Section 224

Subsection 224(1) - Garnishment

Cases

Wilson v. Canada (Justice), 2012 DTC 5109 [at 7113], 2012 FC 280

non-application to joint account

The taxpayer's husband had a tax debt. The Minister issued a garnishment order on an account held jointly by the taxpayer and her husband. Harrington J. granted the taxpayer's appeal against the order, on the basis that such an order could only be effective if it were established that the funds in the account were solely the taxpayer's husband's property (para. 23). On the contrary, the evidence showed that the taxpayer was the financial provider of the couple.

Canada Trustco Mortgage Co. v. Canada, 2011 DTC 5112 [at 5940], 2011 SCC 36, [2011] 2 S.C.R. 635

trust company not liable in respect of trust funds

Mr. McLeod, who owed taxes, held two accounts with the appellant ("Trustco") - an account he held jointly with another person, and a trust account for his law practice. Mr. McLeod wrote cheques out to himself drawing on the trust account, and deposited them in the joint account. Although the Minister had issued a s. 224(1) requirement that Trustco pay its liabilities to the Receiver General instead of Mr. McLeod, Trustco transferred the funds from the trust account to the joint account in accordance with the cheques.

The Minister had conceded at trial that its s. 224(1) requirement did not apply to funds paid into or out of the joint account. The decision turned on whether Trustco was ever liable to make a payment to Mr. McLeod. A 4-3 majority found that it was not. In processing the cheques, Trustco was acting in two capacities - as the bank on which the cheques were drawn, and as the bank to which the cheques were deposited. Trustco had no liability to Mr. McLeod in either of these capacities. Deschamps J. stated (at para. 40):

A cheque operates neither as an assignment of funds in the hands of the payee nor as an assignment of funds in the hands of the drawee. It is a document by means of which a customer orders his or her banker to pay funds the banker owes to the customer to a person or to the order of that person out of the account specified on it. In and of itself, a cheque imposes no obligation on a drawee bank to the payee.

Trustco was not liable to pay Mr. McLeod in his capacity as drawer either. If Trustco had failed to pay the amount specified on the cheques to the recipient from the trust account, then it would be liable to pay Mr. McLeod damages for breach of their trust account contract. Because Trustco did pay, it did not become liable.

The Queen v. National Trustco, 98 DTC 6409 (FCA)

liability for collapsed RRSP

The respondent was liable under s. 224(4) for its failure to respond to an s. 224(1) demand in respect of proceeds of an RRSP where the annuitant had instructed the respondent on maturity of the GIC held in the plan to pay the proceeds directly to him. In finding that s. 224(1) was not restricted to debtor/creditor relationships, Isaac C.J. stated (at p. 6415) that "the ordinary meaning of the word 'liable' in a legal context is to denote the fact that a person is responsible at law."

Words and Phrases
liable

Bank of Montreal v. MNR, 94 DTC 6309 (FCTD)

effect of subsequent decision finding funds were not owing

The Supreme Court of Canada ultimately reversed the courts below in finding that profits earned by a terminated employee of the appellant belonged to the appellant. Accordingly, an amount which had been garnished by the Department and which the appellant had been ordered by the Supreme Court of Quebec to pay to the Department became repayable to the appellant when the Supreme Court of Canada found that such funds had belonged to the appellant.

464734 Ontario Inc. v. The Queen, 90 DTC 6206 (FCTD)

application by creditor

One of the appellants ("Ontario") was awarded $41,000 in an action which it had brought against another corporation ("Konvey"). As a result of a requirement to pay which the Crown previously had issued to Konvey, the solicitors for Konvey forwarded a cheque for $41,000 payable in favour of the Receiver General to Ontario. Ontario's counsel forwarded this cheque to Revenue Canada instructing that it be applied against unremitted source deductions. The cheque instead was applied by Revenue Canada against Ontario's arrears of provincial tax, and CPP and UIC premiums.

