Bank of Montreal v. Gu, 2024 BCSC 261

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Bank of Montreal v. Gu, 2024 BCSC 261 Date: 20240214 Docket: H190138 Registry: Vancouver Between: Bank of Montreal Petitioner And Wei Jie Gu, Xiu Long Gu, Trendspark (Far East) Limited, Yunfang Wu, Hangcheng Wu aka Hang Cheng Wu, Julei Li Businessman Respondents Before: The Honourable Justice Elwood Reasons for Judgment Counsel for the Petitioner: R. Ellis Counsel for the Respondent, Yunfang Wu: S. McCalla C.

Formosa Counsel for the Attorney General of Canada on behalf of His Majesty the King in Right of Canada as represented by the Minister of National Revenue: C. Woo N. Johnston Place and Date of Hearing: Vancouver, B.C. December 20, 2023 Place and Date of Judgment: Vancouver, B.C. February 14, 2024 Table of Contents I. INTRODUCTION .. 3 II. BACKGROUND .. 4 III. ANALYSIS .. 6 A. Statutory Provisions Governing Holdback Funds and Tax Refunds . 6 B. Canada’s Position .. 8 C. Is the Application Governed by the Decision in Li? . 9 D. Does the Court Have Jurisdiction to Make the Order Sought? . 13 IV. CONCLUSION .. 17 I.

INTRODUCTION [ 1 ] Section 116(5) of the Income Tax Act, ( R.S.C.1985, c. 1 (5th Supp .)) (“ ITA ”) provides that a purchaser of taxable Canadian property from a non-resident seller is liable to pay, and must remit to the Receiver General, 25% of the purchase price of the property unless certain exceptions apply.

[ 2 ] In this case, a property was sold in a foreclosure proceeding pursuant to an order of this Court. The mortgage debtor, owner of the property, was also a judgement debtor. The court order approving the sale provided that, following the usual deductions and payment to the bank, the sale proceeds were to be paid to the judgement creditor. [ 3 ] The purchaser remitted 25% of the purchase price to the Receiver General in accordance with s. 116 of the ITA .

These “holdback funds” were proceeds of the sale that otherwise would have been paid to the judgment creditor under the court order approving the sale. [ 4 ] The Canada Revenue Agency (“CRA”) has indicated that, if and when the judgement debtor files a tax return, the CRA will assess the tax he owes and pay any excess holdback funds to him as a “tax refund” under s. 164 of the ITA . [ 5 ] The judgement creditor applies in the foreclosure proceedings for an order that the CRA must pay any excess holdback funds as provided for in the court order approving the sale.

The judgment creditor relies on a recent decision by Associate Judge Harper in 1074022 B.C. Ltd. v. Li , 2020 BCSC 65 [ Li ]. [ 6 ] The application is opposed by the Attorney General of Canada on behalf of His Majesty the King in Right of Canada as represented by the Minister of National Revenue (“Canada”). Canada argues that any refund of holdback funds is governed by the ITA and there is no statutory basis for the CRA to pay a potential refund to anyone except the taxpayer. Further, Canada argues that the B.C.

Supreme Court has no jurisdiction to order the CRA to pay funds to a creditor in the foreclosure proceeding. Canada argues that Li is distinguishable or wrongly decided. II. BACKGROUND [ 7 ] Xiu Long Gu owes Yunfang Wu approximately $45 million in Canadian currency. The debt arises from a judgment of a Chinese court which was recognized by this Court on August 1, 2018 (the “Judgment”). [ 8 ] Mr. Gu was the registered owner of a property in Richmond, British Columbia (the “Lands”). Mr. Gu transferred title to the Lands into his son’s name after Ms.

Wu commenced proceedings to recognize and enforce the Chinese judgment. In reasons for judgment indexed at 2020 BCSC 396 , Justice MacNaughton held that the transfer was null and void because it was intended to frustrate Mr. Gu’s creditors. [ 9 ] The Bank of Montreal ("BMO") commenced these foreclosure proceedings on February 15, 2019, in respect of a mortgage against the Lands. [ 10 ] On September 25, 2020, Ms. Wu registered the Judgment on title to the Lands. She renewed the registration on September 22, 2022. [ 11 ] On June 22, 2022, Ms.

