Date: 19980703
Docket: A-969-96
CORAM: THE CHIEF JUSTICE
LINDEN J.A.
McDONALD J.A.
BETWEEN:
HER MAJESTY THE QUEEN
Appellant
- and -
NATIONAL TRUST COMPANY
Respondent
Heard at Toronto, Ontario on January 20, 1998.
Judgment delivered at Ottawa, Ontario on July 3, 1998.
REASONS FOR JUDGMENT BY: THE CHIEF JUSTICE
CONCURRED IN BY: LINDEN J.A.
CONCURRING REASONS BY: McDONALD J.A.
Date: 19980703
Docket: A-969-96
CORAM: THE CHIEF JUSTICE
LINDEN, J.A.
McDONALD J.A.
BETWEEN:
HER MAJESTY THE QUEEN
Appellant
- and -
NATIONAL TRUST COMPANY
Respondent
REASONS FOR JUDGMENT
THE CHIEF JUSTICE
[1] This is an appeal from a judgment of the Tax Court, pronounced on 7 November 1996, allowing with costs, the appeal of the respondent, National Trust Company ("National Trust") from an assessment made under section 224 of the Income Tax Act1 for failure to comply with a requirement to pay.
[2] The principal issue in the appeal is whether the respondent is liable to pay to the appellant, pursuant to subsection 224(4) of the Act, an amount equal to the amount of the proceeds from the tax debtor's self-directed registered retirement savings plan ("the RRSP") because the respondent had failed to pay those proceeds to the Receiver General in accordance with a requirement issued pursuant to subsection 224(1).
Background Facts
[3] In the Tax Court, the appeal proceeded on the basis of a statement of agreed facts. No viva voce evidence was adduced.
[4] On 17 February 1987, James Smith ("the tax debtor") established a self-directed RRSP with the respondent. The designated beneficiary in the event of his death was one Carol Smith. In February 1988, pursuant to his written instructions, the funds were invested in a five-year guaranteed investment certificate ("GIC") which matured on 24 February 1993. In colloquial parlance, the funds were "locked in" the GIC until the maturity date.
[5] On two occasions prior to the maturity of the GIC, the tax debtor requested that the respondent transfer his assets to the Royal Bank. The respondent did not comply with either demand since the assets were "locked in" the GIC until maturity. Furthermore, prior to the maturity date, the Minister served the respondent with two requirements to pay pursuant to subsection 224(1) of the Act. The respondent informed the tax debtor of the Minister's demands but did not comply with either of them.
[6] Subsequent to the maturity of the GIC, the Minister served the respondent with four additional requirements to pay, dated and served respectively, on 22 March 1993, 8 June 1993, 1 September 1993 and 1 February 1994. The respondent did not comply with any of them.
[7] On or before 24 February 1993, the respondent received another demand from the tax debtor to transfer his RRSP assets to the Royal Bank. Further, by letter also dated 24 February 1993, the tax debtor confirmed his earlier instructions to the respondent to terminate the RRSP, deduct the requisite amount of withholding tax and release the net proceeds to him. He also asked that, pending completion of his instructions, his assets be transferred from the GIC to a daily interest savings account. By letter dated 24 February 1993, the respondent advised the Royal Bank that it was unable to comply with the request for a transfer since the Minister had served upon it a requirement respecting the moneys held in the tax debtor's RRSP.
[8] On 24 February 1993, when the GIC matured, the respondent acceded to the tax debtor's request and transferred the assets in the RRSP to a daily interest savings account. The moneys being held by the respondent have remained in the daily interest savings account since that time.
[9] In a letter dated 8 March 1993, the tax debtor further asked the respondent to cancel the RRSP and to remit the proceeds directly to him. The respondent did not accede to that request, allegedly because Revenue Canada had served the respondent with a subsection 224(1) requirement in respect of the tax debtor's liability for income tax.
