said, the majority and concurring reasons of the court make it clear that such a priority ranking is not automatic. Supervising courts are now directed to exercise their discretion to only grant priming charges with priority over the Crown’s deemed trusts when necessary, in recognition of the Crown’s distinct interests and considering the remedial objectives of the CCAA. Where an applicant intends to request that priming charges have priority to the Crown’s deemed trust claims, the applicant should be prepared to provide evidence and submissions demonstrating why the request is necessary and in keeping with the remedial aims of the CCAA.


1   2021 SCC 30; Alberta Court of Appeal decision reported at 2019 ABCA 314.

2   In particular, s 227(4.1) of the Income Tax Act, s 23(4) of the Canada Pension Plan (CPP), and s 86(2.1) of the Employment Insurance Act.


Managing Partner, Montréal Office, Canadian Head of Restructuring
Managing Partner, Vancouver Office

Recent publications

Subscribe and stay up to date with the latest legal news, information and events . . .