Suspension of tax proceedings in the event of bankruptcy

In the case of Girard (Syndic de) 2014 QCCA 1922, the Court of Appeal of Québec established that the stay of proceedings that ensues from the filing of a bankruptcy or a proposal under the Bankruptcy and Insolvency Act applies to the Canada Revenue Agency and the Agence du revenu du Québec, in the same manner as it does to all other creditors. Consequently, the process which culminates in the issuance of a notice of assessment is stayed, and such notice may not be issued by the tax authorities, once the tax debtor is under the protection of the BIA. However, in practice, a “notice of assessment” may be issued to quantify the tax debt claimed by the authorities, but such “notice” will only be considered a simple statement of account and the delay to file an opposition will not begin. By analogy, it would be similar to a creditor who attaches to its proof of claim a draft Originating Demand.

To the extent that the tax authorities wish to officially engage the assessment process (which could lead to the filing of oppositions to the assessment), they will then need to present before the bankruptcy court a motion to lift the stay the proceedings, pursuant to Section 69.4 BIA.

In the subsequent case of M. Diamond & associés inc. c. Agence du revenu du Québec 2023 QCCA 250, the Court of Appeal of Québec relied on Girard to establish that the debtor remains in the position of being a “defendant” throughout the assessment process, even if his opposition is dismissed and he has to appeal the decision before the Cour du Québec, where he is technically designated as “plaintiff” according to the rules of civil procedure. The purpose of issuing a tax assessment is to quantify the amount owed to the tax authorities and allow for its enforcement, so that any oppositions or appeals by the debtor represent a contestation of such claim.

It therefore follows that when a debtor had instituted a judicial claim before the Cour du Québec prior to his bankruptcy, the proceedings are stayed automatically once the debtor avails himself of the provisions of the Bankruptcy and Insolvency Act, and the tax authorities cannot compel the bankruptcy Trustee to file an appearance or otherwise face the dismissal of the proceedings. A motion will need to be filed in order to lift the stay of proceedings pursuant to Section 69.4 BIA, although in practice, such order will rarely issue as the tax authorities have the burden of demonstrating the importance of continuing the proceedings despite the bankruptcy.

The decision in Diamond should apply without any reserve to matters pending before the Canada Tax Court, even though in practice and despite having no jurisdiction or expertise in bankruptcy matters, federal courts have often demonstrated their reticence at following the jurisprudence of the provincial superior courts when dealing with arguments put forward by the Canadian tax authorities.

Reference : Girard (Syndic de) 2014 QCCA 1922

M. Diamond & associés inc. c. Agence du revenu du Québec 2023 QCCA 250

Attorney involved : Me Jean-Philippe Gervais