[10] Paragraph 25 of the statement of agreed facts reads:
| But for the receipt by the Appellant of the Requirements to Pay aforementioned, the Appellant's usual practice would have been to comply with written demands or requests made by its retirement savings plan planholders for cash payment or collapse of the plan, or transfer of the funds held in the plan to another institution, prior to what is described as "the maturity of a Registered Retirement Savings Plan" in the Memorandum of Agreement. According to that usual practice, provided that the funds are not "locked into" a GIC or other investment account with a fixed term, upon receipt of a written demand or request for cash payment, collapse or transfer, the transaction is concluded by either remitting a cheque to the planholder for the proceeds of the plan, net of income tax withheld and any administrative charges of the Appellant, or remitting a cheque directly to the transferee requesting a transfer.2 |
[11] On 1 February 1994, the Minister issued to and served upon the respondent the requirement to pay3 at issue in this appeal. It required the respondent to pay the following to the Receiver General on account of the tax debtor's liability:
| (a) forthwith, the moneys otherwise and immediately payable to the tax debtor which the [respondent] was liable to pay; |
| (b) all other moneys otherwise payable to the tax debtor which the [respondent] will be, within 90 days, liable to pay, as and when the moneys become payable; |
| (c) where the moneys referred to in (a) and (b) include interest, rent, remuneration, a dividend, an annuity or other periodic payment, all such payments to be made by the [respondent] to the tax debtor (at any time during or after the 90 days) until the liability is satisfied, and |
| (d) the moneys that within 90 days the [respondent] would otherwise loan or advance to, or pay on behalf of, the tax debtor, and which the [respondent] would pay in respect of a negotiable instrument issued by the tax debtor. |
[12] By letter dated 7 February 19944, the respondent replied to Revenue Canada stating that it did not intend to comply with the requirements to pay. On the same day, the respondent wrote to the tax debtor informing him of the receipt of the requirement to pay, and seeking his authorization to redeem the RRSP and his consent to remit payment to the appellant in compliance with the requirement to pay5. There is no evidence of the tax debtor's response to this request.
[13] On 5 April 1994, the Minister issued a notice of assessment6 to the respondent pursuant to subsection 224(4.1) assessing the amount of $13,707.98, on the basis that the respondent had failed to comply with the requirement to pay dated 1 February 1994, issued pursuant to subsection 224(1.1) of the Act.
[14] On 4 July 1994, the respondent filed an objection7 to the notice of assessment on the following bases: the relationship between the respondent and the tax debtor is that of trustee and cestui que trust, not that of creditor and debtor; if it had complied with the requirement to pay, the respondent would have incurred a liability in damages to the tax debtor for breach of trust.
[15] On 13 January 1995, the Minister issued a notification of confirmation to the respondent pursuant to subsection 165(3) of the Act, stating that it was required to pay to the appellant, the proceeds of the tax debtor's RRSP for failure to comply with a requirement to pay under subsection 224(1.1).
[16] By amended notice of appeal dated 3 April 19958, the respondent appealed to the Tax Court from the notification of confirmation affirming the assessment of the Minister.
[17] On 7 November 1996, the Tax Court gave judgment allowing the appeal with costs and vacating the assessment9. By notice of appeal dated 6 December 199610, the appellant appealed from that judgment to this Court.
Reasons of the Tax Court of Canada
[18] At the outset, I note that although the requirement to pay issued 1 February 1994, and the subsequent documents refer to subsections 224(1.1) and 224(4.1) of the Act, the learned Tax Court Judge properly identified the relevant legislative provisions as subsections 224(1) and (4).
[19] In his reasons, the Tax Court Judge framed the issue in the following terms:
| The issue is whether the Appellant was required to pay pursuant to the Requirement to Pay.11 |
[20] Before the Tax Court, the respondent contended that the RRSP was established as a trust under which the respondent was trustee and the tax debtor cestui que trust. Since no debtor-creditor relationship existed between them, there was no debt which the subsection 224(1) requirement to pay could attach. For Her part, the appellant contended that a trustee and cestui que trust relationship was irrelevant to the application of subsection 224(1) of the Act, since this provision only requires that there be an amount "payable" by the respondent to the tax debtor in order to trigger the applicability of that subsection.
[21] The Tax Court Judge focused on the contention of the appellant respecting the meaning of the word "payable". Relying on the decision of Krever J. (as he then was) in Re Bliss, Kirsh and Doyle et al; Montreal Trust Co. Garnishee12, he concluded that, in the case before him, the RRSP had not been terminated but continued as a trust, notwithstanding instructions given by the tax debtor, and that there were no moneys payable by the respondent to the tax debtor.
[22] He found further that the respondent, as the trustee under the RRSP, was not "a person liable to make a payment" to the tax debtor within the meaning of subsection 224(1) of the Act, since, in his view, subsection 224(1) applies only to a person who is under an obligation to pay a debt. Accordingly, since the respondent, as trustee, did not owe a debt to the tax debtor on 1 February 1994, it was not liable to make a payment to the tax debtor within the meaning of subsection 224(1) of the Act. He therefore allowed the respondent's appeal with costs and vacated the Minister's assessment.