Wu registered a further judgment on title to the Lands, which was with respect to costs (together with the Judgment, the “Judgments”). [ 12 ] On December 5, 2022, Associate Judge Bilawich approved a sale of the Lands for the sum of $1,890,000 (the “Sale Order”), ordering, among other things, that: 6. The net sale proceeds after adjustments for taxes, utilities and adjustments, and real estate commission be paid to Richards Buell Sutton LLP, in trust, and then disbursed as follows : (

a) first, to the Petitioner the amount required to pay the outstanding balance of its mortgage plus interest and assessable costs or agreed among the interested parties, together with any protective disbursements incurred by the Petitioner during the course of these proceedings either as agreed amongst the interested parties or as ordered by this Honourable Court, (

b) second, to Respondent, Yunfang Wu care of Norton Rose Fulbright Canada LLP to be applied against the amounts owing on the judgments registered in the name of Yungfang Wu in the New Westminster Land Title Office under Numbers CA8453687 and CB24081 plus the taxable costs of Yunfang Wu. (

c) third, the balance, if any, into Court to the credit of this action to be held pending further Order. [emphasis added] [ 13 ] On January 5, 2023, counsel for the purchaser of the Lands advised that, as Mr. Gu had not provided confirmation of his residency, the purchaser would hold back 25% of the gross sale price to cover any potential tax liability that may arise as a result of s. 116 of the ITA . [ 14 ] On January 6, 2023, counsel for Ms. Wu requested, by way of a letter that was personally delivered to him in Richmond, that Mr. Gu provide confirmation of his residency. Mr.

Gu did not respond. [ 15 ] On January 9, 2023, counsel for the purchaser asked the CRA to provide a comfort letter confirming that the purchaser did not have to make any remittance to the Receiver General until the amount of tax, if any, owing by Mr. Gu on the transaction was settled. [ 16 ] On March 14, 2023, the CRA advised counsel for the purchaser that 25% of the purchase price, or $472,500, must be remitted to the Receiver General under s. 116 of the ITA .

By cheque dated March 21, 2023, counsel for the purchaser paid the funds to the CRA (the “Holdback Funds”). [ 17 ] On March 16 and 24, and May 19, 2023, counsel for Ms. Wu sent letters to the CRA requesting confirmation that if the CRA determines that the Holdback Funds are not payable in full or in

part in respect of the sale of the Lands, the CRA will pay those excess

funds to Richards Buell Sutton LLP in trust in accordance with the Sale Order. [ 18 ] The CRA has not provided confirmation that it will pay the Holdback Funds, or any portion of them, in accordance with the Sale Order. Rather, it has indicated that it intends to pay any excess Holdback Funds to Mr. Gu. [ 19 ] There is no dispute that, but for s. 116 of the ITA , the Holdback Funds would have been paid to Richards Buell Sutton LLP in trust, and then disbursed to Ms. Wu, as provided for in the Sale Order. Put another way, Mr.

Gu would not have received any proceeds from the sale of the Lands. [ 20 ] BMO was paid out from the proceeds of sale of the Lands. It takes no position on this application. [ 21 ] Ms. Wu received approximately $225,000 from the sale of the Lands. Otherwise, except for garnished funds in the amount of approximately $20,000, the Judgments remain unpaid. III. ANALYSIS A. Statutory Provisions Governing Holdback Funds and Tax Refunds [ 22 ] Section 116(5) of the ITA requires a purchaser of taxable property to remit 25% of the purchase price to the Receiver General as

Part I Tax on behalf of a non-resident seller unless the purchaser obtains either confirmation the seller is in fact a resident of Canada or a certificate of tax compliance from the CRA. The full language of s. 116(5) is as follows: Liability of purchaser

