Vol. 145, No. 6 — March 16, 2011


SOR/2011-55 March 3, 2011


ARCHIVED — Security Interest (GST/HST) Regulations

P.C. 2011-262 March 3, 2011

His Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to section 277 (see footnote a) of the Excise Tax Act (see footnote b), hereby makes the annexed Security Interest (GST/HST) Regulations.



1. In these Regulations, “Act” means the Excise Tax Act.


2. (1) For the purpose of subsection 222(4) of the Act, a prescribed security interest, in relation to an amount deemed under subsection 222(1) of the Act to be held in trust by a person, is that part of a mortgage or hypothec securing the performance of an obligation of the person that encumbers land or a building, but only if the mortgage or hypothec is registered pursuant to the appropriate land registration system before the time the amount is deemed under subsection 222(1) of the Act to be held in trust by the person.

(2) For the purpose of subsection (1), if, at a particular time, an amount deemed to be held in trust by the person referred to in that subsection is not remitted to the Receiver General or withdrawn in the manner and at the time provided under Part IX of the Act, the amount of the prescribed security interest referred to in that subsection may not exceed the amount determined by the following formula until such time as all amounts deemed under subsection 222(1) of the Act to be held in trust by the person are withdrawn in accordance with subsection 222(2) of the Act or are remitted to the Receiver General:

A – B


A is the amount of the obligation secured by the mortgage or hypothec that is outstanding at the particular time; and

B is the total of

(a) all amounts, each of which is the value determined at the particular time, having regard to all the circumstances including the existence of any deemed trust for the benefit of Her Majesty pursuant to subsection 222(1) of the Act, of all the rights of the secured creditor securing the obligation, whether granted by the person or not, including guarantees or rights of set-off or of compensation but not including the mortgage or hypothec referred to in subsection (1), and

(b) all amounts applied after the particular time on account of the obligation.

(3) A prescribed security interest under subsection (1) includes the amount of any insurance or expropriation proceeds relating to land or a building that is the subject of a registered mortgage interest or registered hypothecary right, adjusted in accordance with subsection (2), but does not include a lien, a priority or any other security interest created by statute, an assignment or hypothec of rents or leases, or a mortgage interest or hypothecary right in any equipment or fixtures that a mortgagee, hypothecary creditor or any other person has the right absolutely or conditionally to remove or dispose of separately from the land or building.


3. These Regulations are deemed to have come into force on October 20, 2000.


(This statement is not part of the Regulations.)

Issue and objectives

The Goods and Services Tax/Harmonized Sales Tax (GST/HST) is imposed under the Excise Tax Act (ETA). Any amount collected as or on account of GST/HST by a person is deemed to be held in trust for Her Majesty in right of Canada until remitted or withdrawn in accordance with the ETA. In addition, the ETA provides that the Crown’s claim to the amounts held in trust takes precedence over any other interest of a secured creditor (a security interest) in those amounts, except a security interest that is prescribed by way of regulations under the ETA.

Description and rationale

Consistent with existing regulations under the Income Tax Act, the Canada Pension Plan and the Employment Insurance Act, the Security Interest (GST/HST) Regulations (the Regulations) set out what constitutes a prescribed security interest for the purposes of the deemed trust provisions of the ETA. Generally, a prescribed security interest is a mortgage or hypothec in land or a building where the mortgage or hypothec is registered before the collection of an amount of GST/HST that fails to be remitted.

A prescribed security interest is subject to certain limitations set out in the Regulations. Lenders that enjoy multiple securities must first exhaust their securities that will leave the limited security of the Crown intact. Therefore, if a lender enters into a general security agreement involving other collateral securities that guarantee, together with the mortgage on land or building, the debt obligation, the value to the secured creditor of such collateral securities will reduce the amount of the prescribed security interest.

In addition, a prescribed security interest is limited to the outstanding amount of the debt obligation at the time of the failure by the debtor to remit. For example, if advances are made by the lender to the debtor after a failure to remit, these advances will be excluded in the calculation of the prescribed security interest.

A further limitation reduces the prescribed security interest to a value that reflects all amounts paid or credited after the failure by the debtor to remit GST/HST. As a result, a lender that advances funds to a delinquent debtor will not be able to avoid the erosion of the prescribed security interest by realizing on the collateral securities before the deemed trust is invoked or by arranging for preferential payments.


The introduction of the Regulations was first announced by a Department of Finance news release on April 7, 1997, which proposed amendments to the Income Tax Act, the Canada Pension Plan, the Employment Insurance Act and the ETA in order to ensure that the Crown retained its priority in relation to unremitted source deductions and unpaid GST/HST, with an exception for a prescribed security interest. The public has had an opportunity to comment on the information in the news release since its publication. Similar regulations in relation to the Income Tax Act, the Canada Pension Plan and the Employment Insurance Act have already been made. The Canada Revenue Agency was consulted on the Regulations.


Yuki Bourdeau
Sales Tax Division
Department of Finance
140 O’Connor Street
Ottawa, Ontario
K1A 0G5
Telephone: 613-996-4222

Costa Dimitrakopoulos
Excise and GST/HST Rulings Directorate
Canada Revenue Agency
320 Queen Street
Ottawa, Ontario
K1A 0L5
Telephone: 613-954-7959

Footnote a
S.C. 1993, c. 27, s. 125(1)

Footnote b
R.S., c. E-15