Relevant Legislation
[23] The relevant portions of subsection 146 (1) of the Act read as follows:
| 146. (1) "Retirement Savings Plan". Retirement Savings Plan means: |
| (a) a contract between an individual and a person licensed or otherwise authorized under the laws of Canada or a province to carry on in Canada an annuities business, under which, in consideration of payment by the individual or the individual's spouse of any periodic or other amount as consideration under the contract, a retirement income commencing at maturity is to be provided for the individual, or |
| (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, |
| ... |
| 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; |
| 146.(2) Acceptance of plan for registration. |
| The Minister shall not accept for registration for the purposes of this Act any retirement savings plan unless, in the Minister's opinion, it complies with the following conditions: |
| (a) the plan does not provide for the payment of any benefit before maturity except |
| ... |
| (ii) a payment to the annuitant; |
[24] Maturity is defined in subsection 146(1) as follows:
| "Maturity" means the date fixed under a retirement savings plan for the commencement of any retirement income the payment of which is provided for by the plan. |
At the material times, the relevant provisions of section 224 of the Act read:
| 224.(1) Where the Minister has knowledge or suspects that a person is, or will be within 90 days, liable to make a payment to another person who is liable to make 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. |
| ... |
| (4) Every person who fails to comply with a requirement under subsection (1), (1.2) or (3) is liable to pay to Her Majesty an amount equal to the amount that the person was required under subsection (1), (1.2) or (3), as the case may be, to pay to the Receiver General. |
Issues
[25] This appeal raises two issues: first, whether the respondent was required to comply with the subsection 224(1) requirement issued and served upon it on 1 February 1994; secondly, if so, whether it is liable to pay to the appellant, pursuant to subsection 224(4), the amount it was required to pay to the Receiver General pursuant to the subsection 224(1) requirement.
[26] The learned Tax Court Judge considered the first issue only. Having determined that issue adversely to the appellant, he did not find it necessary to deal with the second.
[27] Although, as will presently appear, the parties directed their submissions and their oral argument to the first issue, it is clear, at least from the points in issue raised by the appellant in Her memorandum, that both issues were at play during argument of the appeal.
Position of the Parties
[28] In support of the contention that the Tax Court Judge erred in allowing the respondent's appeal and vacating the Minister's assessment, the appellant made four submissions. First, that at all relevant times subsequent to 24 February 1993, when the GIC matured, the respondent was a "person liable to make a payment" to the tax debtor and the proceeds of the RRSP and GIC which were deposited in the daily interest savings account were "payable" by the respondent to the tax debtor within the plain meaning of subsection 224(1) of the Act. Accordingly, the respondent is liable to pay the amount assessed pursuant to subsection 224(4) as a consequence of its failure to comply with the subsection 224(1) requirement of 1 February 1994. Secondly, the plain meaning of subsection 224(1) does not require that there be a debt owing from the respondent to the tax debtor. Thirdly, and in any event, if a debtor-creditor relationship between the tax debtor is required by subsection 224(1), such a relationship existed in this case. Furthermore, a debtor-creditor relationship may co-exist with that of trustee and cestui que trust. Finally, that the true commercial and practical nature of the relationship between the respondent and the tax debtor was not a true trustee-cestui que trust relationship.
[29] For its part, the respondent makes four submissions in support of the judgment in appeal. The respondent contends, firstly, that subsection 224(1) of the Act applies only in circumstances where a debtor-creditor relationship exists between the person "liable to make payment" and the tax debtor; secondly, that, in this case, such a relationship between the respondent and the tax debtor never existed; thirdly, that the respondent was not a person "liable to make payment" to the tax debtor within the meaning of subsection 224(1) of the Act; and finally, that the respondent could not comply with the Minister's requirement to pay without incurring liability to the tax debtor for damages for breach of its obligations as a trustee under the memorandum of agreement between the respondent and the tax debtor.
Analysis
[30] In their written memoranda and in oral argument, counsel for the parties attempted to support their submissions by referring to passages from the reasons for judgment in a number of reported decisions in which various courts have pronounced upon the meaning of the phrase "liable to make a payment" and the word "payable" as found in subsection 224(1) of the Act. I will deal with those cases later in these reasons. For the present, however, I need only say that those judicial pronouncements were made in factual contexts different from that with which we are concerned in this appeal.
