What is a Deemed Trust?
By simple definition a "trust" constitutes property help by a third party (the trustee) for the benefit on another (the beneficiary).
A deemed trust is a trust that comes into being by virtue of statute, whether you like it or not. When an employer deducts income tax, CCP, and EI from its employees’ pay, those amounts are deemed to be held in trust for the Crown and to be remitted at a later date. Similarly, when a vendor collects GST/HST they are deemed to be holding those amounts in trust for the benefit of the Crown. These deemed trusts attach to ALL assets of the employer or vendor and are to be paid to the Crown in priority to all security interests. This is true regardless of whether or not the funds have been kept apart or comingled with the property of the employer or vendor, and notwithstanding any security interest in the property or proceeds thereof.
If you do not send payroll deductions or GST/HST amounts to the CRA when they are due, the CRA will assess your business for the amount owing and ask you to pay the full balance right away, including any penalties and interest that apply.
You should not use money held in trust for the Crown as a source of cash to run your business. Even if you hold these amounts with your personal or business funds, you should consider them to be held separate and apart.
In a bankruptcy, amounts owing GST/HST as well as the employer portion of CPP and EI as well as penalties and interest thereon are typically rendered as unsecured claims, ranking equal with all other general creditors of a debtor. However, before bankruptcy occurs CRA may obtain a lien or charge (via memorial judgment) against the real or personal property of a debtor. And, although it is not a deemed trust, this applies to income taxes as well. If they do, CRA will be treated as a secured creditor in bankruptcy for those claims regardless of a bankruptcy.
Powell Associates Ltd. is a licensed insolvency trustee focused on providing debt settlement, proposal and bankruptcy solutions for individuals and businesses. We offer free consultations to review your personal financial situation and practical debt resolution options. Contact us to discuss your situation over the phone or book an appointment to meet us face-to-face in Saint John, Moncton, Fredericton or Charlottetown - it's your choice.