Bain v. Rosen, 84 DTC 6212, [1984] CTC 589 (S.C.O.)

J Holland, J:—This is an appeal from an order made in a garnishee proceeding and involves the method by which the judge below calculated the amount due to the debtor by his employer. The complication which exists is that the employer, pursuant to a demand under subsection 224(1) of the Income Tax Act, deducted the amount stated in the demand from the 30 per cent of the net wage of the employee, and remitted the balance to the court. The order below held that this was in error.

In this appeal, a narrow but important point is raised and upon which there does not appear to have been any previous reported authority. As to this both counsel agree.

The threshold question is “what is the debt due or accruing due” caught by the garnishment proceedings brought by the judgment creditor. It is this which is, by the Wages Act, subsection 7(1), used to calculate the 70 per cent exemption. Counsel are agreed that in arriving at this, the proper starting point is the gross wage due, and to reduce this by the statutorily mandated deductions at source provided by the Income Tax Act, the Unemployment Insurance Act and the Canada Pension Act. The employer, it is recognized, is the statutory agent for Her Majesty in making these deductions and is trustee of such funds for Her Majesty.

The question then arises as to the characterization of the demand made by the Government of Canada pursuant to subsection 224(1) of the Income Tax Act. This demand is termed “garnishment” under the statute and is found under the general heading of “Collection”. Section 222 reads:

222. Debts to Her Majesty. All taxes, interest, penalties, costs and other amounts payable under this Act are debts due to Her Majesty and recoverable as such in the Federal Court of Canada or any other court of competent jurisdiction or in any other manner provided by this Act.

The demand under subsection 224(1) requires the person liable to make a payment to the “tax debtor”, to pay the moneys “otherwise due to the tax debtor in whole or in part to the Receiver General on account of the tax debtor’s liability under this Act”. Where proceedings are taken in the Federal Court in respect of wages or salaries, Rule 2300(6) provides that no portion that is exempt from seizure or attachment by the law of the particular province is attached by any order made under that rule.

Subsection 224(4) imposes upon every person who fails to comply, the requirement to pay to the Receiver General, the amount which ought to have been deducted and forwarded.

I wish to record, at this point, that while the taxing authority would have a right to be heard on this issue, I am asked to deal with this specific case as one involving only the immediate parties. No attempt was made to bring to the attention of the taxing authority that this issue was to be determined, either on the return of the garnishment order, or on the appeal. In fact, in the present circumstances, no problem arises because the money caught by the section 224 demand has been paid, and there would be enough money to honour it in any event. I am careful to point this out because my decision is not to be taken as binding upon the taxing authority. There may well be cases where the gross amount due before deduction will be such that those charged with issuing and enforcing demands under section 224 will wish to be heard and to take the position that moneys attached under a subsection 224(1) demand are those due before any calculation is made of the 70 per cent exemption applicable under the Wages Act, section 7, or under the Federal Court rule.

Counsel have also agreed that no question arises here about constitutional conflict, or the priority to be given to the moneys caught by the section 224 demand should those moneys be deductible from the 30 per cent which, by the Wages Act, and Rule 2300(6) of the Federal Court are, alone, attachable. Nor does any question arise as to the obligation of the debtor to the judgment creditor or to the Government of Canada for income tax unpaid. Both sums are very large. Passing comment was made that the amount of the subsection 224(1) demand (here $100 weekly) appears to have been determined solely by the tax department.

The judgment debtor supported by the garnishee employer takes the position that the demand attaches to the 30 per cent remaining after the statutorily mandated deductions only, and excludes from this calculation the amount of the subsection 224(1) demand. In this way, it is said, the calculation by the garnishee in its return was correct. The judgment debtor submits all attachments can only be with respect to the 30 per cent because otherwise the exemption of 70 per cent could be destroyed — and the public purpose to be served by this exemption could be greatly harmed if not totally eliminated. The judgment debtor therefore urges that the judge below was in error when he applied the money caught by the demand, as if such were statutorily mandated in the same way as the deductions before mentioned, ie, he deducted the sum of $100 per week sought by the subsection 224(1) demand before determining the “debt due or accruing due”.

For the plaintiff respondents it is submitted that the judgment below was correct.

Apart from the judgment under appeal and the judgment of The Honourable Judge Vannini in Antoine Dosko v Soo Abitibi Employees' Credit Union Limited, unreported, delivered October 15, 1973, counsel are unable to find any reported case touching upon the issue raised. The Dosko case, while helpful, does not contain the feature of the subsection 224(1) demand, but rather dealt with whether an assignment of 30 per cent of wages made by the debtor in favour of the credit union was to catch 30 per cent of gross wage or 30 per cent of the net wage after deductions for income tax, unemployment insurance and Canada pension. Judge Vannini held that those statutory deductions had to be made before the “debt due or accruing due” could be determined. This is not in dispute before me.

Judge Vannini, at p 5 of the Dosko case, stated:

It is to be noted that none of these statutory provisions constitute a seizure or attachment of the employee’s wages in the amount prescribed. They are merely deductions or withholdings by an employer under compulsion of and justification by statute. [Emphasis added]

The appellant lays great stress on this comment and urges that the subsection 224(1) demand is a “seizure or attachment” which by implication, Judge Vannini has said differs from decisions or withholdings under compulsion of a statute.

While the subsection 224(1) demand may appear at first blush to be similar to the other deductions as being collection by statutory mandate, there is a fundamental difference in that the amount of the demand (not in issue here) is not directed by the statute in any way. At the whim of the person in the department who prepared the demand, the entire 70 per cent exemption could be wiped out, if the amount of the demand is to be deducted from gross wage before the exemption is calculated. In my view the procedure in subsection 224(1) constitutes “seizure or attachment” and I have concluded that the moneys (debt due) caught here by the subsection 224(1) demand are only those which fall within the 30 per cent after deducting from gross wage the mandated income tax, unemployment insurance and Canada pension deductions. The $100 weekly here demanded is not within this group and is to be paid out of that 30 per cent. As it is conceded by counsel that they must be paid in priority to any other claims here advanced (ie, the garnishment order obtained by the judgment creditor) the return made by the employer garnishee was correct.

The appeal is allowed, the order of Judge Lamb is set aside and in place thereof an order is to issue dealing with the entitlement of the judgment creditors as set out in the return made by the garnishee.

Counsel have agreed that there be no costs of this appeal and none are awarded.