After noting (at p. 6215) that:

Where no direction is given by the debtor then the creditor is free to apply the monies received as the creditor sees fit. The debtor must expressly authorize how the funds he is paying to the creditor are to be applied and failure to do so leaves the creditor to decide ..."

Cullen, J. noted that Ontario was not in a position to direct Revenue Canada how to apply the $41,000 payment because it represented a payment of Konvey's property rather than Ontario's property. Accordingly, the unremitted source deductions remained unpaid.

DeConinck v. Royal Trust Corp. of Canada, [1989] 1 CTC 179 (N.B.C.A.)

ineffective demand on RRSP trustee

A demand by Revenue Canada on the trustee of an RRSP was not sufficient authority for the trustee to collapse the RRSP and pay the new proceeds to Revenue Canada. "[U]ntil a cestui que trust requests payment of the proceeds of an RRSP from his trustee, which he is able but not bound to do under the rule in Saunders v. Vautier (1841), 41 E.R. 482, 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."

Ontario Development Corp. v. The Queen, 89 DTC 5134 (FCTD)

The taxpayer was subrogated (as guarantor) to a bank which had registered an assignment by a customer ("Kitkraft") of book debts on June 7, 1977. The effect of the assignment was to make Kitkraft the trustee of the book debts for the assignee bank and later, by subrogation, for the taxpayer. Therefore a later requirement to pay which the Minister issued to a debtor of Kitkraft was ineffective to transfer title to the Minister to the funds used to pay those book debts.

Re Morgan Trust Co. and Dellelce, 85 DTC 5492 (S.C.O.)

Since a tax debtor had not taken any steps to withdraw properties from his RRSP, the trustee of the RRSP had no moneys which were immediately payable to the debtor nor any moneys which it within 90 days would be liable to pay to the tax debtor. A s. 224(1) demand accordingly could not require the trustee to pay moneys to the Crown.

The Royal Bank of Canada v. The Queen, 84 DTC 6439, [1984] CTC 573 (FCTD), aff'd 86 DTC 6390, [1986] 2 CTC 211 (FCA)

A bank, which perfected an assignment to it of book debts by registering pursuant to the Personnel Property Security Act (Manitoba) prior to a s. 224 demand being made, had priority over the Crown with respect to the moneys received by the Crown in payment of the book debts pursuant to the demand.

Walkers' Auto and Body Supplies (1972) Ltd., [1984] 4 WWR 661 (Sask QB)

S.224(1) only creates the right in the Crown to demand payment of a debt and does not give the Crown a priority. "The crown simply acquires a debt like any other although that is subject to the settled principle of law that claims and debts of the Crown have priority over other creditors of equal degree."

The Minister of National Revenue was held to rank pari passu with the Saskatchewan Minister of Finance with respect to moneys paid by a garnishee of both into Court, notwithstanding that the s. 224 demand of the federal minister was made 10 days later than the demand by the Saskatchewan Minister under a provincial statutory equivalent of s. 224.

Re Zurich Insurance Co., 84 DTC 6232, [1984] CTC 639 (Ont CA)

After a fire damaged the insured premises of a licensee under the Excise Tax Act and the licensee defaulted under a loan agreement with a bank secured by a floating charge on its assets, the bank appointed a receiver. After the appointment but before notice of the appointment had been given to the insurance company, a third party demand pursuant to s. 52(6) of the Excise Tax Act (similar to s. 224(1) of the Act) was served on the insurance company. Since the floating charge crystallized at the time of appointment, the insurance moneys thereafter were ultimately payable to the receiver, not the licensee, and so there was nothing for the third party demand to attach. Furthermore, even if the service of the demand were regarded as creating an equitable interest (which it did not) in the debt from the insurance company (which was not yet payable) the older equitable charge of the bank had priority.

Bain v. Rosen, 84 DTC 6212, [1984] CTC 589 (S.C.O.)