(5) Where in a taxation year a purchaser has acquired from a non-resident person any taxable Canadian property (other than depreciable property or excluded property) of the non-resident person, the purchaser, unless (

a) after reasonable inquiry the purchaser had no reason to believe that the non-resident person was not resident in Canada, (a.1) subsection (5.01) [treaty protected property] applies to the acquisition, or a certificate under subsection 116(4) has been issued to the purchaser by Canada in respect of the property, is liable to pay, and shall remit to the Receiver General within 30 days after the end of the month in which the purchaser acquired the property, as tax under this Part for the year on behalf of the non-resident person, 25% of the amount, if any, by which the cost to the purchaser of the property so acquired exceeds the certificate limit fixed by the certificate, if any, issued under subsection 116(2) in respect of the disposition of the property by the non- resident person to the purchaser, and is entitled to deduct or withhold from any amount paid or credited by the purchaser to the non-resident person or otherwise recover from the non-resident person any amount paid by the purchaser as such a tax. [emphasis added] [ 23 ] Tax remittances received by the CRA are generally paid into the Consolidated Revenue Fund of the Government of Canada (the “CRF”).

Payment out of the CRF is subject to s. 26 of the Financial Administration Act , R.S.C., 1985, c. F-11 , [ FFA ], which requires: 26 Subject to the Constitution Acts , 1867 to 1982, no payments shall be made out of the Consolidated Revenue Fund without the authority of Parliament. [ 24 ] If a person files a tax return, s. 152(2) of the ITA requires the Minister (i.e. the CRA) to review the return and issue a notice of assessment. Once a notice of assessment is issued, s. 164 of the ITA authorizes the Minister to refund an overpayment of

Part I Tax: 164(1) If the return of a taxpayer’s income for a taxation year has been made within 3 years from the end of the year, the Minister (

a) may, … (iii) on or after sending the notice of assessment for the year, refund any overpayment for the year , to the extent that the overpayment was not refunded pursuant to subparagraph (

i) or (ii); and (

b) shall, with all due dispatch, make the refund referred to in subparagraph (a)(iii) after sending the notice of assessment if application for it is made in writing by the taxpayer within the period within which the Minister would be allowed under subsection 152(4) to assess tax payable under this Part by the taxpayer for the year if that subsection were read without reference to paragraph 152(4)(a). [emphasis added] [ 25 ] Section 164(1.8) authorizes the Minister to provide all or part of the refund to a province if requested by the taxpayer. In

addition, s. 164(2) provides the Minister with a right of set-off for amounts owing to His Majesty in right of Canada or in right of aprovince. Otherwise, the ITA does not authorize the Minister to pay a tax refund to anyone except the taxpayer. [26] An overpayment of tax results in the taxpayer having an enforceable right against the government that may be characterized as aCrown debt: Marzetti v. Marzetti, (SCC), [1994] 2 SCR 765, at para. 86. [27]

Section 67 of the FAA provides that a Crown debt is not assignable: Except as provided in this Act or any other Act of Parliament,

a) a Crown debt is not assignable; and

b) no transaction purporting to be an assignment of a Crown debt is effective so as to confer on any person any rights or remedies inrespect of that debt. [28] There is no legislation that authorizes a tax refund to be paid to a creditor on behalf of a taxpayer or for a tax refund to beassigned to a creditor. B. Canada’s Position [29] Canada argues that its handling of the Holdback Funds is governed by the provisions of the ITA and the FAA, such that anyexcess funds must be paid to Mr. Gu as a tax refund under s. 164 of the ITA. If and when Mr.

Gu files a tax return for the 2023 tax year,Canada says, the CRA will assess his tax owing from all sources and issue a notice of assessment. If there has been an overpayment, byor on behalf of Mr. Gu, Canada argues that s. 164 of the ITA requires the CRA issue a refund to Mr. Gu and s. 67 of the FAA prohibits anassignment of the refund to Ms. Wu. [30] Canada also argues that the Court cannot order the CRA to pay an income tax refund to a creditor or into court because theCrown is immune from orders that are coercive in nature unless explicitly permitted by legislation, citing Daniels v.

