Horvath Estate (Re), 2023 ABKB 643

Court of King’s Bench of Alberta Citation: Horvath Estate (Re), 2023 ABKB 643 Date: 20231116 Docket: ES03 160954 Registry: Edmonton Court File Number ES03 160954 Court Court of King’s Bench of Alberta (Surrogate Matter) Judicial Centre Edmonton Estate Name Mark Stanley Horvath, also known as Mark S. Horvath & Mark Horvath Applicant Mary Horvath Respondent Canada Revenue Agency _______________________________________________________ Reasons for Decision of the Honourable Justice S. Leonard _______________________________________________________ I.

Introduction [ 1 ] This is an application by the Personal Representative of the Estate of Mark Horvath (the “Estate”) to formally pass accounts. The Estate is insolvent. The Personal Representative proposes to distribute the Estate to creditors on a pro rata basis. [ 2 ] The Respondent, the Canada Revenue Agency (“CRA”), is opposed to distribution on a pro rata basis and seeks repayment of its debt in priority over all other unsecured creditors.

The CRA relies on two separate arguments in support of its position. [ 3 ] First, the CRA argues s 159 of the Income Tax Act , RSC 1985, c 1 (5 th Supp ), creates a priority of payment for the Crown because a clearance certificate is only granted if outstanding balances owing to the CRA have been paid or secured and there are no other outstanding adjustment requests, objections, taxpayer relief, or appeal requested.

The CRA also relies on the fact that under the Estate Administration Act , SA 2014, c E-12.5 , the obligation to pay outstanding taxes is a separate duty on the personal representative from the obligation to pay other claims.

The CRA says that irrespective of where the obligation falls in the list of duties, it is apparent that paying taxes is an obligation and it is not on the same footing as payment of other debts and expenses of the estate. [ 4 ] Second, the CRA argues the Crown’s debt takes priority over other creditors of equal degree by virtue of the common law prerogative of the Crown to be paid first among claims of equal degree.

[ 5 ] The Applicant has not provided any submissions regarding the issues of paramountcy and the Crown prerogative, nor does the Applicant take any position regarding whether the CRA has priority over the other unsecured creditors. The Applicant has, however, provided submissions regarding how the relevant provisions of the Estate Administration Act and the Income Tax Act should be interpreted. In short, the Applicant is of the view that s 27(1) of the Estate Administration Act governs in this situation and that all unsecured creditors, including the CRA, should be paid on a pro rata basis out of the net assets of the Estate. Further, the Applicant takes the position that the

Schedule – Core Tasks included in the Estate Administration Act simply lists the tasks but does not create a priority or ordering of tasks. Finally, the Applicant argues legal representatives are not required to obtain a clearance certificate under s 159 of the Income Tax Act before paying out the claims against the estate. [ 6 ] In my view, in order to consider the

interpretation of s 159 of the Income Tax Act and whether it creates a priority in favour of the CRA, I must decide if it overrides the provincial legislation and the provisions dealing with the payment of unsecured debts. In other words, this analysis requires me to consider the doctrine of paramountcy. I am unable to consider this issue unless the parties have given notice of a constitutional question to the province of Alberta, as required by the Judicature Act , RSA 2000, c J-2 , s 24. This has not occurred. As such, I decline to make a ruling based on the arguments surrounding the

interpretation of the relevant provisions of the Income Tax Act and the Estate Administration Act and will not delve further into those arguments in my decision. [ 7 ] This application can be decided based on the Crown prerogative to be paid first among claims of equal degree. For the reasons that follow, I find that the CRA has priority over the other unsecured creditors of the Estate by virtue of the Crown prerogative. II. Background [ 8 ] Mr. Horvath passed away on February 3, 2021. At the time of Mr. Horvath’s death, he was in the process of consolidating his debt and putting together a consumer proposal.

He had signed a consolidation agreement with a financial institution. Owing to his death, the consumer proposal was withdrawn on November 4, 2021. [ 9 ] The Estate’s Personal Representative has collected $63,755.98 in Estate assets. [ 10 ] In total, the Personal Representative has spent $18,712.78 in expenses, funeral costs, legal fees, and accounting fees. In addition to these expenses, the Personal Representative seeks compensation in the amount of $2,000.00 and has proposed a hold-back of $5,000.00 to deal with final Estate expenses.

