Gratton, DCJ:—On consent of all parties, three questions have been submitted for the Court’s determination. They deal with the garnishability and exigibility of RRSPs generally, as well as with the rights of a beneficiary under an RRSP trust agreement and whether such rights are affected by seizure or garnishment.
Pursuant to the terms of a Guaranteed Retirement Savings Plan, the Morgan Trust Company was named trustee and administrator of a Registered Savings Plan which complies with the requirements of the Income Tax Act. The contributor, Nicholas Vincent Dellelce (Dellelce) has paid certain funds into the plan from 1983 onward, to which funds Revenue Canada claims entitlement pursuant to a “requirement to pay” dated March 8, 1983 and June 28, 1983. Morgan Trust has applied for relief by way of Interpleader pursuant to the provisions of Rule 632 of the Rules of Practice (now Rule 43.02 of the Rules of Civil Procedure). On consent, the parties agreed to submit the following questions for determination:
(a) Are the RRSPs of the claimant Dellelce, now held by the Morgan Trust Company, exigible by the claimant the Minister of National Revenue pursuant to a Third Party garnishee issued under the Income Tax Act?
(b) Are the RRSPs of the claimant Dellelce now held by the Morgan Trust Company subject to seizure by the claimant The Minister of Revenue pursuant to the writs of Execution filed with the appropriate sheriff’s office, pursuant to the Income Tax Act and the Federal Courts Act?
(c) Does the fact that the claimant Diane Dellelce is designated a beneficiary under the RRSPs when looked at in conjunction with Section 173(2) of the Insurance Act, RSO 1980, Chapter 218 have any effect on the exigibility of the RRSPs by the claimant the Minister of National Revenue, pursuant to the Third Party garnishees, or on the seizure by the claimant The Minister of Revenue, pursuant to the Writs of Execution filed with the Sheriffs pursuant to the Income Tax Act and the Federal Courts Act?
Question A
Although the question refers to a Third Party garnishee, it is clear that we are not dealing with garnishment proceedings under the Rules of Civil Procedure such as contemplated by Rule 60.08. The type of garnishment involved here is by way of demand on third parties and requirement to pay. In Exhibit D we find a document “Demand on Third Parties” which reads as follows:
Whereas it is known or suspected that you are or are about to become indebted or liable to make a payment to the taxpayer whose name appears below and who is liable to make a payment to Her Majesty the Queen under one or more of the Acts and Ordinances cited below, in the amount of $128,595.20 YOU ARE HEREBY REQUIRED to pay the monies otherwise payable to the said taxpayer to the Receiver General, but do not pay hereunder more than $128,595.20.
Exhibit E is entitled "Requirement to Pay” and it reads as follows:
You are hereby required to pay to the Receiver General on account of the above-named tax debtor's liability under one or more of the Acts and Ordinances cited below,
(1) forthwith, the monies otherwise and immediately payable to the tax debtor which you are liable to pay,
(2) monies otherwise payable by you to a tax debtor at any time hereafter as interest, rent, remuneration, dividend, an annuity or other periodic payment,
(3) all other monies otherwise payable to the tax debtor which you will be, within 90 days, liable to pay, as and when the monies become payable, and
(4) if the box on the right is x-ed, the monies that within 90 days you would otherwise loan or advance to, or pay on behalf of, the tax debtor, of, if you are a bank, credit union, trust company, or other similar person, pay in respect of a negotiable instrument issued by the tax debtor, but do not pay hereunder more than the said TOTAL LIABILITY.
The above demand and requirement to pay was presumably issued pursuant to the provisions of subsection 224(1) of the Income Tax Act which reads as follows:
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 a payment to another person who is liable to make a payment under this Act (in this section referred to as the “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 Act.
Prior to the above section coming into force on March 30, 1983, subsection 224(1) formerly read as follows:
Where the Minister has knowledge or suspects that a person is or is about to become indebted or liable to make any payment to another person who is liable to make a payment under this Act (in this section referred to as the “tax debtor''), he may, by registered letter or by a letter served personally, require that person to pay the moneys otherwise payable to the tax debtor in whole or in part to the Receiver General on acount of the tax debtor's liability under this Act.