Daniels, 2011MBCA 94, at para. 79-80. [31] Canada further argues that an order that the CRA pay the funds to a creditor or into court would be a mandatory injunctionagainst the Crown, which is prohibited by s. 22(1) of the Crown Liability and Proceedings Act, R.S.C., 1985, c.

C-50) (the “CLPA”): 22(1) A court shall not, as against the Crown, grant an injunction or make an order for specific performance, but in lieu thereof maymake an order declaratory of the rights of the parties. [32] In addition, Canada argues that this Court cannot exercise inherent jurisdiction over the CRA because the Federal Court hasexclusive jurisdiction to judicially review federal decision makers and issue remedies in the nature of an injunction or mandamus, citings. 18(1) of the Federal Courts Act, R.S.C., 1985, c. F-7, (“FCA”): 18(1) Subject to

section 28, the Federal Court has the exclusive original jurisdiction

a) To issue an injunction, writ of certiorari, writ of prohibition, writ of mandamus or writ of quo warranto, or grant declaratory relief,against any federal board, commission or other tribunal. [33] Lastly, Canada argues that, should the Court grant the order sought by Ms. Wu, it would put the CRA in the position of servingas a “clearing house” in which public money and resources are used to process and issue refunds to creditors.

Canada argues that an orderrequiring the CRA to pay funds except as provided for under the ITA would expose the agency to unreasonable risk, for example if it wasalleged that CRA paid funds to the wrong party. C. Is the Application Governed by the Decision in Li? [34] Li involved similar facts to this case. The application arose out of a foreclosure proceeding. A court order approving the sale of aproperty set out the priorities for the payment of the net sale proceeds, including the amounts owed under two mortgages. The owner,Mr. Li, was not a resident of Canada. Mr.

Li did not give notice of the transaction to the CRA. Accordingly, the purchaser remitted 25%of the purchase price to the CRA as required by s. 116 of the ITA. [35] Although the CRA had not yet conclusively determined the tax Mr. Li owed, it was clear that the amount the purchaser remittedto the CRA exceeded his tax liability. The second mortgagee applied for an order that the CRA pay the excess funds into a lawyer’s trustaccount to be dispersed in accordance with the order approving the sale. [36] Li was somewhat different from this case because Mr.

Li had provided the CRA with a written irrevocable authority anddirection to pay the excess funds to his lawyer in trust (from where, Mr. Li had agreed with his creditors, the funds would be disbursed inaccordance with the sale order). [37] Canada argued in Li that there was no legislative authority for the CRA to comply with the direction to pay or pay the funds intocourt, and that the CRA was compelled by law to pay the excess holdback funds to Mr. Li as a tax refund. [38] Associate Judge Harper framed the two issues to be determined on the application as: (

a) whether the CRA was obliged tocomply with the direction to pay, and (

b) if not, whether the CRA was required to pay the funds into trust or into court to be dispersed inaccordance with the order approving the sale. [39] On the first question, Associate Judge Harper found there was nothing in the ITA that prevented the CRA from complying with

the direction to pay. The Court’s reasoning for this conclusion is found in para. 15 of the decision: [15] In my view, Canada’s

interpretation of s. 67 of the FAA and s. 164 of the ITA is overly narrow. If CRA pays the excess funds toMr. Li’s lawyer in trust, the payment is neither an “assignment” of the excess funds to a third party, nor a payment for the benefit ofanyone other than Mr. Li. The funds remain Mr. Li’s to be dealt with in accordance with the trust conditions agreed upon between him,his lawyer and the secured creditors. Mr.

Li’s agreement that the funds be paid out of his lawyer’s trust account in accordance with thepriorities of the order approving sale is none of Canada’s concern. [40] Li is a considered decision of this Court. Associate Judge Harper heard three days of argument, reserved her decision anddelivered a comprehensive written decision. The statutory provisions and binding appellate authorities on which Canada relies on thisapplication were brought to her attention. [41] The principles from Re.

