Her Majesty the Queen v. Cyrus J Moulton Limited, [1976] CTC 416, 76 DTC 6239

Collier, J:—The plaintiff claims, pursuant to section 222 and subsection 224(4) of the Income Tax Act,* [1] the sum of $7,324.54.

The plaintiff alleges that, on January 15, 1973, one Saverio Micucci was a person liable to make a payment under section 153 of the Income Tax Act in the amount set out above: that a “demand” was served on the defendant requiring it to pay all moneys otherwise payable by it to Micucci to the Receiver General up to the amount of $7,324.54. The plaintiff then asserts no moneys were paid by the defendant to the Receiver General but, on the other hand, moneys equal to the amount specified were paid, in disregard of the demand, to Micucci. Reliance was placed on subsection 224(4) which reads:

224. (4) Every person who has discharged any liability to a person liable to make a payment under this Act without complying with a requirement under this section is liable to pay to Her Majesty an amount equal to the liability discharged or the amount which he was required under this section to pay to the Receiver General of Canada, whichever is the lesser.

At trial, the plaintiff's position was as follows:

(a) On January 15, 1973 Micucci was indebted or liable to make a payment to the Minister of National Revenue under the Income Tax Act. It was asserted by counsel on behalf of the plaintiff, both during the eliciting of evidence and in argument, there was no necessity for the plaintiff to adduce any evidence proving, or otherwise showing the nature of, the alleged indebtedness of Micucci, or his liability to make a payment. That, it was said, was irrelevant to the particular cause of action against the defendant. The beginning of proof, so far as necessary for success in establishing the plaintiff’s case, was, it was contended, from the “demand” stage on.

(b) The Minister of National Revenue on January 15, 1973 believed or suspected the defendant was indebted or about to become indebted to Micucci.

(c) A “demand” was issued and served on the defendant company.

(d) No moneys were paid pursuant to the demand. In fact, moneys were, after January 15, 1973, paid to Micucci.

The defendant raised a number of objections and defences which I will later set out.

The defendant company is a general contractor carrying on business in the Manotick area in Ontario. In 1972 it engaged Micucci, operating as Byiown Masonry Construction, on five separate subcontracts to do masonry work. The subcontracts entailed primarily the supply oi labour, that of Micucci and workers employed by him. Most of the materials required were supplied by the defendant. All the work on the various subcontracts had been completed by the end of 1972. There had been, as is so common in the construction industry, defects in the work performed in some of the subcontracts. The remedial work had been done by the defendant. In its books the cost was charged to Micucci. There had been the usual 15% holdbacks* [2] on each subcontract. In some cases the cost to the defendant of remedying the defects had overrun the amount of the particular holdback.

On January 15, 1973 there were no outstanding subcontracts between the defendant and Micucci. There was some remedial work still to be doge in respect of the Torbolton Public School subcontract. Those deficiencies could not be corrected at that time of the year. It is admitted, however, that as of the date in question (January 15, 1973) $1,700 was owing to Micucci by the defendant. Of that amount, $200 still has not been paid. The defendant has some problem in deciding whether it should really be paid to Micucci, or to someone who had perhaps supplied materials on his behalf.

On January 15, 1973 a “demand”, said to be pursuant to subsection 224(1) of the Income Tax Act, was served on one of the officers of the defendant company. Subsection 224(1) is as follows:

224. (1) When the Minister has knowledge or suspects that a person is or is about to become indebted or liable to make any payment to a person liable to make a payment under this Act, he may, by registered letter or by a letter served personally, require him to pay the moneys otherwise payable to that person in whole or in part to the Receiver General of Canada on account of the liability under this Act.

A copy of the particular piece of paper alleged to have been served was tendered in evidence (Exhibit A to Exhibit 1). Mr Burke, then a National Revenue collection officer, testified he served the original of that letter! [3] on a Mr Kent on January 15, 1973. Mr Kent, an officer of the defendant company, admits a letter very similar to Exhibit A, but not identical, was given to him on that day. The amount and general particulars, he testified, were the same. The ink signature of K L Reid, and the typing, he said, were different. I accept Mr Kent’s testimony that Exhibit A to Exhibit 1 is not an identical copy of the requirement that was served on him by Mr Burke. There is however no doubt of this: a letter requiring payment by the defendant to the Receiver General of moneys up to $7,324.54 was served personally on the defendant on the date in question. I set out the relevant portions. I have not included any which Mr Kent asserts to be different from the one actually received by him.