It was indicated that the 70% exemption pursuant to s. 7(1) of the Wages Act (Ontario) is calculated before any deduction is made of the amount of a s. 224(1) demand. Otherwise, "at the whim of the person in the department [of National Revenue] who prepared the demand, the entire 70% exemption could be wiped out, if the amount of the demand is to be deducted from gross wage before the exemption is calculated."

Re Marks & Spencer Canada, Inc., 84 DTC 6037 (Nfld. S.C.)

Since s. 224 is a garnishee provision that only binds or attaches the interest of the taxpayer, it does not apply to book debts that were assigned to a bank prior to the issuance of the s. 224 demand, notwithstanding that such issuance was effected prior to receipt by the taxpayer's debtor of notice from the bank of the assignment of book debts.

Sorenson v. MNR, 82 DTC 6246 (FCA)

There is no requirement that the Minister file a certificate under s. 223 before he may exercise the power given to him by s. 224 to require a person who is or is about to become indebted to a taxpayer to make payment to the Receiver General.

Stephens Estate v. The Queen, 82 DTC 6132, [1982] CTC 138 (FCA)

As a demand on third parties pursuant to s. 224 does not involve an interference with corporeal property, a wrongful demand cannot give rise to an action in trespass or conversion.

CIBC v. The Queen, 81 DTC 5345, [1981] CTC 435 (FCTD)

Book debts which are included in the security granted under s. 178 of the Bank Act by a taxpayer to a bank become the property of the bank from the moment that they arise, and are not subject to attachment under s. 224(1) irrespective of whether notice has been given to the Crown or the debtors of the bank's interest.

Hutterian Brethren Church v. Prov. Treas. (Alta), 80 DTC 6228 (Alta. C.A.)

"[S]ervice of a demand should not be construed as altering generally the terms of a bona fide contract entered into between a judgment debtor and a third party." A s. 224(1) demand accordingly was insufficient to attach term deposit certificates which contained conditions requiring that the certificates be surrendered on redemption, or which prohibited partial redemptions. Service of the demands could not be treated as meeting those conditions.

Bank of Montreal v. The Queen, 80 DTC 6024 (FCTD)

An assignee of book debts ranks behind the Crown to the extent that the debtor pays the Crown pursuant to a s. 224(1) demand before the debtor has received notice of the assignment from the assignee. (Assignment of Book Debts Act (Alberta)).

Since the Crown "is given extraordinary powers" under s. 224(1) "to recover monies which normally by any other creditor would have to be attached by way of receivership or garnishment or other proceedings, the [Crown] must strictly and accurately set out its claim and could not demand from day to day different amounts all aggregating the total now claimed." Where the Crown, out of some confusion as to the amount owing to it, made two different demands of different sums, the amount of the second demand was deemed by the court to constitute the total amount owing to the Crown for taxes.

Qureshi v. MNR, 79 DTC 5161, [1979] CTC 216 (FCTD)

The Minister's decision to attempt collection by way of garnishment is purely an administrative decision that is not subject to review under section 18 of the Federal Court Act.

See Also

De Vries v The Queen, 2018 TCC 166

a corporate creditor’s oral agreement to postpone collection of his loan defeated a RTP encompassing that loan

After the sale to the taxpayers (its shareholders) of its assets for cash proceeds equal to those assets’ fair market value, the taxpayers’ corporation (“IPG”) paid a capital dividend to them. Prior to that time, IPG had been assessed by CRA under s. 224(4) for $758,630 for the failure to comply with a requirement to pay (“RTP”) issued under s. 224(1) to pay to CRA all amounts owing to a former employee and business associate (“Houweling”), having regard to a liability of IPG to Houweling for that amount respecting advances previously made by him to IPG which, except as described below, were repayable on demand.

Paris J accepted testimony that Houweling had orally agreed, prior to the receipt by IPG of the s. 224 requirements, to postpone his right to receive repayment of the advances until the conclusion of a significant suit brought by IPG against a third party. In this regard, he stated (at paras. 57, 62-63):

[T]here has been an evolution in the doctrine of consideration in the context of contract modifications. Recently, the British Columbia Court of Appeal held that when parties to a contract agree to vary its terms, the variation should be enforceable without fresh consideration, absent duress, unconscionability, or other public policy concerns (Rosas v. Toca, 2018 BCCA 191 … .