Hansard Spruce Mills Ltd., (BC SC), [1954] 4 D.L.R. 590 (S.C.) at para. 9, whichmilitate for following a considered decision of another judge, apply equally with respect to considered decisions by masters, nowassociate judges: Yi v. Yung (1994), (BC SC), 1 BCLR (3d) 273 (S.C.) at para. 10. [42] Canada argues that Li is distinguishable because Mr. Li provided the CRA with a direction to pay. I do not agree. As in this case,Canada argued in Li that s. 164 of the ITA required the CRA pay the excess funds to the taxpayer as a tax refund and that s. 67 of theFAA prohibited an assignment of the refund to his creditors.

Associate Judge Harper rejected that

interpretation. Had she agreed, thedirection to pay would have been unenforceable. [43] In other words, the decision on the first question in Li turned on the Court’s

interpretation of the ITA in the context of aforeclosure sale, not on the direction to pay itself. [44] Moreover, Associate Judge Harper went on to consider the issue in the absence of a binding direction to pay. She concluded thatthe CRA was required by the order approving the sale to pay the excess holdback funds into trust or into court to be dispersed inaccordance with the order. The Court’s reasoning on this second question is captured in the following two paragraphs of the decision: [38] One of the major difficulties with Canada’s position is that it disregards the authority of the court.

The court maintainsjurisdiction over its own orders. In this case, the court maintains jurisdiction over the order approving sale by which the court orderedthat the proceeds of sale were to be distributed in accordance with the priorities established by date of registration: LTA, s. 28. [39] Nothing in s. 116 of the ITA has the effect of reversing any priorities established by the order approving sale. The intent ofs. 116 is to ensure that the tax debts of non-resident property owners are paid so that funds that would go to paying those debts do notleave the country.

Section 116 cannot sensibly be construed as requiring funds over and above the amount of the tax debt to be paiddirectly to the taxpayer who is outside the jurisdiction, thus depriving the taxpayer’s creditors of the money rightfully owing to them. [45] Canada argues that the decision on the second question in Li is obiter dicta, and therefore not binding in accordance withHansard Spruce Mills.

In the alternative, Canada argues that Li should not be followed because it presumes a jurisdiction the B.C.Supreme Court does not have to enforce its foreclosure orders against the federal Crown. [46] In Neale Engineering Ltd. v. Ross Land Mushroom Farm Ltd., 2023 BCCA 429, the Court of Appeal provided guidance on whena passage from one of its own decisions is binding or not binding. The ratio decidendi of a Court of Appeal decision is binding, whileobiter dicta is not binding, but may be persuasive. Generally speaking, the ratio decidendi of a decision is what was necessary to resolvethe issue before the Court.

However, as the Court of Appeal noted, it is not always easy to discern from reasons for judgment what

part isratio decidendi and what is obiter dicta. [47] In my view, it is difficult to neatly divide Li between questions #1 and #2, and say that the analysis under question #2 was notnecessary to resolve the issue before the Court. As stated, it was necessary for Associate Judge Harper to reject Canada’s

interpretation ofthe ITA before she could find that the CRA was required to honour the direction to pay.

In doing so, Associate Judge Harper necessarilyfound that: the purchaser’s remittance under s. 116 did not extinguish the priorities established by the order approving the sale; s. 164 didnot require the CRA to pay the surplus funds to the taxpayer as a tax return; and payment into trust or into court to be dealt with inaccordance with the sale order was not an assignment of a Crown debt prohibited by s. 67 of the FAA. [48] In my view, all of these aspects of Li are part of the ratio decidendi of the decision and binding on other associate judges andjudges of this Court unless and until altered by the Court of Appeal. [49] That said, the order against the CRA at paragraph 49 of Li was not necessary to resolve the issue before the Court because, asAssociate Judge Harper said, no order was required in light of the direction to pay.

As a result, Associate Judge Harper was not requiredto address directly some of the arguments raised on this application concerning jurisdiction and Crown immunity. [50] In my view, therefore, it is appropriate for me to consider whether this Court has the jurisdiction to make the order sought byMs. Wu on this application. D. Does the Court Have Jurisdiction to Make the Order Sought? [51] The jurisdiction on which Ms.