DEPARTMENT OF NATIONAL REVENUE, TAXATIOIN

DEMAND ON THIRD PARTIES

Cyrus J Moulton Ltd,

Manotick,

Ontario.

WHEREAS it is believed that you are or are about to become indebted or liable to make a payment to the taxpayer whose name appears below and hereinafter referred to as the debtor,

AND WHEREAS the said debtor is indebted to Her Majesty ithe Queen pursuant to the provisions of one or more of the Acts shown below, in the amount of $7,324.54

YOU ARE HEREBY REQUIRED to deduct from moneys payable to the said debtor and pay over to the Receiver General for Canada

all amounts for which you are or are about to become liable

to the said debtor

until the aforesaid liability has been paid in full.

Make cheques or money orders payable to the Receiver General for Canada, attach to form T1118R Third Parties Remittance Form, or otherwise identify the payment by debtor’s name and address, and send as deducted, in the addressed envelope provided.

Discharge of any present or future liability to the debtor after receipt of this Demand without complying with the requirements thereof renders you liable for the amount claimed herein or the amount of the liability discharged, whichever is the lesser. This Demand is issued under authority of one or more of the following Acts:

The Canada Pension Plan; the Income Tax Act; The Income Tax Act, 1961— Newfoundland; The Income Tax Act, 1961—Prince Edward Island; the Income Tax Act—Nova Scotia; the Income Tax Act, 1961—New Brunswick; The Income Tax Act, 1961-62—Ontario; The Income Tax Act (Manitoba), 1962; The Income Tax Act, 1961—Saskatchewan; The Alberta Income Tax Act; the Income Tax Act, 1962—British Columbia.

Director-Taxation

S Micucci, operating as Bytown Masonry

Construction,

RR1

Manotick, Ontario. PD 10

Account No LTP 78967 1

(Name and Address of Taxpayer)

(Nom et adresse du contribuable)

Before the requirement was prepared, a collection unit of the Department of National Revenue had been advised that Micucci owed moneys to the Minister. That unit assumed Micucci was an employer who was liable to deduct income tax at source for his employees and to forward those amounts to the Department. The people in the unit also assumed he was liable to deduct at source for those employees, and to forward, contributions in respect of the Canada Pension Plan; that he was liable as well to deduct employees’ unemployment insurance premiums and to remit those, as well as employer’s contributions, to National Revenue. The unit further assumed that in 1972 he had not done these things, to some extent at least. It was apparently further assumed a field audit had been performed, an amount of $7,324.54 established, and a demand for payment made by the field auditor. Mr Mikiaucic, a collection unit head, further assumed that in the ordinary course of events a Notice of Assessment, on behalf of the Minister, for the amount in question had been sent to Micucci.

Mr Burke, who was working under Mr Miklaucic, before preparing the letter under subsection 224(1), made inquiries. He established to his satisfaction that Micucci had been employed as a subcontractor by the defendant a number of times in 1972. He knew that on January 15, 1973 Micucci was not working under a current subcontract. He, apparently following the normal pattern, discussed Micucci’s future prospects with the defendant. Mr Kent, according to Mr Burke, led him to understand there was no reason why Micucci would not be engaged as a masonry subcontractor on contracts in 1973.

I think it fair to observe at this stage that Mr Burke and Mr Kent would be well aware that in the winter months in the Manotick area the construction industry is, generally speaking, at a standstill.

Burke concluded that if a requirement were served on the defendant it would not prejudice Micucci’s being hired by the defendant on future subcontracts. Burke had had experience in tax collection matters in the construction industry. Often, if a requirement of this kind were served on a general contractor, the defaulting taxpayer was never again awarded a subcontract, or employed.

I find, on a balance of probabilities, the Minister reasonably suspected that as of January 15, 1973 Micucci was owed some money by the defendant. I am also prepared to find the Minister reasonably suspected that Micucci might be awarded further subcontracts in 1973, after a requirement was issued.

