Richmond Savings Credit Union v. Miller, [1999] 4 CTC 210

Loo J.:

This is an interpleader application by the petitioner Richmond Savings Credit Union (the “Credit Union”) under Rule 48. The issue before me is to determine the extent to which registered retirement savings funds are subject to Revenue Canada requirements to pay. While the Credit Union claims no beneficial interest in the funds, it is concerned that it will be faced with a claim by the tax debtor if it satisfies the requirements to pay. The tax debtor has not appeared on this application.

Between October 29, 1997 and September 1, 1998 four requirements to pay totalling $100,517.85, were issued by Revenue Canada to the Credit Union pursuant to sections 224(1) and (1.1) of the Income Tax Act, and 317(1) and (2) of the Excise Tax Act, relating to source deduction tax accounts and GST for Scott Miller, sometimes carrying on business as Scott’s Plumbing and Heating, and for the personal tax debt of Mr. Miller (the “tax debtor”).

The Income Tax Act provides:

224. (1) Garnishment - Where the Minister has knowledge or suspects that a person is or will be within one year, liable to make a payment to another person who is liable to make a payment under this Act (in this subsection and subsections (1.1) and (3) referred to as the “tax debtor”), the Minister may in writing require the 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.

(1.1) Idem - Without limiting the generality of subsection (1), where the Minister has knowledge or suspects that within 90 days

(a) a bank, credit union, trust company or other similar person (in this section referred to as the “institution”) will lend or advance moneys to, or make a payment on behalf of, or make a payment in respect of a negotiable instrument issued by, a tax debtor who is indebted to the institution and who has granted security in respect of the indebtedness, or

(b) a person, other than an institution, will lend or advance moneys to, or make a payment on behalf of, a tax debtor who the Minister knows or suspects

(i) is employed by, or is engaged in providing services or property to, that person or was or will be, within 90 days, so employed or engaged, or

(ii) where that person is a corporation, is not dealing at arm’s length with that person,

the Minister may in writing require the institution or person, as the case may be, to pay in whole or in part to the Receiver General on account of the tax debtor’s liability under this Act the moneys that would otherwise be so lent, advanced or paid and any moneys so paid to the Receiver General shall be deemed to have been lent, advanced or paid, as the case may be, to the tax debtor.

317. (1) Garnishment - Where the Minister has knowledge or suspects that a person is or will be, within ninety days, liable to make a payment to another person who is liable to pay or remit an amount under this Part (in this subsection and subsections (2), (3) and (6) referred to as the “tax debtor”), the Minister may, by a letter served personally or by registered or certified mail, require the 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 Part.

(2) Idem - Without limiting the generality of subsection (1), where the Minister has knowledge or suspects that within ninety days

(a) a bank, credit union, trust company or other similar person (in this section referred to as the “institution”) will loan or advance moneys to, or make a payment on behalf of, or make a payment in respect of a negotiable instrument issued by, a tax debtor who is indebted to the institution and who has granted security in respect of the indebtedness, or

(b) a person, other than an institution, will loan or advance moneys to, or make a payment on behalf of, a tax debtor who the Minister knows or suspects

(i) is employed by, or is engaged in providing services or property to, that person or was or will be, within ninety days, so employed or engaged, or

(ii) where that person is a corporation, is not dealing at arm’s length with that person,

the Minister may, by a letter served personally or by registered or certified mail, require the institution or person, as the case may be, to pay in whole or in part to the Receiver General on account of the tax debtor’s liability under this Part the moneys that would otherwise be so loaned, advanced or paid and any moneys so paid to the Receiver General shall be deemed to have been loaned, advanced or paid, as the case may be, to the tax debtor.

S. 317(1) and (2) of the Excise Tax Act is identical, except that demand may be made by the Minister when the liability of a third party to make a payment to the tax debtor arises within ninety days rather than within one year.

The tax debtor maintains an account with the Credit Union which includes the following as of September 15, 1998, with accrued interest and renewals:

Renewal Date Maturity Date (a) Participation shares $ 682.00 N/A N/A

(b) T-Bill 1,039.54 N/A N/A

(c) Term deposit #3 1,469.62 Feb 26, 1998 Feb 26, 2003

(d) Term deposit #4 2,410.75 Mar 9, 1998 Mar 9, 2003

(e) Term deposit #5 2,633.76 Feb 28, 1997 Feb 28, 2000

(f) Term deposit #6 2,785.24 Feb 28, 1995 Feb 28, 1999

With the exception of the amounts held in participation or equity shares in the Credit Union, the funds are held in a registered retirement savings plan (“RRSP”). Since the requirements to pay were issued, term deposits numbers 3 and 4 have matured and rolled into a T-Bill account.