Wu relies is the jurisdiction of the Court in a foreclosure proceeding under Rule 21-7(5) of theSupreme Court Civil Rules to order a sale of a mortgaged property, vest title in the purchaser and establish entitlement and priorities tothe proceeds of sale. [52] A court-ordered sale in a foreclosure proceeding is different from a private sale. When the court orders a sale, the purchaserreceives clear title to the property, free from mortgages and other charges such as registered judgements.

In a court-ordered sale, the netproceeds after transaction costs stand “in the place and stead of the land, subject to the same priorities to which the land was subjected”:

Canada Permanent Mortgage Corp. v. Kerr (1984), (BC SC), 55 B.C.L.R. 13 (B.C.S.C.), para. 1. [53] In this context, the sale proceeds are subject to the same pre-existing priorities as existed at the time of sale. A judgment creditorloses the security of its registered charge, but gains an entitlement to a portion of the sale proceeds in accordance with the priorities in thecourt order.

Conversely, the owner-debtor has no entitlement to any of the proceeds except as allowed by the terms of the orderapproving the sale. [54] Payment to the judgment creditor, rather than the owner-debtor, in accordance with the court order approving the sale preservesthe priorities and equities that existed before the sale. [55] Clearly, therefore, the Court in a foreclosure proceeding has the jurisdiction to make such orders as may be necessary to ensurethat the appropriate proceeds of sale are paid to the judgment creditor, rather than the owner-debtor.

The Court may, for example, orderthat the purchaser pay the proceeds of sale into trust and give directions on how the funds will be disbursed. [56] The question is whether ss. 116 and 164 of the ITA alter the entitlement and priorities in a court-ordered sale in a foreclosureproceeding in a way that ousts the jurisdiction of the Court over the proceeds of sale. [57] Provisions of the ITA must be interpreted using Elmer Driedger’s “modern approach” to statutory

interpretation, as adopted bythe Supreme Court of Canada in Rizzo & Rizzo Shoes Ltd. (Re), (SCC), [1998] 1 S.C.R. 27 at paragraph 21: Today there is only one principle or approach, namely, the words of

an Act are to be read in their entire context and in their grammaticaland ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament. See also: Bell ExpressVu Limited Partnership v. Rex, 2002 SCC 42at para. 26. [58] I agree with the following analysis by Associate Judge Harper: [30] The purpose of s. 116 is to ensure that funds owing for tax on capital gains arising on a disposition of property go to CRA, ratherthan to a tax debtor who is out of the reach of CRA collections procedures. [31] CRA relies on the plain wording of s. 116 to argue that it has no discretion to comply with the vesting order. However, in myview, CRA's

interpretation of s. 116 is unnecessarily narrow.

Nothing in the ITA, including s. 116: a. contemplates a sale by court order rather than private sale; b. gives the Crown priority for tax obligations over a mortgage; c. provides any mechanism by which sales proceeds paid to CRA under s. 116 which are encumbered by mortgage security [or aregistered judgment] can be effectively "cleansed" of those security interests; or d. changes the nature of the mortgage itself, being a transfer of title of the property to the mortgagee subject to the right ofredemption. [32] The statutory scheme set out in s. 116 presupposes that the sale is a voluntary sale by a registered owner which requires thevendor to clear title.

There would be no unpaid secured creditors in such a sale (otherwise, the vendor would, of course, not be able toclear title) and therefore no unfairness to the secured creditors would arise as it does on the facts before me. [33] In the present case, the funds that CRA refers to as a "refund" are part of the funds that were encumbered by the mortgagesecurity held on Mr. Li's property. Those funds remain in place and stead of the lands. Accordingly, the "refund" cannot be properlyconsidered a tax refund owing to Mr.

