Sun Life Assurance Company of Canada v. Her Majesty the Queen in Right of Canada Represented by the Department of National Revenue and Charles Young., [1992] 2 CTC 315

Armstrong, J.: This decision follows a hearing under Queen's Bench Rule 188.

The plaintiff, Sun Life Assurance Company of Canada (herein "Sun Life") brought action against the defendants for a declaration that subsection 224(1) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the"Act") is ultra vires the Parliament of Canada and, in the alternative, a declaration that the defendant, Her Majesty The Queen in Right of Canada as represented by the Department of National Revenue (herein Revenue Canada") is subject to section 19 of the Pensions Benefit Act, R.S.S. 1978, c. P-6, as am. S.S. 1979-80,

c. 65, section 9; 1986, c. 14, section 4.

The challenged subsection 224(1) of the Income Tax Act reads:

224. (1) Where the Minister has knowledge or suspects that a person is or will be, within 90 days, liable to make a payment to another person who is liable to make payment under this Act (in this section referred to as "tax debtor"), he may, by registered letter or by a letter served personally, require that person to pay forthwith, where the moneys are immediately payable, and, in any other case, as and when the moneys become payable, the moneys otherwise payable to the tax debtor in whole or in part to the Receiver General on account of the tax debtor's liability under this Act.

Section 19 of the Pension Benefits Act reads:

19 (1) Subject to subsection (2), moneys payable under a pension plan shall not be assigned, charged, attached, anticipated or given as security and are exempt from execution and seizure, and any transaction purporting to assign, charge, attach, anticipate or give as security any such moneys is void.

(2) Nothing in this Act applies to an order or an interspousal contract made under the Matrimonial Property Act.

(3) Notwithstanding subsection (1), pension benefits, as they become payable to an employee, are subject to garnishment pursuant to the Enforcement of Maintenance Orders Act for the purposes of enforcing a maintenance order.

Sun Life is carrier of a group pension plan of which the defendant, Charles Young (herein "Young"), is a beneficiary entitled to monthly payments. Reve nue Canada, claiming Young is indebted to it for income tax (a" tax debtor" as referred to in subsection 224(1)) served a" requirement to pay" on the authority of subsection 224(1) on Sun Life. Faced with section 19, Sun Life launched the action referred to above.

The facts being agreed on, Sun Life and Revenue Canada sought and obtained an order directing a hearing pursuant to Rule 188. Young has not appeared. The order provided that the following two questions were to be determined:

1. Is subsection 224(1) of the Income Tax Act ultra vires the Parliament of Canada?

2. Is Her Majesty The Queen as represented by the Department of National Revenue subject to section 19 of the Pension Benefits Act, R.S.S. 1978, c. P-62

The first question:

I do not find anything in the circumstances of the case that should give rise to the first question. Subsection 224(1) provides a form of garnishment for use throughout Canada as compared to calling upon Revenue Canada to utilize the various processes that may be available in the various provinces of Canada, such, for example, as the Attachment of Debts Act, R.S.S. 1978, c. A-32, in Saskatchewan. Also subsection 224(1) provides for a continuing garnishee thus avoiding the necessity of perhaps having to obtain and serve a number of garnishee summonses until a debt is fully collected. It also avoids payment into court and application for payment out as required by the Attachment of Debts Act. With respect, Sun Life seems to be simply arguing that subsection 224(1) is ultra vires solely because of section 19. In my view, the only question raised is not one of" vires”. It is not a question of exceeding power to legislate. At most, there may be a conflict between two jurisdictions, each keeping within the confines of its jurisdiction. This doesn't mean that one must be acting ultra vires.

There does not appear to be any question that the right to levy taxes includes the right to collect them.

In Pembina on the Red Development Corp. v. Triman Industries Ltd., [1992] 1 C.T.C. 133, 92 D.T.C. 6171 (Man. C.A.), Chief Justice Scott of the Manitoba Court of Appeal, in dealing with the constitutional issue raised in that case in respect of subsection 224(1.2) of the Income Tax Act, considered the relationship of that subsection to the Act as a whole at pages of the report, paragraphs 5-20. Although his consideration of the constitutionality of that section was not strictly essential to his decision in the case itself as he pointed out at page 139 (D.T.C. 6178), paragraph 20, all of what Chief Justice Scott said is, in my view, directly applicable for the purposes of the present first question. I will quote only two passages.

He said at page 137 (D.T.C. 6177), paragraphs in referring to the Income Tax Act:

The purpose of the Act is not only to levy tax, but to collect it. There is a strong public duty on employers to remit, indeed, this is central to the scheme of selfassessment under the Act. The machinery for collection and enforcement under the Act is part of the very subject matter of subsection 91(3) of the Constitution Act and not merely incidental to the raising of revenue

And at page 141 (D.T.C. 6179), paragraph 19:

. . .In my opinion, collection is an integral part of Parliaments taxation scheme and clearly authorized by subsection 91(3) of the Constitution Act. That is the pith and substance of the section. Necessity or the wisdom of the technique is not the issue; rather the question is whether the collection provisions fit within the scope of the federal legislation. This should be answered in the affirmative.