Although there is no evidence in this case that IPG provided any consideration to Houweling in return for his agreement to wait for payment of the loan, there is nothing to suggest that IPG exerted any economic pressure on Houweling to obtain the variation in the loan agreement and that there are no public policy reasons that would render the agreement unenforceable. …

As a result, there was no amount owing by IPG to Houweling during the year that followed the issuance of the RTP and therefore no amount owing by IPG under the ITA as a result of its failure to make any payment to the Minister pursuant to the RTP.

As the assessment thus was invalid, there was not liability of IPG that flowed through to the taxpayers under s. 160 as a result of the dividend.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 160 - Subsection 160(1) if requirement to pay assessment had been valid, it would have flowed through with a dividend 290
Tax Topics - General Concepts - Effective Date oral agreement to postpone changed terms of loan 175

Manufacturers Life Insurance Co. v. MNR, 91 DTC 1055 (TCC)

A whole life insurance policy registered as an RRSP was not garnishable under s. 224(1) given the absence of evidence that the owner had requested that he be paid or that the insurance company had consented to such payment (as required under the terms of the policy). Accordingly, no assessment could be issued against the insurance company under s. 224(4).

Thomas v. MNR, 90 DTC 1806 (TCC)

Because the dissolution of a corporation rendered it incapable of making a payment, a garnishment by the Minister under s. 224(1) demanding payment from the taxpayers, as debtors of the corporation, of taxes owing by it, were vacated.

Thames Bandag & Tire Ltd. v. The Queen, 88 DTC 6417, [1988] 2 CTC 203 (FCTD)

After a secured creditor ("Bandag") of a company ("Olympic") had made a demand, following the default of Olympic, on the debtors of Olympic to pay their debts to Bandag, the Crown successfully made a demand on Bandag pursuant to s. 52(10) of the Excise Tax Act. Martin J. stated, obiter, that "it does not matter whether the plaintiff was or was not the absolute owner of the accounts receivable, without reference to any rights of equities of Olympic, to make it liable to comply with the provisions of subsection 52(10)."

Prowest Fabrications Ltd. v. The Queen (1984), 50 C.B.R. (N.S.) 102 (Sask QB)

A receiver-manager of the property of the debtor was appointed by the debenture-holders and a court after the debenture-holders had received a Revenue demand for tax on book debts that had been assigned to the debenture-holders. An argument that a court-appointed receiver-manager did not fall within the meaning of "person" in the Excise Tax Act equivalent of s. 224(1) was rejected. "It would not be proper for the [debenture-holder] bank to frustrate the efforts of the tax collector by electing to appoint, or arranging for the court to appoint, a receiver-manager rather than collecting the accounts receivable on its own behalf." The receiver-manager accordingly was directed to remit the tax to Revenue.

Administrative Policy

25 February 2016 CBA Roundtable, Q. 4

provincial garnishment limits not followed except in Quebec

CRA indicated that it no longer respects provincial garnishment limitations (apparently for ITA purposes as well as GST/HST purposes) except that it abides by the Quebec limitations respecting GST collections in Quebec to stay coordinated with the ARQ, which is legally bound by these limitations. Examples of where CRA may exceed the provincial limits in the Rest of Canada include situations

where there were other sources of income and only one income source was to be subjected to garnishment action, assets that could be readily available to the debtor to generate funds to satisfy the tax debt in full or a substantial portion and the debtor was not cooperating, or situations where the provincial exemption amount would be insufficient to address the amount of arrears.