[31] What we have to decide in this appeal are first, whether the respondent was required to comply with the subsection 224(1) requirement issued on 1 February 1994. Secondly, if it was, whether it is liable to pay to the appellant the amounts described in subsection 224(4) by reason of its failure to comply.
[32] If both questions are answered affirmatively, then the Minister was right in assessing the respondent and the appeal should be allowed. If they are answered negatively, a contrary result would be mandated.
[33] For convenience, I repeat here the text of subsections 224(1) and (4):
| 224.(1) Where the Minister has knowledge or suspects that a person is, or will be within 90 days, liable to make a payment to another person who is liable to make 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. |
| ... |
| (4) Every person who fails to comply with a requirement under subsection (1), (1.2) or (3) is liable to pay to Her Majesty an amount equal to the amount that the person was required under subsection (1), (1.2) or (3), as the case may be, to pay to the Receiver General. |
[34] In subsection 224(1) Parliament has invested the Minister with a discretion to issue a requirement in writing pursuant to the subsection if the following conditions precedent are satisfied:
| a) the Minister has knowledge or a suspicion, |
| b) a person is or will be within 90 days liable to make a payment to a tax debtor, and |
| c) the amount must be payable immediately or in the future. |
[35] If those conditions are satisfied, the Minister may, in writing, require the person liable to make the payment to pay to the Receiver General on account of the tax debtor's liability under the Act, forthwith, if the moneys are payable immediately, or in any other case, as and when the moneys otherwise become payable to the tax debtor.
[36] Subsection 224(4) imposes a penalty for failure to comply with the requirement to pay. The penalty is a civil one and is an amount equal to the amount that is required to be paid pursuant to subsection 224(1).
[37] The critical issue for determination is whether the respondent was a person liable to make a payment to the tax debtor on 1 February 1994, when the requirements to pay were served upon it.
[38] It must be recalled that on that date, the GIC had matured for almost one year; that the tax debtor had not only issued instructions to the respondent to cancel the plan, but he had also instructed the respondent either to deposit the proceeds in a daily interest savings account or to pay the proceeds directly to him after deducting therefrom withholding tax.
[39] In these circumstances, is the respondent "a person liable to make a payment" to the tax debtor within the meaning of subsection 224(1)? Secondly, were the proceeds of the GIC "payable" to the tax debtor either immediately or within 90 days?
[40] I deal first with the question of whether the respondent was "a person liable to make payment" to the tax debtor within the meaning of subsection 224(1).
[41] Friesen v. The Queen13 instructs that in interpreting sections of the Act, the correct approach is to apply the plain meaning rule. That is the approach I propose to take in construing subsections 224(1) and (4) of the Act.
[42] In his reasons, the Tax Court Judge accepted the contentions of the respondent that subsection 224(1) would have had application only if it were proved that a debtor-creditor relationship exists between the respondent and the tax debtor. He explained his view in the following passage of his reasons14:
| "Liable" and "liability"point to a debtor status with the person liable to pay being the debtor. A person who is liable to pay has the quality of a debtor and conversely the person to whom he is liable to make the payment is his creditor. In subsection 224(1), the person must be one who is liable to make a payment, not just that such a person will make a payment otherwise than under an obligation to do so. This again gives credence to the view that the person making the payment is a debtor. Here that relationship does not exist as the Appellant was not liable to make any payment to the tax debtor. |
[43] He came to this conclusion purportedly because of the reliance he placed upon a passage from the reasons of Stratton C.J., writing for a unanimous court, in DeConinck v. Royal Trust Corp. of Canada15 I reproduce in full the paragraph of the reported decision at page 183, which the Tax Court Judge emphasized:
| In my opinion, it is difficult to distinguish the Morgan Trust Company case from the present one. Moreover, with respect, I am unable to agree with the conclusion of the judge of first instance in the present case that a trustee who holds funds that are fully vested in a cestui que trust would fall within the definition of a person "liable to make a payment" pursuant to subsection 224(1) of the Income Tax Act. 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, 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 subsection 224(1) of the Act. Thus, in my view, the Request to Pay pursuant to subsection 224(1) of the Income Tax Act was not sufficient authority for Royal Trust to collapse Mr. DeConinck's R.R.S.P. and pay the net proceeds to Revenue Canada. |
[44] In his memorandum and in oral argument, counsel for the respondent placed great reliance on this passage and upon the other authorities cited in his memorandum.16
[45] I have read each of these authorities with care. Although instructive on the issue of whether moneys in an RRSP are held in trust, I am of the opinion, nevertheless, that they do not assist the respondent in the circumstances of this case. Firstly, the cases such as Re Bliss, Kirsh and Doyle et al, supra, decided in the context of provincial garnishee legislation, turned on the phrase whether there were "debts owing and accruing due" to the judgment debtor. Secondly, in none of them had the debtor, as here, expressly instructed the trustee to cancel the plan and directed that the proceeds be remitted to him. In all these cases, it might be appropriate to say, as the Tax Court Judge did in this case, that: " 'liable' and 'liability' point to a debtor status with the person liable to pay being the debtor". But that is not what the plain words of subsection 224(1) require.