Sun Life relies heavily on TransGas Ltd. v. Mid-Plains Contractors Ltd., [1992] 1 C.T.C. 151, 92 D.T.C. 6074, a decision of Chief Justice MacPherson of this Court in which he concluded that subsection 224(1.2) is ultra vires the Parliament of Canada. But for the decision of the Chief Justice, I would have thought that the question in the TransGas case, supra, was whether the Crown in Right of Canada (again, Revenue Canada) was entitled to priority over other creditors, i.e., third party claimants, regardless of the procedure adopted. However, the basis of the Chief Justice’s decision appears very clearly to be the perceived affect on third parties of Rule 224(1.2). In the present case there is no third party effect and the present case is accordingly distinguished. Chief Justice Scott in Pembina on the Red, supra, began his judgment with the observation that subsection 224(1.2) was added to the Income Tax Act after a number of appellate court decisions had held that subsection 224(1.2) was ineffective in certain circumstances. In other words, subsection 224(1.2) was specifically intended to apply in different situations than subsection 224(1).

In argument on behalf of Sun Life, it was stated that despite the requirement to pay under subsection 224(1), Sun Life will still remain liable to continue making the pension benefit payments to Young through the group pension plan contract and the Pension Benefits Act, and may be subject to prosecution under the Pension Benefits Act. Only the bald statement was made, and no reasoning given. Of course Sun Life is contractually liable to make payments to Young and this is what makes Sun Life available as the object of a" requirement to pay" under subsection 224(1), but to suggest that it might be found still liable even though it paid to Revenue Canada what it would otherwise have paid to Young, must I think be suggested in a vain attempt to show that subsection 224(1) affects third party rights and thus should be considered in the same light as was subsection 224(1.2) in TransGas, supra, by MacPherson C.J.Q.B. This argument by Sun Life overlooks subsection 224(2) of the Income Tax Act:

224(2) The receipt of the Minister for moneys paid as required under this section is a good and sufficient discharge of the original liability to the extent of the payment.

Furthermore there is, in the absence of subsection 224(2), the doctrine of frustration of contract to which Sun Life could look.

The relationship between Revenue Canada and Young is that of creditor/ debtor, but neither the debtor, nor the creditor is ordinary. The debt in a sense, is owing to the people of Canada as represented by Revenue Canada and the creditor is, of course, "the Crown in Right of Canada”. The Parliament of Canada has chosen to give Revenue Canada, a special kind of creditor, a rather special kind of garnishment procedure. It is a procedure not available to the ordinary creditor. The letter in the Province of Saskatchewan would have to rely on the Attachment of Debts Act.

Sun Life argued that subsection 224(1) massively" encroaches on the provincial jurisdiction over civil rights and specifically over pensions. This argument appears, however, to be prompted solely by the effect on Young's pension payments. But is no intervention at all as between Revenue Canada and the only person affected, namely Young. It does not alter in any way the substantive rights as between Young and Revenue Canada. It does not decide whether Young is debtor and Revenue Canada is creditor. If Young has any quarrel with Revenue Canada, nothing in subsection 224(1) precludes him from continuing that quarrel. The effect of subsection 224(1) is not to deprive Young of rights. It is, instead, a procedural mechanism for giving effect to the established rights of Revenue Canada. Section 19 deprives creditors of rights they would otherwise have. The question, which is also the second question to be answered pursuant to Rule 188 is whether section 19 deprives Revenue Canada of rights it otherwise would have. It seems to me a better illustration of something that would be a massive intervention would be to think that section 19 could deprive Revenue Canada of the ability to garnishee a bank account in Montreal, a business contract debtor in Newfoundland, or indeed anybody anywhere in Canada, obligated to pay a tax debtor. Surely if subsection 224(1) was previously intra vires, the passing of section 19 by the provincial legislature, did not cause subsection 224(1) to become ultra vires. If a requirement to pay under subsection 224(1) had been directed to a bank in which Young had an account, I dare say it would not have prompted a cry of ultra vires.

If Revenue Canada had obtained judgment in this Court and served a garnishee summons under The Attachment of Debts Act, it would hardly result in a claim of ultra vires. The concern would have to be whether Revenue Canada, i.e., the Crown in Right of Canada, is subject to section 19. And that, in my view, is the only question that is raised in the circumstances.

I have not been given any grounds on which to base a finding of ultra vires. The answer then to the first question is "no".

The second question:

Sun Life argues that as the Pension Benefits Act is valid legislation with the provincial jurisdiction over property and civil rights, Revenue Canada is therefore subject to it. Sun Life does not point to anything in the Pension Benefit Act which would give rise to the idea that it was even intended to apply to Revenue Canada. The Pension Benefits Act was passed a great many years after subsection 224(1). The Legislature of Saskatchewan had, of course, to know of subsection 224(1). Again, however, it is not a question of whether subsection 224(1) is affected by section 19, although that might be a result. It is a question of whether the Crown in Right of Canada can be deprived, of a right, without consent, buy provincial legislation.