The tax debtor has failed or neglected to give authority and direction to the Credit Union to resolve the dispute, or to otherwise deal with the funds in his account.

It is agreed that under the terms of his account with the Credit Union, the tax debtor may apply to redeem or repurchase ten per cent of his participating shares for the three calendar years 1997 to 1999, that the require- ments to pay have been in effect. The parties are also agreed that the RRSP accounts are “trust” retirement savings plans within section 146( 1 )(b)(i) of the Income Tax Act which defines “retirement savings plan” to mean:

retirement savings plan means

(b) an arrangement under which payment is made by an individual or the individual’s spouse

(i) in trust to a corporation licensed or otherwise authorized under the laws of Canada or a province to carry on in Canada the business of offering to the public its services as trustee, of any periodic or other amount as a contribution under the trust,

(ii) to a corporation approved by the Governor in Council for the purposes of this section that is licensed or otherwise authorized under the laws of Canada or a province to issue investment contracts providing for the payment to or to the credit of the holder thereof of a fixed or determinable amount at maturity, of any periodic or other amount as a contribution under such a contract between the individual and that corporation, or

(iii) as a deposit with a branch or office, in Canada, of

(A) a person who is, or is eligible to become,

a member of Canadian Payments

Association, or

(B) a credit union that is a shareholder or member of a body corporate referred to as

a “central” for the purposes of the Canadian

Payments Association Act,

(in this section referred to as a “depositary”)

to be used, invested or otherwise applied by that corporation or that depositary, as the case may be, for the purpose of providing for the individual, commencing at maturity, a retirement income;

The form of the requirement to pay reads:

Date Feb 18 1998

REQUIREMENT TO PAY

To:

Attention: Manager

Richmond Savings Credit Union

300-5611 Cooney Road

Richmond,, BC

Vox 3J5

You are hereby required to pay to the Receiver General on account of the abovenoted tax debtor’s liability under one or more of the Acts cited below,

(1) forthwith, the moneys otherwise and immediately payable to the tax debtor which you are liable to pay,

(2) all other moneys otherwise payable to the tax debtor which you will be, within one year, liable to pay, as and when the moneys become payable,

(3) where the moneys referred to in (1) and (2) include interest, rent, remuneration, a dividend, and annuity or other periodic payment, all such payments to be made by you to the tax debtor (at any time during or after the one year period) until the liability is satisfied, and

(4) if the box on the right is x-ed, the moneys that within 90 days you would otherwise loan or advance to, or pay on behalf of, the tax debtor, and, 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 $51,635.68 (the maximum payable).

Please make cheques or money orders payable to the Receiver General and remit them either with one of the attached Third Party Remittance Forms or with other identification providing the tax debtor’s name, address and account number as well as the remitter’s name, in the enclosed addressed envelopes.

Failure to pay the Receiver General the amounts required above renders you personally liable to pay those amounts to Her Majesty.

This requirement has been executed under one or more of the following Acts (see reverse):

Director,

Vancouver Tax Services Office

Revenue Canada

*(4) does not apply to a bank, credit union, trust company or other similar person unless the tax debtor is indebted to it and has granted security in respect of the indebtedness.

With the exception of the amounts, the requirements to pay were the same. In each case, the box on the right was “x-ed”.

The following cases were referred to by Revenue Canada:

• Alberta (Provincial Treasurer) v. Minister of National Revenue (1980), 80 D.T.C. 6228 (Alta. C.A.)

• Discovery Trust Co. v. Abbott (1982), 38 B.C.L.R. 55 (B.C. S.C.)

° R. v. Derbecker, (1984), [1985] 1 F.C. 160 (Fed. C.A.)

• National Trust Co. v. R. (1998), 229 N.R. 3 (Fed. C.A.)

In Alberta (Provincial Treasurer) v. Minister of National Revenue, the debtors had various term deposit certificates with the Provincial Treasurer of Alberta which was served with letter demands from the Minister of Na- tional Revenue under section 224(1) of the Income Tax Act. The terms of all three types of the certificates permitted withdrawal before maturity, subject to notice requirements and a reduction in interest, and for two of the three types, the certificate had to be surrendered at the time of redemption.

The Alberta Court of Appeal at 6230-6231 stated:

In the present case the question that arises is whether the obligation of the Provincial Treasurer under the term deposits receipts falls within the words:

is indebted or is about to become indebted or liable to make any payment.

when no obligation to make any payment is imposed on the Provincial Treasurer until the term set out matures, by an early demand or otherwise, and when, with respect to two of the three types of certificates, the certificates must be surrendered for redemption.