Other locations for this summary
Tax Topics - Income Tax Act - Section 224 - Subsection 224(1) provincial garnishment limits not followed
Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 317 - Subsection 317(3) tax debtor still required to remit GST/HST on garnished receivable/provincial garnishment limits respected only in Quebec 828

24 April 2012 Internal T.I. 2012-0441141I7 - Effect of A Requirement To Pay on Shareholder Loan

The tax debtor is the sole shareholder of a corporation who does not have a personal bank account, and is using the corporation's bank account to effect his personal transactions, with the corporate financial statements recognizing an amount owing to him. The financial statements disclose that this loan has no fixed repayment terms.

CRA discusses 3087-8847 Québec Inc. v. The Queen, [2007] 5 CTC 2313, 2007 DTC 1064 (TCC), and concludes that the absence of such payment terms is not a bar to issuing a s. 224(1) demand to the corporation.

IC 98-1 "Collection Policies"

87 C.R. - Q.75

Arrangements as an alternative to issuing Requirements to Pay may be entered into provided that such arrangements expedite the collection of arrears and at the same time make provision for the remittance of current source deductions.

Subsection 224(1.2) - Garnishment

Cases

Bank of Montreal v. Deloitte & Touche Inc., 97 DTC 5538 (Sask. C.A.)

A trustee of bankruptcy, in its representative capacity, was liable with respect to a demand for payment of a receivable made 40 days after the date of bankruptcy of the debtor.

Alberta (Treasury Branches) v. M.N.R.; Toronto-Dominion Bank v. M.N.R., 96 DTC 6245, [1996] 1 S.C.R. 963

The Minister had priority under s. 224(1.2) of the Act and s. 317 of the Excise Tax Act over lending institutions that had taken general assignment of book debts as collateral security for their loans. Unlike the minority, who found that the lenders were not "secured creditors" because they did not have a security interest in the property of "another person", Cory J. found that because the lenders would have no further interest in the assignments once the secured loans were paid off, the assignments could not be considered absolute assignments and, instead, conformed with the definition of "security interest".

Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Resolving Ambiguity 146

The Queen v. TransGas Ltd., 93 DTC 5391 (Sask. C.A.), briefly aff'd (1994), 120 DLR (4th) 715, [1994] 3 S.C.R. 753

At a time a construction company ("Mid-Plains") abandoned work on a contract for a Crown agency ("TransGas"), TransGas, in addition to holding "holdback" funds as required under the Builders' Lien Act (which were not at issue in the action), held additional contract funds payable to Mid-Plains for the work done under the abandoned contracts. Before finding that the federal Crown had a priority under s. 224(1.2) over builders' lien claimants of Mid-Plains with respect to the additional contract funds, Tallis, J.A. found that s. 224(1.2) had as its purpose the expedient collection of withheld tax monies and, therefore, was intra vires the powers of the federal Crown under s. 91(3) of the Constitution Act, 1867. In addition, the Court rejected a submission that s. 244(1.2) should be regarded as authorizing unreasonable seizures contrary to s. 8 of the Charter.

The 90-day requirement in s. 224(1.2) was met given that within 90 days of a second requirement to pay issued by the Minister, TransGas was directed by court order to pay the amounts in question into Court "forthwith" which payments had the effect of vacating the liens and of discharging the contractual liability of TransGas to Mid-Plains, as well as the statutory liability to the lien claimants in relation to amounts paid in.

Canadian Asbestos Services Ltd. v. The Queen, 93 DTC 5001 (Ont. Ct. - G.D.)

S.224(1.2) was part of the pith and substance of federal tax legislation and, accordingly, was not ultra vires.

Pembina on the Red Development Corp. Ltd. v. Triman Industries Ltd., 92 DTC 6174 (Man. C.A.)

In finding that the pre-1993 version of s. 224(1.2) of the Act was not ultra vires (before following Lloyds Bank), Scott C.J.M. stated (p. 6177):

"The purpose of the Act is not only to levy tax, but to collect it ... The machinery for collection and enforcement under the Act is part of the very subject matter of sec. 91(3) of the Constitution Act and not merely incidental to the raising of revenue".

