Priority of Crown’s debt over creditors of equal degree

12 janvier 2024 | Gerald D. Chipeur, KC, Kira Lagadin

( Disponible en anglais seulement )

The Crown’s « prerogative of priority » has been enforced in Canada since it was established as a colony of England. See Canada v. Bank of Nova Scotia, [1885] 11 S.C.R. 1 (« the Crown is entitled at common law to a preference … , the Queen’s rights and prerogatives extending to the colonies in like manner as they do to the mother country. »).

Income Tax Act priority of the Crown

More recently, Justice Shaina Leonard, of the Court of King’s Bench of Alberta, enforced the prerogative of priority in Re Horvath Estate, 2023 ABKB 643, at paras 16 and 29. In that case the Canada Revenue Agency (CRA) asserted a right to be paid first in the distribution of an estate under the Estate Administration Act, SA 2014, c E-125. The CRA argued that it had a right to be paid first under the Income Tax Act, RSA 1985, c I (5th Supp) and, in the alternative, pursuant to the Crown prerogative of priority.

The parties had not given notice of a constitutional question under s. 24 of the Jurisdiction Act, RSA 200, c J-2. Therefore, Justice Leonard declined to consider whether s. 159 of the Income Tax Act was paramount over the Estate Administration Act. Justice Leonard did not need to consider sections 91 and 92 of the Constitution Act, 1867, as she accepted the arguments of the CRA that the Crown prerogative of priority applied and resulted in the CRA receiving 100 per cent of the $11,151.36 that it was owed. The remaining $26,891.85 was distributed pro rata amongst the remaining creditors, resulting in each one receiving 22 per cent of the amount owing to the creditor from the estate.

In arriving at her decision, Justice Leonard first had to consider whether s. 27 of the Estate Administration Act limited the Crown prerogative advanced by the CRA. She concluded that it did not. First, she reasoned that s. 27 was not intended by the Legislative Assembly of Alberta to apply to the federal Crown. Second, she concluded that the Legislative Assembly could not bind or impact the prerogative priority of the federal Crown, even if it wanted to do so.

Impact of the Charter on Crown’s prerogatives

One issue that was not considered by Justice Leonard is the question of whether the Crown prerogative of priority has application in Canada in light of s. 15 of the Canadian Charter of Rights and Freedoms, which came into force on July 1, 1985, 100 years after the Supreme Court of Canada’s decision in Canada v. Bank of Nova Scotia, [1885] 11 SCR 1.

Two trial courts have upheld the Crown prerogative of priority in the face of arguments under s. 15 of the Charter. See Montreal Trust Co v. Tottrup 1990 A.J. No 782, and Wright v. Canada (Attorney General) 1987 OJ No 1158. However, there has never been appellate review of the question.

The argument against the Crown prerogative of priority is thoroughly canvassed in the masters of law thesis of the author Gerald D. Chipeur, « The Abolition of the Crown, Prerogative of Priority by Section 15 of the Charter » (1990).

In summary, the thesis explores the question of whether the personal prerogatives (as opposed to the governmental prerogatives) should survive within a constitutional system that accepts King Charles III as head of state, but rejects the class system that created the monarchy in the first place.

It is well established that the Crown prerogatives include « to wage war, or to make peace; to enter into treaties; to protect children who are abused; to curb civil disobedience; [and] to show mercy to, or pardon, offenders » (L.L. Blake, The Royal Law, Source of our Freedom Today (London: Shepheard­ Walwyn (Publishers) Ltd., 2000, at 54).

It is necessary for those prerogatives to survive under the Constitution Act, 1867. They are known as the governmental prerogatives of the Crown.

Personal prerogatives of the King inconsistent with equality of all Canadians

On the other hand, personal prerogatives are those that trace their origin to the « personal relation of superiority and subjection » between the Queen or King and their subjects (F. Wormuth, The Royal Prerogative 1603 1649, 1939 at 21). See also Halsbury’s Laws of England, vol. 8, 4th ed. (London: Butterworths, 1974) at 666-667, as cited in Anne E. Hardy, Crown Priority in Insolvency (Canada: Carswell, 1986) at 2 (« let it be given to the worthier ») and pages 19 to 23 of the thesis.

This type of prerogative was derived from the medieval idea that the King or Queen was personally superior to all others, so special treatment of the King or Queen was warranted. One of the personal prerogatives of the Crown which continues to be applied today is the prerogative of priority, which is the idea that Crown debts must be paid in priority to the debts of all others.

There is no reason that a personal prerogative of the Crown need survive. Such a prerogative is based upon conceptions of the Crown that are inconsistent with the words of s. 15 of the Charter and the Charter values that have been identified by the Supreme Court of Canada: human dignity, equality, autonomy, and the enhancement of democracy (Alberta v. Hutterian Brethren of Wilson Colony 2009 sec 37 at para 88).

King Charles III is not better than any Canadian citizen and there is no theory of public policy under the common law that would justify the payments of debts owed to him first. If Parliament sees good public policy reasons to give the CRA priority in the payment of debts, Parliament can do so under s. 91 of the Constitution Act, 1867. In fact, that is what Parliament has done with respect to certain amounts owing to the Receiver General. Sees. 224(1.2) of the Income Tax Act.

This article was originally published by Law360 Canada, part of LexisNexis Canada Inc.

Avis de non-responsabilité

Cette publication est fournie à titre informatif uniquement. Elle peut contenir des éléments provenant d’autres sources et nous ne garantissons pas son exactitude. Cette publication n’est ni un avis ni un conseil juridique.

Miller Thomson S.E.N.C.R.L., s.r.l. utilise vos coordonnées dans le but de vous envoyer des communications électroniques portant sur des questions juridiques, des séminaires ou des événements susceptibles de vous intéresser. Si vous avez des questions concernant nos pratiques d’information ou nos obligations en vertu de la Loi canadienne anti-pourriel, veuillez faire parvenir un courriel à

© 2023 Miller Thomson S.E.N.C.R.L., s.r.l. Cette publication peut être reproduite et distribuée intégralement sous réserve qu’aucune modification n’y soit apportée, que ce soit dans sa forme ou son contenu. Toute autre forme de reproduction ou de distribution nécessite le consentement écrit préalable de Miller Thomson S.E.N.C.R.L., s.r.l. qui peut être obtenu en faisant parvenir un courriel à