The CRA is not opposed to recovery by the Personal Representative of the expenses she has incurred.

The balance of funds available for distribution to creditors is therefore $38,043.20. [ 11 ] The Personal Representative proposes that the Estate’s creditors be reimbursed at 29% on a pro rata basis as shown in the table below: CLAIMANT AMOUNT OWED PERCENTAGE PAYMENT Canada Revenue Agency – COVID repayment $1,000.00 0.8% $286.07 Canada Revenue Agency – Terminal Taxes $10,151.36 7.6% $2,903.98 Bank of Montreal – Line of Credit $56,333.52 42.4% $16,115.20 Bell Mobility $333.57 0.3% $95.42 EPCOR Utilities Inc. $589.63 0.4% $168.67 Toronto Dominion Bank – VISA $27,219.94 20.5% $7,786.74 TD Canada Trust – Line of Credit $37,358.70 28.1% $10,687.12 TOTALS $132,986.72 100% $38,043.20 [ 12 ] CRA is opposed to this proposed distribution and seeks the entire amount owed to it in priority over the other creditors.

III. Issue [13] The only issue to be addressed in this matter is whether the Crown prerogative gives the CRA priority among equally rankedcreditors. IV. Law and Analysis A.

Does the Crown prerogative give the CRA priority among equally rankedcreditors? [14] The CRA argues that the Crown’s debt takes priority over other creditors of equal degree by virtue of the common lawprerogative of the Crown to be paid first among claims of equal degree. [15] The Applicant did not otherwise take a position on the Crown prerogative. 1) Does the Crown have a prerogative to be paid first? [16] The Crown prerogative to be paid first among claims of equal degree has been recognized in the Supreme Courtjurisprudence.

In Canada v Bank of Nova Scotia (1885), 1885 CanLII 44 (SCC), 11 SCR 1, the Bank of Prince Edward Island becameinsolvent. Her Majesty the Queen, represented by the Minister of Finance and the Receiver General, sought to be paid out in priorityover other creditors of equal degree. The Court concluded that the Crown would be paid in full, in priority of the other creditors.

Inmaking this conclusion, Ritchie CJ stated: I do not think there can be a doubt that the Crown is entitled at common law to a preference in a case such as this, for when the rights ofthe Crown come in conflict with the right of a subject in respect to the payment of debts of equal degree, the right of the Crown mustprevail, and the Queen’s prerogative in this respect, in this Dominion of Canada, is as exclusive as it is in England, the Queen’s rights andprerogatives extending to the colonies in like manner as they do to the mother country. (See also: Household Realty Corp v Canada (AG) (1979), (SCC), [1980] 1 SCR 423). [17] More recently, in Liberty Mortgage Services Ltd v Canada (Minister of National Revenue), 2012 ABCA 225 [LibertyMortgage], the Alberta Court of Appeal considered the Crown prerogative in the context of a CRA claim under a writ for unpaid taxesunder the Civil Enforcement Act, RSA 2000, c C-15.

The Court of Appeal recognized the Crown prerogative and interpreted the CivilEnforcement Act as permitting the prerogative to apply to debts enforced under it. [18] I conclude that the Crown prerogative to be paid first among claims of equal degree is in effect in Alberta. 2) Does the Estate Administration Act limit the Crown prerogative? [19] Legislation can restrict the Crown prerogative.

I must therefore determine whether the Estate Administration Act restricts theCrown prerogative in any way. [20] Presumptively, the Crown is immune from the operation of legislation unless expressly stated or by necessary implication:Peter W. Hogg, Patrick J. Monahan & Wade K. Wright, Liability of the Crown (Toronto: Carswell, 2011) at 398. [21] This common law rule has been codified in the

Interpretation Act, RSA 2000, c I-8: Friends of the Oldman River Society vCanada (Minister of Transport), (SCC), [1992] 1 SCR 3 at para

Section 14 of that Act reads: No enactment is binding on His Majesty or affects His Majesty or His Majesty’s rights or prerogatives in any manner, unless theenactment expressly states that it binds His Majesty. [22]

Section 27 of the Estate Administration Act provides for the payment of claims when an estate is insolvent. That sectionprovides: 27(1) Except as otherwise provided in an enactment, if there is a deficiency of assets necessary to satisfy the valid money claims againstthe estate, the claims must be paid proportionately and without any preference or priority.

