Supreme Court of Canada decision reveals risk of characterization of cash collateral arrangements as creating security interests
Collateral arrangement relying on set-off held to create a security interest and therefore subject to federal government's priorities for unremitted income tax and employment insurance at-source deductions
Caisse populaire Desjardins de l'Est de Drummond v. Canada, 2009 SCC 29
Margaret Grottenthaler
On June 19, 2009 the Supreme Court of Canada released its decision in Caisse populaire Desjardins de l'Est de Drummond v. Canada. The issue was whether an agreement between a lender and borrower with respect to set-off against a term deposit gave rise to a "security interest" within the meaning of s. 224(1.3) of the federal Income Tax Act (ITA). The majority of the court held that it did. Consequently, the lender's right to set-off its term deposit obligation against the borrower's loan obligation was subject to the statutory priority of the federal government with respect to employment insurance (EI) remit¬tances and income tax at-source deductions under s. 227(4.1) of the ITA and s. 86(2.1) of the Employment Insurance Act (EIA).