[46] The ordinary meaning of the word "liable" in a legal context is to denote the fact that a person is responsible at law17. Hence, I am in respectful agreement with McLachlin J. (as she then was) when she stated in Discovery Trust Company v. Abbott et al,18 a case in which a section 224(1) requirement was served upon a trustee, that:
| ... the demand on third parties [a subsection 224(1) requirement] 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." |
| [Emphasis added.] |
[47] It 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 debtor-creditor 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?
[48] For the reasons that follow, I am of the opinion that the respondent did have such a responsibility.
[49] It is useful, in my view, to reproduce here portions of the memorandum of agreement which contained the terms and conditions of the tax debtor's RRSP with the respondent19:
| Your National Trust Company, Retirement Savings Plan consists of this Memorandum of Agreement and an Application when the following conditions have been met: |
| (a) The Application is completed and signed by you the "Annuitant" or the "Planholder". |
| (b) The completed and signed Application is accepted by an authorized Officer of National Trust Company as the Plan Trustee (we, us) and |
| (c) The Application and Memorandum of Agreement are accepted for registration by the taxation authorities under the Income Tax Act (Canada) and any applicable Provincial Income Tax Act (both of which are referred to in this material as "the applicable tax legislation".) |
| . . . |
| As long as this Plan remains as a Retirement Savings Plan it is a trust as provided by the applicable tax legislation. The assets and retirement income under the plan may not be pledged as collateral, assigned, or otherwise encumbered. |
| . . . |
| As a planholder, neither you nor any person with whom you are not dealing at arm's-length is entitled to any loan, benefit or special consideration other than those set out in the Income Tax Act (Canada) paragraph 146(2)(C.4). |
| . . . |
| Contributions made to us for your Plan will be invested (and reinvested from time to time) in accordance with your written instructions in investments offered by us, from time to time, for your plan. |
| . . . |
| The maturity of a Registered Retirement Savings Plan means it's conversion into an investment which will provide a "retirement income" in the form of an annuity and/or a Registered Retirement Income Fund. A retirement income in the form of an annuity must provide for equal annual or more frequent periodic payments until such time as there is a payment in full or partial commutation of that annuity and where such commutation is partial, equal annual or more frequent periodic payments thereafter. In the event of your death, the commuted value of any remaining payments payable under the annuity may be payable to the designated beneficiary or to your estate. Where payments continue after your death such payments in a year may not exceed the aggregate of the payments in a year before your death. |
| . . . |
| As permitted in the applicable tax legislation, you may, upon thirty (30) days written notice withdraw all or any portion of the assets of your Plan. Any withdrawal is subject to the terms and conditions of the investments in the Plan and is subject to any withholding tax as prescribed in the applicable tax legislation. |
[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.
[51] It should be noticed that the memorandum gives the tax debtor as settlor and cestui que trust a right, exercisable at his discretion, to withdraw all or a portion of the trust res on thirty days written notice to the respondent.
[52] On 24 February 1993, the tax debtor wrote to the respondent at its Winnipeg offices in part20:
| Further to our recent telephone conversation regarding the above noted plan, this will confirm my earlier instructions to you to collapse same, deduct the requisite amount of withholding tax and release the net proceeds directly to me... |
[53] After informing the respondent that it should make no payment to Revenue Canada, because, in his view, the RRSP was not amenable to a subsection 224(1) requirement to pay, the letter continued:
| Therefore, I trust that my original instructions will be followed. Pending completion of my instructions, please maintain my R.R.S.P. and convert the type of funding from G.I.C. to a daily savings account that would provide the flexibility of collapse on any date which may be selected. |
| As additional security for you, I am prepared to provide a Bond of Indemnity. |
| Alternatively, I direct application of the Plan proceeds to the following loans: |
| 1) Loan No. 3633737; |
| 2) Loan No. 3986059; |
| 3) Overdraft Account. |
| ... |
| As you are aware, the present Requirement to Pay expires on April 27, 1993. Should nothing be done until that date, my instructions are to collapse same on April 28, 1993 and immediately release the net proceeds to me. |
[54] Similar instructions were sent to the respondent at its Stratford office by letter dated 8 March 199321.