(2) Nothing in this

section prejudices (

a) a mortgage existing during the lifetime of the deceased person on the deceased person’s property, or (

b) a common law priority given to the payment of funeral and estate administration expenses.

(3) If the personal representative pays more to a claimant than the amount to which the claimant is entitled under this section, theoverpayment does not entitle any other claimant to recover more than the amount to which that claimant would have been entitled if theoverpayment had not been made. [23] Nothing in s 27, or any other provision of the Estate Administration Act, expressly indicates that it binds the federal Crown.Section 22(

c) defines a “valid money claim” to mean a debt owed by a deceased person, including a debt to the Crown in right of Albertaor any other claim by the Crown in right of Alberta that could result in a money judgment against the deceased. This expressly brings the

provincial Crown into the operation of s 27, which applies when there are not enough assets to satisfy the valid money claims against theestate. However, there is no similar mention of the federal Crown. It is a maxim of statutory

interpretation that to express one thing is toexclude another: Ruth Sullivan, The Construction of Statutes, 7th ed (Toronto: LexisNexis Canada, 2022) at 8.09[1]. There is also nonecessary implication that requires the Estate Administration Act to apply to the federal Crown. As a result, the Estate AdministrationAct does not restrict or limit the Crown prerogative to be paid first among claims of equal degree. [24] This view is further supported by the legal principle that the provincial Crown cannot bind the federal Crown.

There is someuncertainty in the jurisprudence about whether this principle applies, but the bulk of the jurisprudence suggests that it does: see Peter W.Hogg, Constitutional Law in Canada, 5th ed (Toronto: Thompson Reuters Canada, 2019) at 10-20. I note that in Liberty Mortgage, theAlberta Court of Appeal agreed that the weight of authority supports the view that provincial legislation cannot bind the federal Crown:at para 6.

However, since nothing turned on this issue on appeal, the Court did not directly decide it. [25] The CRA relies on a number of cases from other jurisdictions that it says support the CRA priority of payment.

These caseseach provide somewhat different analyses depending on the wording of the other provinces’ legislation and the issues before the Court.However, in each case, the decision was made on the same principles discussed above, and, in each case, the Court held that the Crownhad prerogative to be paid first among debts of equal degree. [26] In Re Evans Estate, 2018 NSSC 68, the Court considered a CRA claim for an unpaid tax debt against an insolvent estate. TheNova Scotia equivalent to the Estate Administration Act was silent on whether the Act impacted the Crown.

The Court held that wherethe Act is silent, debts to the Crown should be paid first among equal claims: at para 56. [27] In Re Sourour Estate (1986), (NB KB), 72 NBR (2d) 168 (Prob Ct), the Court relied on the Crownprerogative to find that the Crown should be paid first by an insolvent estate and before other claims of equal priority. [28] In Re Sternschein Estate (1965) (MB KB), 50 DLR (2d) 762 (MBQB), the Court held that the Crown has aright to priority of payment and that provincial legislation cannot limit prerogative rights of the federal Crown.

Therefore, the CRA wasentitled to have its claim paid first by an insolvent estate. V. Conclusions [29] I conclude that the Crown prerogative of the Crown to be paid first among claims of equal degree is in effect in Alberta andthat there is nothing in the Estate Administration Act that limits the Crown prerogative. This finding is consistent with the conclusionsreached in other similar cases across Canada. I therefore find that the CRA has priority over the other unsecured creditors of the Estateand should be paid first.

The remainder of the unsecured creditors will be paid on a pro rata basis from the remaining funds. Heard on the 21st day of September, 2023. Written submission received on the 5th day of October, 2023 Dated at the City of Edmonton, Alberta this 16th day of November, 2023. S. Leonard J.C.K.B.A. Appearances: Kayla Thompson and Emma Himsl Duncan Craig LLP for the Applicant Ramneek Kaur Sidhu Department of Justice Canada for the Respondent