At the time the requirement I have earlier described was served, the defendant concedes, everything else being equal, Micucci had as good a chance as any other masonry contractor of being awarded subcontracts once the industry reopened in the spring of 1973. This, of course, would depend on whether the defendant itself was awarded any general contracts. It would also depend on whether any competitor of Micucci might make more attractive bids or tenders for particular jobs.

Somewhere in the period February 26 to March 6, 1973 the defendant was in the process of bidding and obtaining a contract in respect of the Almonte Arena. The defendant’s officers considered Micucci for a subcontract of the masonry work. They discussed with him the letter of January 15, 1973. Micucci told them he had made an arrangement with the Department of National Revenue to pay off any moneys owing. He said he had given postdated cheques. Mr Kent and his partner accepted that statement in good faith. They assumed the letter of January 15 was, accordingly, a dead issue. Regrettably, they did not make any inquiries of the Department of National Revenue. The documentary evidence (Exhibit 2) indicates that postdated cheques were in fact given to the Department. Unfortunately, they were returned NSF by the bank.

On the basis of Micucci’s assurance, he was, on March 6, 1973, awarded the masonry subcontract in respect of the Almonte Arena. The arrangement with him was to pay him weekly on a progress basis so Micucci in turn could pay his workmen every Friday. From March 23 to and including May 4, 1973 the defendant paid Micucci, on that subcontract, $7,855.60.

Micucci did two small jobs (a matter of three or four days’ work each), one in March of 1973 and another in May of 1973. Dates of payments to him were as follows:

On April 27, 1973 a cheque for $1,500 was issued by the defendant to Micucci. As I earlier recounted, the defendant had retained holdbacks in respect of the subcontracts performed in 1972. By April 1973 the work required to remedy defects on the Torbolton Public Schoo! contract had been carried out and the cost arrived at. I aocept Mr Kent’s evidence, given at trial, that the $1,500 represented the net amount owing to Micucci in respect of the subcontracts he had performed in 1972. It was not the holdback on the Torbolton job less the cost of remedying defects. It was the total amount owing on holdbacks after deducting the cost of remedying defects on other 1972 projects as well. It will be recalled that some of those costs overran particular holdbacks. The $1,500 sum is a bookkeeping net. I accept Mr Kent’s contention that it, plus the sum of $200 earller referred to, was the amount owing to Micucci as of January 15, 1973. I reject, for the reasons given, the contention advanced on behalf of the plaintiff there was due a further sum of approximately $800.

I now turn to the defences and objections raised on behalf of the defendant.

Firstly, it is said the plaintiff has not shown that Micucci was, at the relevant time “. . . a person liable to make a payment under this Act . . .” (subsec 224(1)). As I have earlier indicated, the plaintiff submits she is not required to establish that fact;* [4] that it is not relevant to the claim against the defendant; if anyone is entitled to raise the point it is Micucci only. That argument has already been decided against the plaintiff. The Appeal Division of this Court heard an appeal by the defendant from an order of the Trial Division granting judgment (pursuant to Rule 341) in favour of the plaintiff. I quote this extract from the reasons of the Appeal Division:* [5]

The first of these is that In concluding that the material facts had all been admitted the learned trial judge held that the appellant was not entitled to dispute that Micucci was indebted to the Minister in the amount of $7,324.54 since that is a subject matter of dispute only between Micucci and the Minister to which the appellant is not a party. With respect, the de facto existence of the indebtedness of Micucci to the Crown for moneys payable under the statute at the time of the giving of a notice under subsection 224(2) appears to me to be, on the wording of the section, a fundamental fact upon which any liability of the appellant under section 224 depends and I know of no reason or authority for the proposition that the defendant is not entitled to put the existence of such a fact in issue.

But apart from this, I am of the opinion that proof of the facts by affidavit is not what Is contemplated by Rule 341 and that the appellant was under no obligation because of the bringing of a motion under that Rule to submit to what appears to have been a summary trial of the action on affidavits filed by the respondent. In my view it is apparent that the appellant had never admitted the fundamental fact for indebtedness on January 15, 1973, of Micucci for sums payable under the statute in the amount set out in the notice of that date, and, in my opinion, nothing in Rule 341 permitted the proof of that fact by affidavit or transformed such proof as was tendered by affidavit and the appellant’s reaction thereto into an admission by the defendant upon which judgment might be pronounced against it under ule 341.