The jurisprudence dealing with RRSPs although still pubescent in its development, has generally been constant in holding that RRSPs that can be characterized as trust agreements cannot be garnisheed so long as the relationship between the garnishee and the judment debtor remains that of trustee and cestui que trust (as opposed to debtor and creditor) eg Re Bliss, Kirsh and Doyle et al (1984), 44 OR (2d) 129. Indeed Rule 60.08 states that a credit under an order for the payment or recovery of money may enforce it by garnishment of debts payable to the debtor by other persons. It is to be noted that section 224 of the Income Tax Act makes no reference to the word “debt". There are, however, some conflicting decisions with respect to the garnishability of RRSPs. For instance, in Re MNR and Gero, [1979] CTC 309; 103 DLR (3d) 310, Mr Justice Walsh argued that it would be contrary to the whole principle of garnishment proceedings to adopt the trustee-cestui que trust interpretation rather than the debtor-credit interpretation and thereby provide a means for an individual to shelter his assets from seizure by his creditors.
However, in Vancouver A & W Drive-Ins Ltd v United Food Services Ltd (1981), 13 BLR 89, 38 BCLR 30, Mr Justice Fulton concluded that the relation- ship between the company administering the plan and the debtor was that of a trustee — cestui que trust. There being no debt, there could be no garnishee. However, in Discovery Trust Company v Abbott, 38 BCLR 55, it must be assumed that McLaughlin, J dealt with section 224 of the Income Tax Act as it existed in June 1982. After mentioning the Vancouver case, McLaughlin, J stated at 56:
However, the demand on third parties by which the Crown’s claim is made in this case is not confined to a debtor-creditor relationship, as is a garnishee order; it is stated to extend to any case where the trustee is “liable to make a payment to the taxpayer”.
Furthermore, in that case the only request was for a transfer from one of the shares held by one trustee to another trustee. He went on to say:
Accordingly, there will be an order that the applicant transfer the R.R.S.P. to First City Trust, subject to the Crown’s demand on third parties and payment to the applicant of its costs on a solicitor and client basis, such claims to be satisfied when the shares are sold.
Regrettably, the judgment does not state whether the new trustee to whom the shares would be transferred would have the power to sell the shares under the authority of section 224 without the consent of the beneficiary of such shares.
In my view since the trustee has no moneys which are immediately payable to the tax debtor nor any moneys which the trustee would be within 90 days liable to pay to the debtor, then there is no obligation to pay any moneys nor to sell any of the assets which the trustee holds on behalf of Dellelce pursuant to the declaration of trust. Consequently, the only obligation in this case is to reply to the Taxation Office in order to avoid liability under subsection 224(4) of the Act. However, had Morgan Trust within the 90-day period become liable to pay moneys to the debtor, then the trustee would have been bound to pay such moneys over to Revenue Canada.
Question B
In National Trust Company Ltd v Lorenzetti et al, 41 OR (2d) 772, Trainor, J held that the proceeds of the RRSP were exigible under section 18 of the Execution Act, RSO 1980, c 146. Indeed, the judgment debtor as cestui que trust holds the equitable or beneficial interest in the fund and the section allows for the sheriff to seize and sell any equitable interest in personal property of the judgment debtor. Subject however to the answer given to the next question, I would conclude that the writs of execution allow seizure of the shares in the RRSP account.
Question C
The Insurance Act, RSO 1980 [c 218], provides as follows in subsection 173(2):
While a designation in favour of a spouse, child, grandchild or parent of a person whose life is insured, or any of them, is in effect, the rights and interests of the insured in the insurance money and in the contract are exempt from execution or seizure.
The question is, therefore, whether Dellelce is “a person whose life is insured” and whether the RRSP is a “contract” within the meaning of subsection 172(2). Clause 148(c) defines “contract” as a “contract of life insurance”. Life insurance is not given a special definition in Part 5, but is defined in clause 1 (35)g as including:
An undertaking entered into by an insurer to provide an annuity or what would be an annuity except that the periodic payments may be unequal in amount and such undertaking shall be deemed always to have been life insurance.
The declaration of trust in this case does not contain an undertaking by Morgan Trust to provide an annuity. While the retirement income referred to in section 6 of the trust may be characterized as an annuity, there is no firm undertaking to provide the same because section 12 of the trust states that the trust may be terminated by the trustee upon three-months notice.
A different situation obtained in the case of Re Laroque (1982), 43 CBR (NS) 24. There the contract contained a clear undertaking to provide an annuity. In fact, it was not disputed that the RRSP in Laroque was a contract within the meaning of Part 5 of the Insurance Act. The trust with which we are dealing presently is similar to the one in National Trust v Lorenzetti where the Court held that the trust agreement contained no insurance element and was, therefore, not within the provisions of the Insurance Act. The answer to question C is therefore no.
Rule accordingly.
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