We are often asked whether the Canada Revenue Agency (“CRA”) has a secured claim for income taxes owed by a personal or corporate taxpayer. The easy answer is that without taking additional steps, the CRA will be unsecured for income tax (as distinct from source deductions or GST); however, there is a mechanism for the CRA to become secured, even in a bankruptcy, for the tax debt.
The CRA can certify the amount owing in a “memorial”, essentially a certificate registered in Federal Court. The CRA can then take the memorial and register it in the province’s Land Title Office or Personal Property Security Registry in order to create a lien on the debtor’s real property or personal property. The lien secures the amount that was the subject of the certificate, thus converting an unsecured debt claim into a secured claim.
The priority of the lien created by the CRA’s memorial is based on first-in-time principles, and pursuant to Section 87 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, continues in bankruptcy.