! conclude from those remarks that if the Crown chooses to found a claim against a third party on subsection 224(1), then the onus is on It to show that the person to whom the third party owes money is in fact and in law a person liable to make payment to the Minister of the particular sums alleged, pursuant to the particular statute referred to.t [6]

The plaintiff argued (alternatively) that if proof were indeed required then it had adduced prima facie evidence of Micucci’s liability to make a payment. An affidavit (Exhibit 1) by an officer of the Department of National Revenue was filed. It is said to be made pusuant to subsection 244(9) of the Income Tax Act. The essential portion of the affidavit is paragraph 3:

3. Annexed hereto as Exhibit A, is a true copy of the original Department of National Revenue taxation form 11118 entitled “Demand on Third Parties” which was made by K L Reid, Director-Taxation, on behalf of the Minister of National Revenue, exercising powers of the Minister pursuant to section 224(1) of the Income Tax Act, RSC 1952, c 148 as amended by s 1 SC 1970-71-72, c 63.

Subsection 244(9) is as follows:

224. (9) An affidavit of an officer of the Department of National Revenue, sworn before a commissioner or other person authorized to take affidavits, setting out that he has charge of the appropriate records and that a document annexed thereto is a document or true copy of a document made by or on behalf of the Minister or some person exercising the powers of the Minister or by or on behalf of a taxpayer, shall be received as prima facie evidence of the nature and contents of the document and shall be admissible In evidence and have the same probative force as the original document would have if it had been proven in the ordinary way.

I shall assume the requirement (a letter, according to subsection 224(1)) to be a document within the meaning of subsection 244(9). In my view that subsection does not assist the plaintiff here. The affidavit annexing the true copy of the demand is only “prima facie evidence of the nature and contents of the [demand]”. It does not, as I see it, prove that Micucci was “a person liable to make a payment under the [Income Tax Act]”, or the amount of his liability. I add that the “demand” referred to does not speak of Micucci as being liable to make a payment of $7,324.54. It speaks of him as “. . . indebted to Her Majesty the Queen . . . in the amount of $7,324.54”. The document does not follow the wording of the condition precedent as set out in subsection 224(1).

Finally, on this first issue, the plaintiff relies on certain evidence put in by the defendant. That evidence consisted of certain answers to questions on examination for discovery by an officer of the plaintiff. They had been read in by the defendant as part of its case. I characterize that evidence as both unsatisfactory and vague.* It is

that the '‘debtor” is indebted to Her Majesty “. . . pursuant to the provisions of one or more of the Acts shown below . . .”. Those Acts are the Canada Pension Plan, the federal Income Tax Act and the Income Tax Acts of nine of the ten provinces. The layman is, I suppose, driven to each one of those statutes to try and determine whether it is applicable, and as to what the penalty provisions might be if the requirement is not paid. I have, on my own, checked merely three of the statutes referred to. The Canada Pension Plan, the Ontario Income Tax Act and the BC Income Tax Act all contain provisions Identical or practically identical to section 224 of the Income Tax Act. I have not looked at the statutes of the other eight provinces. The Unemployment Insurance Act, 1971 contains almost identical provisions to those found in section 224. Exhibit 5 indicates that some of the moneys alleged to be payable by Micucci as of January 15, 1973 were unemployment insurance premiums, both employer’s and employees’. But that statute is not referred to in the requirement served on January 15, 1973.

It seems to me some difficult questions may occur, none of which were raised by counsel in this case. I assume the reference to the various provincial Income Tax Acts in the requirement issued is because of arrangements reached with some of the provinces under the Fedtrai-Provincial Fiscal Arrangements Act, 1972 (SC 1972, c 8). As I understand it, the Minister of National Revenue, by agreement, collects duties or taxes on behalf of certain provinces. Does this give the Minister power to garnishee in respect of a province’s share? Is there a power from a province to allow the federal Minister to delegate the collection powers to others under him? There may be simple answers to these problems. There are likely many more problems I have not thought of.

urged [7] that an inference should be drawn from it that Micucci was an employer; that in 1972 he had employees; that, in the eyes at least of the Department, he should have been deducting at source, and remitting, income tax, Canada Pension Plan contributions, and unemployment insurance premiums in respect of those employees. In my opinion the plaintiff cannot succeed on inferences. She must show by a preponderance of evidence (or by a balance of probabilities) that the situation the Crown now asserts, in respect of Micucci, was in fact the case on January 15, 1973. That, in my opinion, has not been done.

