In a recent case, the Federal Court of Appeal confirmed that a lender was required to pay to the Canada Revenue Agency (CRA) a borrower’s unremitted GST after the lender received repayment from the borrower and discharged its mortgage.

The borrower had failed to remit GST owing to the CRA, which resulted in the creation, pursuant to statute, of a deemed trust “super priority” lien on the home in favour of the government. These liens have priority over all other claims against the property and they are not required to be registered on title. After the lien began to accrue, the bank provided a first mortgage on the property, without having knowledge of the lien.

This case confirms that amounts paid to a secured creditor from a debtor with outstanding GST liability are deemed to be held in trust for the CRA, and the CRA’s deemed trust rights take priority over such secured creditors. The court further observed that amounts withheld by employers for source deductions, but not remitted to the CRA, also constitute deemed trust “super priority” liens.

To address your lender clients’ concerns, the TitlePLUS Extended Super Priority Lien Endorsement provides protection from risks associated with super priority liens/deemed trusts for 10 years after the discharge of the insured mortgage, up to a maximum of $500,000.

This coverage is automatic and free for institutional lenders in residential transactions. The endorsement is deemed to attach to their policies (excluding Quebec). For lenders in commercial transactions, extended coverage is available for an additional $175 premium. The coverage is not available for residential private lenders or commercial private lenders whose mortgage is not first or second in priority. Liens that first accrue after the date of the policy are not covered.

A sample endorsement is available here.