Toronto-Dominion Bank v. The Queen, 90 DTC 6639 (FCTD)

A general assignment of accounts and debts made by a corporation to the plaintiff bank took priority over a subsequent requirement to pay made under s. 224(1.2). "Subsection 224(1.2) ... in order to effect what would amount to an expropriation of property from the Toronto-Dominion Bank, will have to be worded in such a way as to make this intention absolutely clear, and it is not" (p. 6642).

Air Atonabee Ltd. v. The Queen, 90 DTC 6573 (S.C.O.)

S.224(1.2) permits the Minister of National Revenue to issue the request for payment without any regard to the provisions of the Bankruptcy Act.

Royal Bank of Canada v. Saskatchewan Power Corp., 90 DTC 6330 (Sask QB)

Wright, J. refused to follow the decision of the Alberta Court of Appeal in Lloyds Bank v. International Warranty Co. Ltd., and found that s. 224(1.3) was effective to give the Crown priority over a secured creditor.

Lloyd's Bank Canada v. International Warranty Co. (1989), 60 DLR (4th) 272 (Alta. C.A.)

A company ("IW") had made an assignment of book debts to the td Bank. After ceasing business operations, it paid salaries to its employees without withholding and paying source deductions. Revenue Canada thereafter issued a requirement to pay pursuant to s. 224(1.2)(b).

Stratton J.A. held:

"that the proceedings under s. 224(1.2) are at the most a form of extra-judicial attachment which could bring the funds in question into the custody of Revenue Canada. The section falls short of effecting the transfer of property in the funds or establishing priority of Revenue Canada's claim. Something further is required to accomplish either purpose."

Accordingly, the Minister did not have priority over the td Bank.

Articles

Robertson, "Tax Collection and Insolvency: An Update", 1993 Conference Report, c. 8

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 227 - Subsection 227(5) 0

Skulski, "Tax Collection in Recessionary Times", 1992 Conference Report, c.8

Account of the agreement negotiated between Revenue Canada and the Office of the Superintendent of Bankruptcy.

Heinrich, "Judicial Response to Director's Liability and Crown Garnishment Priorities", 1991 British Columbia Tax Conference, Volume 1.

Brown, "Bankruptcy and Income Tax: A Revenue Canada Perspective", 1990 Conference Report, c. 18.

Finance

28 July 1999 Letter to Douglas Schmitt: Explanation of why the deemed trust should rank ahead of fixed charges even where there were no outstanding source deductions when the fixed charges were granted.

Subsection 224(1.3) - Definitions

Security Interest

Cases

Caisse populaire Desjardins de l'Est de Drummond v. Canada, 2009 DTC 5951, 2009 SCC 29, [2009] 2 S.C.R. 94

A customer ("Canvrac") made a deposit of $200,000 with the Caisse and entered into a "Term Savings Agreement" under which Canvrac agreed that its deposit would be for a term of five years, it would not negotiate or transfer the deposit and the term deposit could be given as security, but only in favour of the Caisse. Canvrac and the Caisse also agreed that to secure repayment of sums owing by Canvrac to the Caisse under a line of credit, Canvrac would maintain the deposit of $200,000 and consented to the Caisse withholding repayment of the sum of $200,000 as long as the line of credit remained outstanding.

Although a bare right of set-off by the Caisse would not have given it a security interest in the deposit, here the agreement between the Caisse and Canvrac created a security interest in the deposit because encumbrances placed on Canvrac's deposit ensured that Canvrac's claim again the Caisse for its deposit would continuously exist in order to ensure that the set-off remedy would be effective.

Subsection 224(1.4) - Garnishment

Cases

Caisse populaire Desjardins de l'Est de Drummond v. Canada, 2009 DTC 5951, 2009 SCC 29, [2009] 2 S.C.R. 94

After finding that the Caisse had a security interest in a term deposit of its customer (Canvrac) with the Caisse, the Court found that the proceeds of the term deposit were available to the Crown to discharge all the outstanding income tax (and employment insurance premiums) deducted at source by Canvrac, whether the unremitted deductions occurred before or after the creation of the security interest and until the date that the Caisse realized on its security.