In connection with the certificates which did not need to be surrendered, the Court of Appeal stated at 6232:

In the result I am of the view that as all that is required under the terms of those certificates is a simple demand for payment in order to accelerate the Provincial Treasurer’s obligation to pay the sums set out in the certificates [sic]. I am unable to distinguish the effect of the above conditions from those referred to in the cases dealing with money in a current account. Subject to what I have to say about those certificates where surrender of the certificates is required or those certificates where a demand would purport to effect a partial surrender of a certificate I would hold that service of a demand by the Minister satisfied the requirement in law to give rise to an obligation to pay on the part of the Treasury Branches.

The Court of Appeal concluded at 6233:

I am also of the opinion that service of the demand does not satisfy the condition in those certificates which require the certificate to be surrendered on redemption. Although the Court in the Bagley case was prepared to hold that service of a garnishee constituted a demand in law it was not prepared to hold that it amended generally the terms of the contracts entered into between a banker and its customers. I do not treat that case as authority for the proposition that a Court should over-ride provisions of a bona fide contract merely because it appears to the Court that undue harm will not result from doing so. The Minister stands in the shoes of the taxpayer; he is in no better position and if the taxpayer is required to surrender his certificate that term must be met and the Minister is unable to fulfill it. Similarly, as the taxpayer is not entitled to demand a partial surrender of a certificate, neither is the Minister.

[Appeal allowed in part]

In conclusion, I am of the opinion that those certificates, where surrender is required or where partial redemption would be required to give effect to the Minister’s demand, are not caught by service of the demands upon the Treasury Branches. The demands do, however, bind payments required to be made where all that is required to accelerate their maturity and make them payable is a demand by the taxpayer as the service of the Minister’s letter constitutes in law a demand by the taxpayer.

[underlining added]

Discovery Trust Co, v. Abbott, is a brief two paragraph decision. In that case, the applicant was trustee of shares for the debtor’s RRSP. The debtor wished to change to a new trustee, but in the meantime, Revenue Canada made a claim against the funds. McLachlin J. (as she then was) stated at page 56:

… In Vancouver A & W Drive-Ins Ltd. v. United Food Services Ltd. (1981), 13 B.L.R. 89, 10 E.T.R. 34, supra p. 30 (B.C. S.C.), it was held that an R.R.S.P. is not subject to garnishment because the trustee is not indebted to the beneficiary. 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”. 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-client basis, such claims to be satisfied when the shares are sold.

What appears to be distinguishable in that case is that the debtor wanted to change to a new trustee, the existing trustee was not opposed, and the reasons suggest that satisfaction of the claims of Revenue Canada would only be made after the shares were sold. Very little of the background facts can be discerned from the decision as the terms of the order appeared to have been agreed to between Revenue Canada and the third party applicant.

R. v. Derbecker dealt with a promissory note which was payable “on demand after December 31, 1976”. At page 161 Hugessen J. of the Federal Court of Appeal stated:

... In the now classic words of Parke, B., in Norton v. Ellam (1837), 2 M. & W. 461 (Exch. of Pleas) at page 464:

... a promissory note, payable on demand, is a present debt, and is payable without any demand. ...

The learned Trial Judge [[1984] 1 F.C. 840] held that in the absence of a demand in the year 1977 the note in question was not “due” to the taxpayer in that year. She said [at page 844]:

.. what was intended was to tax the taxpayer not at the time he was entitled to the money but at the time when it was required to be paid to him.

With respect we think that she was wrong and that the words “due to him’’ look only to the taxpayer’s entitlement to enforce payment and not to whether or not he has actually done so.

In National Trust Co. v. R. the debtor had a self directed RRSP with National Trust. The Minister served a requirement to pay on National Trust in connection with the debtor’s tax liability. The Federal Court of Appeal held that National Trust was required to comply with the section 224(1) requirement to pay as it was a person liable to make a payment to the debtor when the requirement to pay was served on it. In that case, however, at the time the requirement to pay was served, the debtor had instructed National Trust to cancel his RRSP and to remit the proceeds to him. Dealing with the plain words of section 224(1) of the Income Tax Act, and whether National Trust was “liable to make a payment” when it was served with the requirement to pay on February I, 1994, Isaac C.J. (Linden J.A. concurring) stated at page 12, paragraphs 46 and 47:

The ordinary meaning of the word “liable” in a legal context is to denote the fact that a person is responsible at law [see footnote 17]. Hence, I am in respectful agreement with McLachlin, J. (as she then was), when she stated in Discovery Trust Co. v. Abbott et al, [see footnote 18] a case in which a s. 224(1) requirement was served upon a trustee, that:

... the demand on third parties [a s. 224(1) requirement] by which the Crown’s claim is made in this case is not confined to a debtorcreditor 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.’ (emphasis added by Linden J.A.)

lt is my respectful view, therefore, that the Tax Court judge was wrong in law to limit the phrase “liable to make a payment” only to situations where a debtorcreditor relationship exists. In so doing, he precluded himself from asking the only relevant question when one is confronted with construction of the subsection. It is this: did the respondent have a responsibility at law to make a payment to the tax debtor on 1 February 1994? [Footnotes omitted]

Isaac C.J. reviewed the terms of the RRSP and stated at page 13, paragraph 50:

There is no issue here that the memorandum of agreement contemplates the establishment of a trust, under which the tax debtor is the settlor and “‘cestui que trust” and the respondent is the trustee. The memorandum is also a contract in which the rights and obligations of the parties are specified.

In the case at bar, the RRSP is a “trust” RRSP, that is, the Credit Union under the terms of the trust is the settlor, and the tax debtor is the trustee.

Isaac C.J. reviewed the fact that the debtor gave express instructions to the trustee to collapse his RRSP, and to pay the proceeds to him, and stated at page 14-15, paragraphs 57-60:

The tax debtor had a contractual right, enforceable in law, to have the net proceeds paid to him. The respondent had a corresponding contractual obligation to make the payment requested. In my respectful view, this legal obligation was sufficient to bring the respondent within the scope of the phrase “a person liable to make a payment” to the tax debtor within the meaning of s. 224(1).

1 find support for this view in the penultimate sentence of the passage from DeConinck, supra, to which reference was earlier made. 1 repeat that sentence here for emphasis:

Rather it is my opinion that until a ‘cestui que trust’ requests payment of the proceeds of an R.R.S.P. from his trustee, ..., no moneys are payable to him nor is his trustee liable to make a payment to him within the meaning of s. 224(1) of the Act.

See to the same effect, Alberta (Provincial Treasurer) v. Minister of National Revenue and Hutterian Brethren Church of Smoky Lake et al [see footnote 22].

For these reasons, I conclude that the respondent was a person “liable to make a payment” of the proceeds of the RRSP to the tax debtor within the meaning of s. 224(1) of the Act. [Footnote omitted]

The Credit Union says that it is not clear whether the tax debtor in this case must first collapse his RRSP, and demand that the funds be remitted to him, before it is “liable to make a payment” to him, and therefore caught by section 224(1) of the Income Tax Act, or section 317(1) of the Excise Tax Act.

The question is whether the Credit Union had a responsibility at law to make a payment to the tax debtor when the requirements to pay where delivered to it, or within one year in the case of the requirements to pay issued under the Income Tax Act, or within 90 days in the case of the requirement to pay issued under the Excise Tax Act.

The Disclosure Statement which sets out the rights and restrictions with respect to the participation shares provides:

The present policy of the Board is to permit:

(a) a Member to make application at any time but not more than once in any calendar year, for the redemption or repurchase of not more than 10% of the Member’s holding of Class “B” and “D” Shares at the date of each such application.

The terms and conditions set out in the certificates of the tax debtor’s term deposits provide:

Terms and Conditions

Interest Payments: Compound

At Maturity: Renew Term - from maturity you have 5 business days to make additional deposits and 14 calendar days to cancel or withdraw funds without an interest rate reduction.

No early Withdrawals Allowed.

In the event of the Plan Holder’s death, the funds will be paid to the designated beneficiary/RRIF “Surviving Spouse” as specified by the Plan Holder’s RRSP/RRIF Application form.

The application form by which the tax debtor applied to participate in the retirement plan has no provisions dealing with withdrawals, and only provides that the plan matures when the participant attains 60 years of age.

There is no evidence that the tax debtor requested that any funds in his RRSP be collapsed, withdrawn, or otherwise paid out to him, either at the time of the requirements to pay, or any time thereafter. There is similarly no evidence that the tax debtor applied to redeem or repurchase any of his participation shares. I therefore cannot find that the Credit Union is “liable to make a payment” to him, or that it had a responsibility at law to make a payment to him at the time the requirements to pay were issued to it, or within 90 days, or within one year. I therefore conclude that none of the tax debtor’s accounts with the Credit Union are subject to Revenue Canada’s requirements to pay.

While this was an application brought pursuant to Rule 48, it became apparent that both parties were seeking a determination on the effect of a requirement to pay on a trust type RRSP. The Credit Union seeks the special costs of this application. While this was not opposed, I do not think it is appropriate. The Credit Union is entitled to the costs of this application on scale 3. There was no submissions made on who should be liable for those costs, and if the parties cannot agree, they may make submissions.

Order accordingly.