Oct. 30 (Bloomberg) -- Canada’s federal and provincial governments can’t skip ahead of other creditors in a bankruptcy to retrieve sales taxes the company had collected, Canada’s highest court ruled today.

The Canadian and Quebec governments argued the tax money was simply collected and held on their behalf, putting their claim ahead of other creditors in the bankruptcy, according to the ruling. Bankruptcy trustees said governments should be considered “unsecured creditors” and ranked accordingly.

The Supreme Court ruled unanimously, in a decision written by Judge Louis LeBel, that the country’s bankruptcy legislation calls for sales-tax trusts to disappear once companies become insolvent. As a result, sales taxes can’t be separated from other assets and governments have no priority over other creditors, the court said.

“When a supplier goes bankrupt, the tax authorities do not own Goods and Services Tax and Quebec Sales Tax amounts that have been collected but not remitted or are collectible at the time of the bankruptcy,” LeBel wrote. “Instead, they have an unsecured claim against the supplier.”

The case is Quebec (Revenue) v. Caisse populaire Desjardins de Montmagny, 32486, 32489, 32492, Supreme Court of Canada (Ottawa)

To contact the reporters on this story: Alexandre Deslongchamps in Ottawa at adeslongcham@bloomberg.net.

Last Updated: October 30, 2009 11:46 EDT