Li. […] [59] In a court-ordered foreclosure sale, the funds that the purchaser remits to the CRA under s. 116 of the ITA are sale proceeds that“stand in the place and stead of the land, subject to the same priorities to which the land was subjected” (Canada Permanent MortgageCorp., supra). [60]

Section 116 requires the purchaser to remit the funds “as tax…on behalf of the non-resident person” (emphasis added).However, it does not necessarily follow that the amount by which the funds remitted “as tax” exceed the tax liabilities of the non-resident are an “overpayment” of tax within the meaning of s. 164, requiring a “refund” to the non-resident. [61] The ordinary meaning of “overpayment” and “refund” in their entire context, consistent with the purpose of s. 116 and theintention of Parliament belie this

interpretation. The use of the word “overpayment” in s. 164 indicates that a “refund” will beforthcoming when the taxpayer is otherwise entitled to the remitted funds, for example, as income from which an employer deductedtaxes at source. [62] The purpose of s. 116 is to provide a mechanism to ensure that tax is properly collected from non-residents.

The liability of thepurchaser to remit 25% of the purchase price is intended to ensure that the seller’s potential tax liabilities are protected in the transaction.The remitted funds might be an “overpayment” on behalf of the taxpayer in a private sale, but not necessarily in a court-orderedforeclosure sale, where, as discussed, the sale proceeds “stand in the place and stead of the land, subject to the same priorities to whichthe land was subjected”. [63] There is no indication in s. 116 that Parliament intended to extinguish the priorities and equities that exist in a court-orderedforeclosure sale.

Put another way, Parliament did not intend s. 116 to cleanse non-resident debtors of their liabilities to other creditors. [64] In proper context, therefore, the funds remitted “as tax” under s. 116 which exceed the tax liabilities of the non-resident are notan “overpayment” requiring a “refund” to the non-resident under s. 164. Instead, they are proceeds of sale that remain subject to the

priorities set out in the order approving the sale. [ 65 ] On this

interpretation, the funds remain subject to the court order when they are remitted to the Receiver General under s. 116 . The Receiver General may deposit the funds into the CRF, where they become co-mingled with funds from many other sources. However, the handling of the funds is a matter of convenience to the government. Deposit into the CRF should not have the unintended effect of extinguishing the priorities under the court order or entitling the debtor to an unjustified “refund”. [ 66 ] While I agree with counsel for Canada that this Court cannot order the CRA to pay funds to Ms. Wu or a law firm in trust, a coercive order is unnecessary. On a proper

interpretation of ss. 116 and 164, it is sufficient to make a declaration that the remaining Holdback Funds, after

Part I Taxes are assessed and collected by the Minister, are subject to the terms of the Sale Order. [ 67 ] The resulting order is not an injunction against the Crown and does not offend Crown immunity. It is more in the nature of an injunction against Mr. Gu, prohibiting him from receiving a refund to which he is not entitled. [ 68 ] A declaration in the foreclosure proceedings is not declaratory relief in a judicial review over which the Federal Court would have exclusive jurisdiction under s. 18(1) of the FCA . Ms. Wu does not seek judicial review of any decision by the CRA.

Instead, she seeks an order under Rule 21-7(5) to clarify the priorities already set out in the Sale Order . [ 69 ] An order of this nature does not treat the CRA as a “clearing house” for creditors. Established case law prevents creditors from seeking remedies against the CRA directly. The order that I propose simply preserves existing priorities under a court order after taxes are assessed and collected by the CRA.

Paying the excess funds in accordance with a court order will not expose the CRA to any risk. [ 70 ] That said, it is important that the order not interfere with the ordinary tax assessment procedure under the ITA . Two limitations follow from this. First, the order must recognize that the Holdback Funds may be held by Canada until the Minister assesses Mr. Gu’s tax liabilities. Second, the order must recognize the Minister’s entitlement to collect any

Part I Tax owing by Mr. Gu, not limited to tax arising from the sale of the Lands. IV. CONCLUSION [ 71 ] For these reasons, there will be a declaration to the effect that, following assessment by the Minister, any Holdback Funds that are not subject to

Part I Tax are net sale proceeds within the meaning of paragraph 6 of the Sale Order pronounced December 5, 2022. [ 72 ] If the parties require any further assistance with the terms of the formal order, they may ask to appear before me at 9:00 am by MS Teams on any mutually available date. [ 73 ] Ms. Wu is entitled to costs of this application against Mr. Gu Sr. There will be no order of costs against Canada. “Elwood J.”