In an analogous situation, the Federal Court of Canada, Trial Division, in Ghislaine Carlos Perron v. Her Majesty The Queen in Right of Canada and Camille Perron Camille Perron, May 14, 1990, Denault, J. (as yet unreported), decided that Quebec Legislation granting certain exemptions from seizure did not affect the right of Her Majesty The Queen in Right of Canada as the Legislature (of Quebec) had not specifically provided that the Crown in Right of Canada would be subject to it. The Court added further that Parliament had not authorized the Crown (in Right of Canada) in a garnishment proceeding under the Income Tax Act, to submit to an exemption from seizure ordered by the provincial statute, as it (the Crown in Right of Canada) had done with a seizure of chattels under subsection 115(5) of the Income Tax Act. The only argument advanced by Sun Life that I might adopt for not taking the same position with respect to the Pension Benefits Act in Saskatchewan, is Norfolk Trust Company v. Hardy and Hardy; R. in Right of Saskatchewan, and R. in Right of Canada, [1984] 5 W.W.R. 86, 9 D.L.R. (4th) 473, at page 91 W.W.R. from which they quote Maurice, J., of this Court, as saying:

I am of the view provincial laws may be made binding on the federal Crown by their own force if they are made by a provincial legislature in relation to matters within its legislative jurisdiction

Maurice, J., before turning to the question of whether the Crown in Right of Canada was bound by the legislation in question in the Norfolk Trust Company case, supra, had to determine whether the Crown in Right of Saskatchewan was bound. The latter he found to be the case. In doing so, he concluded that the benefit bestowed by the Exemptions Act, R.S.S. 1978, c. E-14 on an owner, in relation to a homestead would be wholly frustrated if the Crown was not bound by the Exemptions Act. At issue was the question of a surplus after a forced sale of a debtor's homestead. He said that the whole idea of the exemption was to provide a homestead.

Maurice, J. also found that Income Tax Acts of both Canada and Saskatchewan provided that there should be exempt from seizure, that which would be exempt under a writ of execution issued out of the Superior Court of the province in which the seizure is made. What Maurice, J. went on to find in the Norfolk Trust case, supra, in respect of the position of the Crown in Right of Canada, did not at all involve whether the provincial law may be binding on the Crown in Right of Canada by its own force. In this regard it is perhaps worthwhile to quote the whole of what he said in respect of binding the Crown in Right of Canada. The following is from page 91 of the report:

Having found the provincial Crown bound by the Act, is the federal Crown also bound? Although it is not clear, I am of the view provincial laws may be made binding on the federal Crown by their own force if they are made by a provincial legislature in relation to matters within its legislative jurisdiction: see Dom. Bldg. Corp., Ltd. v. R., [1933] A.C. 533 (P.C.); contra Gauthier v. R. (1918) 56 S.C.R. 176, 40 D.L.R. 353. The subject matter of the Exemptions Act falls within the provincial jurisdiction of property and civil rights in the province: subsection 92(13) of the Constitution Act, 1867.

In any event, the Federal Parliament may adopt the laws of a province and make them applicable to the federal Crown. The federal Crown's writ was issued pursuant to the Federal Court Act, R.S.C. 1970, c. 10 (2nd Supp.). Subsection 56(3) provides such writs:

(3) . . . be executed, as regards the property liable to execution and the mode of seizure and sale, as nearly as possible in the same manner as the manner in which similar writs or process, issued out of the superior courts of the province in which the property to be seized is situated, are, by the law of that province, required to be executed; and such writs or process shall bind property in the same manner as similar writs or process.

By this section Parliament has adopted the Exemptions Act and this Act, is by necessary implication, binding on the Crown.

[Emphasis added.]

The purpose of section 19 of the Pension Benefits Act is not wholly frustrated by the same not being binding on the Crown in Right of Canada any more than the purpose is wholly frustrated by the exceptions provided in subsections 19(2) and 19(3). It remains available to protect the recipient of pensions like Young against ordinary creditors. It is hard to imagine that it was ever intended to be unilaterally made effective against the Crown in Right of Canada.

Professor Peter W. Hogg, Constitutional Law of Canada, (2nd ed.) (Toronto: Carswell, 1985), suggests at page 239:

In general, where the federal Crown is engaging in activity which is regulated by provincial law, it should be bound by the law.

Whether this be so or not, the federal Crown in the present instance is not engaging in an activity regulated by provincial law. It is, rather, engaging in an activity in which it is fully empowered to so engage by subsection 91(3) of the Constitution Act, 1867, namely raising revenue.

In the circumstances I don’t find a conflict and so do not see the necessity of getting into the question of paramountcy, but if such be necessary, then, in my view, to the extent section 19 is inconsistent or in conflict with subsection 224(1), section 19 is rendered inoperative by the doctrine of paramountcy to the extent it may hamper the effective operation of subsection 224(1).

I find the answer to the second question posed for determination under Queen's Bench Rule 188 to be no.

I have thus found the answer to both questions to be“ no”.

Application dismissed.