On the assumption there was sufficient evidence or inferences to establish the facts necessary to show Micucci was liable to make a payment, reliance was then placed on subsection 153(1) of the Income Tax Act and Regulation 108 of the Income Tax Regulations.+ [8] I assume, although this was not stated at trial, that reliance is placed as well on section 22 of the Canada Pension Plan, RSC 1970, c C-5, and section 68 of the Unemployment Insurance Act, 1971, SC 1970-71-72, c 48.

The plaintiff further says it is not necessary to show the Minister demanded payment from Micucci under those statutes, or that assessments were issued; that the relevant sections of those statutes provide that payment of the amounts required to be deducted shall be made; and that a liability of an employer to make a payment is then created. Counsel for the plaintiff conceded his argument would go this far: if the Minister of National Revenue responsibly determined, in his mind only, that Micucci was liable to make a payment under the Income Tax Act, that would be a sufficient starting point for him to issue a requirement under subsection 224(1), provided the other stipulations were complied with; neither demand, certificate, nor assessment are prerequisites.

I cannot conceive that to be the law. When one examines the other collection provisions of the Income Tax Act, beginning at section 222, it seems to me there must be some formal initiating step or action taken by the Minister in order to create a liability “to make a payment’’, sufficient to warrant the issue of a requirement similar to the January 15, 1973 letter.

A judgment against a defaulting taxpayer can be entered in the Federal Court before assessment, appeal, and hearing. An amount payable must first be certified by the Minister (see s 223). Before chattels can be seized the Minister must first issue a certificate of failure to pay and give 30 days’ notice of it (see s 225). An employer wishing to dispute his liability to deduct at source and to make such payments is surely entitled to have that issue tried. Before he can do that, the Minister surely ought to assess (see subsec 227(10)).

In my view the whole scheme of the assessment and collection provisions of the Act supports the view that some formal initiating (and appealable) step must be taken by the Minister against an alleged defaulter such as Micucci before the extraordinary collection remedy of garnishment proceedings can be resorted to.

In summary this far, it is my conclusion the plaintiff has not established Micucci was, as of January 15, 1973, liable to make a payment.

That would be sufficient to dispose of this action. In case I am in error as to what I consider the plaintiff must prove in respect of the phrase “a person liable to make a payment under this Act”, I shall deal with the other defences raised.

On the assumption my first conclusion is incorrect, then I am satisfied the defendant is liable for $1,700. That amount was owing to Micucci as of January 15, 1973. The defendant contended the plaintiff was estopped from claiming any amount, because some arrangement had been made by Micucci and accepted by the Department, to retire any indebtedness by postdated cheques. I indicated at trial that defence could not succeed. I have since had no reason to change my view. What went on between Micucci and the Department of National Revenue could not affect or cancel the statutory position that the defendant was required to pay the $1,700 to the Receiver General. The so-called arrangemeni, and any estoppel, was something between Micucci and the Department. It could not be raised by the defendant.

In respect of any liability beyond $1,700, the defendant relies on Her Majesty the Queen v Creative Graphic Services et al.* [9] That case arose under the provisions of the Excise Tax Act, RSC 1970, c E-13.+ [10] A garnishment order had been issued pursuant to subsection 52(6) of the Excise Tax Act. The subsection read as follows:

52. (6) When the Minister has knowledge or suspects that any nerson is or is about to become indebted to a licensee he may, by registered letter, demand of such person that the moneys otherwise payable to the licensee be in whole or in part paid over to the Receiver General on account of the licensee’s liability under this Act.

