Manufacturers Life Insurance Co. v. MNR, 91 DTC 1055, [1991] 2 CTC 2171 (TCC)

Margeson, T.C.J.:—The appellant seeks to have vacated the assessment of the Minister numbered 558353 made against it under subsection 224(4) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act"). The Minister made a demand under subsection 224(1) alleging the appellant was liable to pay Dr. Joseph Isaiah Benjamin, an American citizen who left Canada, an amount in excess of $8,013.19, the amount of the debt of Dr. Benjamin to Revenue Canada. The Minister argued that the amount was payable at the time of the demand or within 90 days thereafter.

Issue

The parties today agree that the only question before me is whether or not the appellant was liaole to pay the amount alleged within 90 days of the demand under subsection 224(1).

Facts

The only witness called was Marina Hall, who was a claims and title consultant with the appellant company. She has ten years' experience in her field and is familiar with garnishing proceedings and demands under subsection 224(1) of the Income Tax Act.

She identified the policy in question here and indicated there were no other policies with her company on Dr. Benjamin, but when such a notice is served on her company, an index search is normally done for other policies.

Her evidence was that it was a whole life insurance policy registered as an RRSP. It was issued February 27, 1976. It had a face value of $50,000 for life insurance purposes and a paid-up value of $10,200. It would mature at age 71.

She referred to section 5 of the pertinent savings provisions of the policy and indicated that before maturity the only option the owner had would be to apply for surrender and if the company agreed then funds could be advanced to him. He also had the right to designate a beneficiary under the policy.

In cross-examination she said it was a whole life insurance policy with an RRSP element which allowed him to get deductions for tax purposes. She reiterated he could not require any funds to be paid to him without the consent of the company. Dr. Benjamin never requested its surrender. She said the RRSP clause is a standard provision and the clause itself says that it is made a part of the policy and it overrides any other provisions with which it is inconsistent. It further states that the policy is modified so that it can be registered as a retirement savings plan under the Income Tax Act. Clause 5 says:

Any right to surrender the policy on or before any maturity date, except for a noncommutable annuity for life, cannot be exercised.

Appellant's Position

The appellant says there was no requirement to pay. It says that until the owner takes the necessary steps to make the money payable and the company agrees, there is nothing payable and the demand cannot be met or it is not a demand as he puts it. No such steps were taken here he says.

The appellant refers to Morgan Trust Co. v. N.V. Dellelce, [1985] 2 C.T.C. 370; 85 D.T.C. 5492 and Serge DeConinck v. Royal Trust Corporation of Canada, [1989] 1 C.T.C. 179, in support of his position that the demand is a garnishee order and where there is no obligation to pay, the trustee need not pay over in reply to the demand.

As in the Serge DeConinck case, supra, he says the company here is not within the definition of a person “liable to make a payment" pursuant to subsection 224(1) of the Income Tax Act and if they made the payment, they could be sued for breach of trust by the owner of the policy. He quotes further in Re Bliss, Kirsh and Doyle; Montreal Trust Co. (1984), 44 O.R. (2d) 129, for the proposition that just because a trust can be terminated does not convert the relationship created in a Trust Agreement constituting an investor-directed RRSP to a debtor-creditor relationship so that such funds would not be attachable under Rule 597 of the Ontario Rules of Practice.

Respondent's Position

The respondent argues that the decision revolves around the nature of the policy. Is it an RRSP or an insurance policy? He argues that a true RRSP is garnishable under section 224 of the Income Tax Act. He takes comfort in the decision In Re Gero, [1979] C.T.C. 309; 79 D.T.C. 5228 where the funds in an RRSP were attachable and were considered to be similar to demand bank deposits. He further relies upon National Trust Co. v. Lorenzetti (1983), 41 O.R.

(2d) 772 where the funds in an RRSP were held to be a chose in action and personal property under the Execution Act. He also refers to Bank of Nova Scotia v. Robson (1988), 27 C.C.L.I. 167 where the cash surrender value of a life insurance policy owned by a judgment debtor were found not to be debts payable. The policies reflected continuing obligations on the part of the insurer and the insured and the Court held that unless the insured elected to terminate the policies and receive the cash surrender value, there was no obligation to pay.

Analysis and Decision

As agreed by counsel, the only question is whether or not the appellant was liable to pay the amount alleged by the Minister. On the basis of the evidence before me, I have no hesitation in deciding that the policy involved here is an insurance policy. It was so described by the witness and a reference to the document itself describes it as a "limited payment life policy”. It is true that it is registered as an RRSP as well and contains a retirement savings provision. However, that does not change it from being a life insurance policy to an RRSP.

On the basis of the evidence before me and a reading of the policy itself, I am satisfied there was no liability on behalf of the appellant to pay any amount to Dr. Benjamin when they were served with the notice under subsection 224(1) or within 90 days thereafter.

It is clear that before any money could be payable it would have to be requested by the owner in writing and the company would have to consent to it. There is evidence that the owner did not request it to be paid and there is no evidence that the company would consent even if he did make the request. The cases cited by the appellant are clear in what they stand for and they support his position.

In the Gero case, supra, the funds were subject to the control of the owner. In National Trust Co., supra, the policy contained no insurance elements, was not under the provisions of the Insurance Act, R.S.O. 1980, c. 218, subsection 173(2) and the trust agreement could be terminated unilaterally by the owner at any time.

I agree with both counsel that Bank of Nova Scotia v. Robson and Gero, supra, are of no assistance to the respondent and indeed support the appellant's position.

The appeal will be allowed and the assessment vacated under subparagraph 171(1)(a)(i) of the Income Tax Act. The appellant has been successful and will be allowed costs on a party-and-party basis to be taxed.

Appeal allowed.