In that case the letter had been directed to a licensee who had an employee named Kristensen. I held the letter could only attach earnings owing as of its date; it could not embrace possible future indebtedness. I said at page 387 [6391]:

I am in agreement that the provisions of the statute conferring this special right of collection must be strictly construed. Subsection 52(6) is a wide form of garnishment. The Minister need not, before issuing a demand, prove or establish to anybody that any tax is owing by anybody, nor issue, obtain or file anywhere a certificate of indebtedntss, nor obtain a judgment against the licensee. If the Minister’s demand seeks to attach salary, the subsection appears to be wide enough to entrap all salary (at least that portion owing at the date of the demand) without any statutory allowance or exemption so that the alleged debtor and his family may, for practical purposes, financially survive. The Minister, having been given such an extraordinary remedy, must rigidly comply with the provisions of the Act.

and at pages 388-9 [6392]:

The next defence is an alternative to the first one: If Kristensen was a licensee, then the company, as of August 17, 1971 was indebted to him in respect of earnings owing at that date only; the demand required payment of $50 of that amount; the demand cannot embrace possible future Indebtedness; the liability of the company is therefore limited to the $50. The essence of this contention is that the demand could not, on the facts here, require payment to the Receiver General of Kristensen’s salary, or the portion specified, from August 17, 1971 on into the future until the full amount demanded had been satisfied.

I am in agreement with that submission. There must, in my view, be clear words in the statute, enabling the Minister to garnishee to the extent urged on behalf of the plaintiff. I find no such clear words. The Minister is, by virtue of subsection (6), entitled to demand “. . . the moneys otherwise payable . . .” from a person who is indebted to a licensee or is about to become indebted to a licensee. The construction advanced on behalf of the plaintiff seems to me largely to disregard the words “the moneys otherwise payable”, As ! see it, the words “is or about to become indebted” are not the sole or controlling description when one endeavours to ascertain precisely what moneys the Minister may garnishee. The words “is or about to become Indebted” have another function. Before the Minister may issue a demand he must have knowledge or suspicion of an indebtedness, or of what I shall term, an imminent indebtedness. The quoted words thus provide, In one context at least, guidance as to the point in time, and the grounds on which, the demand may issue. The moneys sought to be attached must arise out of an already existing debt, or an imminently pending debt, but at the same time, in my opinion, they must be “payable” at the date of the demand. I was referred to Bank of Montreal v Union Gas Company of Canada Ltd, [1969] CTC 686; 69 DTC 5441, and Re Royal Bank of Canada and Attorney General of Canada, [1970] CTC 440. Subsection 120(1) of the former Income Tax Act, which is similar to subsection 52(6) of the Excise Tax Act, was considered in those two decisions, but the facts and the problems were quite different from the matter before me. The decisions appear to hold, however, that a demand under subsection 120(1) of the Income Tax Act creates a charge “. . . not on monies owing or accruing due as in the case of an attaching or garnishee order but on ‘moneys otherwise payable’ at the time of delivery of the demand”.* [11]

The Appeal Division said in part:

The appellant appeals from the judgment because, it is alleged, that the learned trial judge erred

(a) In failing to hold the individual partners were licensees along with the firm and thus personally liable to pay Creative’s indebtedness for sales tax,

(b) in failing to hold that the Minister’s demand would attach future indebtedness of Craft to Kristensen,

(c) in failing to find that the demand sufficiently complied with the requirements of section 52(6) of the Act, and

(d) in failing to find that the appellant was entitled to a declaration that Carl Hans Kristensen was a partner of Creative.

It was conceded by counsel for the appellant that if he failed on any one of the grounds (a), (b) or (c) his appeal would not succeed. It is unnecessary for me to express any opinion on the validity of the appellant’s submissions on either ground (a) or (d) since I am of the opinion that the appeal must fail on the other two grounds.

It was the appellant’s submission that sections 52(6), (7) and (8) form a code of their own with respect to one of the remedies available to the Minister of National Revenue, in the recovery of sales tax. Those subsections read as follows:

“52. (6) When the Minister has knowledge or suspects that any person Is or Is about to become Indebted to a licensee he may, by registered letter, demand of such person that the moneys otherwise payable to the licensee be in whole or in part paid over th the Receiver General on account of the licensee’s liability under this Act.

(7) The receipt of the Minister therefor constitutes a good and sufficient discharge of the liability of such person to the licensee to the extent of the amount referred to in the receipt.

(8) Any person discharging any liability to a licensee after receipt of the registered letter referred to is personally liable to the Receiver Genera! to the extent of th liability discharged as between him and the licensee or to the extent of the liability of the licensee for taxes and penalties, whichever is the lesser amount.”

It will be seen that the following conditions precedent must be fulfilled before the Minister is entitled to make the demand permitted by subsection

(a) he must have knowledge that a person is indebted to a licensee, or

(b) he must suspect that a person is indebted to a licensee, or

(c) he must have knowledge that a person is about to become indebted to a licensee, or

(d) he must suspect that a person is about to become indebted to a licensee.

If any one of these conditions is fulfilled, then he may make the demand on such person to pay money, othrwise payable to the licensee, in whole or In part to the Receiver General. If the person to whom the demand is directed makes such payment, he is protected from a claim made against him by the licensee by subsection (7). If the person fails to make the payment demanded, if validly given, then he shall become liable personally as provided by subsection (8).

It is undisputed that at all material times Mr Kristensen was an employee of Craft earning in excess of $50 per week. During his employment, therefore, at the end of each pay period, which it appears would be at the end of each week, Craft would be indebted to Kristensen for the salary he earned during that week. At the moment of payment, Craft would no longer be so indebted.

For this reason and on the assumption, but without deciding, that Mr Kristensen was a licensee by virtue of his being a partner of Creative Graphic Services, the letter of demand of August 17, 1971 was effective in requiring Craft to make payment to the Receiver General of Canada, if at all, only to the extent of any sum payable at the end of the pay period immediately following Craft’s receipt of the letter. it could not be effective for indebtedness incurred in favour of Kristensen by reason of his providing services to Craft in substquent pay periods, because Craft was not, after the first compliance with the letter of demand, then “about to become indebted” to Mr Kristensen. At that point in time its indebtedness to him had been extinguished.

Again on the assumption that Mr Kristensen was a licensee, the demand, in my opinion, has failed to meet the requirements of the Act. Parliament has granted to the Minister a rather extraordinary right, namely to take a course of action to enforce an alleged debt before having obtained a judgment from any court. This course of action is authorized if certain conditions precedent are met. Concomitant with this right, it appears to me, is the obligation to satisfy strictly the conditions precedent. The third party who is required by the letter of demand to make payment to the Receiver General of moneys owing by him to someone else, is entitled to know precisely the party to whom he is alleged to be or about to become indebted and the precise amount for which he is alleged to be indebted or about te become indebted. Therefore, if in the letter it could be construed that the Minister is requiring him to pay over moneys beyond that to which the Minister is entitled, he has exceeded the statutory right which has been granted to him and the letter of demand thus fails. Put shortly, the demand cannot either In form or substance purport to do more than the special right vested in the Minister, by statute, allows.

in this case, while the form of demand may have been questionable on several grounds, one, in my view, was fatal and thus it becomes unnecessary to consider the others. The words of subsection (6) state that when the Minister suspects that any person is about to become indebted io a licensee, a demand may be made, The clear implication is that the indebtedness Is, as the learned trial judge put it, “imminent”. However, the words used in the letter of demand here in issue are, in part “. . . you are required to pay over to the Receiver General of Canada . . . the amount by which you are or may become indebted . . .”. The latter phrase would, to my mind, convey to any reader the impression that the indebtedness intended to be attached was far more extensive than one limited to an indebtedness to accrue imminently and might well extend to one which might or might not come into existence at some indeterminate time in the future.

In my opinion no reasonable distinction can be made between subsection 52(6) of the Excise Tax Act and subsection 224(1) of the Income Tax Act. The amounts that ultimately became payable to Micucci by the defendant (which were in fact paid to him in March, April and May of 1973) do not fall within the words “about to become indebted” or “about to become liable to make any payment”. The sums ultimately paid were not, as of January 15,1973, amounts payable imminently, or an imminent indebtedness. All that really can be said, as of January 15, 1973 (apart from the $1,700 amount) is that there was a fair possibility that at some time in the future the defendant might become indebted to Micucci, or might become liable to make a payment to him. That, to my mind, does not permit the plaintiff to attach moneys forever into the future.

The defendant pleaded and argued a final defence based on alleged trust provisions of The Mechancs’ Lien Act of Ontario. In view of the conclusions I have set out above, I do not find it necessary to come to any decision or express any opinion on that aspect of this case.

The action is therefore dismissed. The defendant is entitled to its costs .