[55] Paragraph 25 of the statement of agreed facts indicates that it was the respondent's practice to accede to requests of the kind made by the tax debtor to collapse the RRSP and to remit the funds to him and that the respondent would have done so if Revenue Canada had not served upon it the requirement to pay. It is true that this practice does not give rise to any legal obligation on the respondent's part to make any payment. However, it is a contextual element in the appeal which one cannot ignore.
[56] The tax debtor's instructions were clear. After the GIC had matured, he wished to have the net proceeds of the RRSP for his own use and enjoyment. With deference to the Tax Court Judge, I am unable to discern any ambiguity or contradiction in those instructions.
[57] 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 subsection 224(1).
[58] I find support for this view in the penultimate sentence of the passage from DeConinck, supra, to which reference was earlier made. I 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 subsection 224(1) of the Act. |
[59] See to the same effect, Hutterian Brethren Church of Smoky Lake et al. v. Provincial Treasurer (Alta.) et al22.
[60] 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 subsection 224(1) of the Act.
[61] I turn now to consider the issue whether the proceeds were "payable" within the meaning of subsection 224(1). In my view this issue is governed by DeConinck, supra, and the decision of this Court in Canada v. Yannelis23 where Stone J.A., for the Court, said at 636:
| The word "payable" is not a term of art. Nor is it defined in the regulations. I do not see that it was used in any special sense. In my view, therefore, it should be interpreted in the light of ordinary dictionary definitions. |
[62] and 638:
| I have come to the conclusion that the word "payable" in s. 58(8)(b)(i) [of the Unemployment Insurance Act] refers to the point in time when vacation pay is due to a claimant in the sense that he is entitled by his contract of employment or by the general law to have it paid to him and his employer is under an obligation to pay it. In other words, it is payable when a claimant is in a position at law to enforce payment. |
[63] Based on those authorities, I am of the view that the proceeds of the RRSP were payable to the tax debtor at the time he requested payment following the maturity of the GIC.
[64] Consequently, on 1 February 1994 when he issued the subsection 224(1) requirement and served it upon the respondent, the Minister had satisfied the three conditions precedent to which I have already referred. The requirement to pay was therefore a valid one and the respondent was obliged to comply with it.
[65] The respondent, being a person "liable to make a payment" to the tax debtor within the meaning of subsection 224(1) was required by that subsection to pay the proceeds of the RRSP to the Receiver General on account of the tax debtor's liability. By letter dated 7 February 199424, the respondent expressly refused to comply with the requirement to pay.
[66] In these circumstances, since the respondent did not offer any explanation or excuse to avoid the application of subsection 224(4), I conclude that the Minister was right to assess the respondent as he did and that the Tax Court Judge was in error in reaching a contrary conclusion.
[67] In view of the conclusion I have reached on the narrow issues in this appeal, I do not find it necessary to deal with the broader issues raised by the appellant, such as whether the trust established by the memorandum of agreement is a "true trust", whether a trust and a debt may co-exist and a definition of practical and commercial nature of an RRSP.
[68] I would therefore allow the appeal with costs, both here and below, set aside the judgment of the Tax Court, pronounced on 7 November 1996, and affirm the Minister's assessment.
"Julius A. Isaac"
C.J.
"I agree.
A.M. Linden J.A."
Date: 19980703
Docket: A-969-96
CORAM: THE CHIEF JUSTICE
LINDEN J.A.
McDONALD J.A.
BETWEEN:
HER MAJESTY THE QUEEN
Appellant
-and-
NATIONAL TRUST COMPANY
Respondent
REASONS FOR JUDGMENT
McDONALD J.A.
[1] I have read the reasons of the Chief Justice and, while I agree with him in the result, I prefer to set out my own reasons for so holding. Whereas I am of the view that subsection 224(1) applies to the respondent for the reasons set out by the Chief Justice, I feel it is necessary to clarify what I consider to be the limited application of this subsection to the trustee/cestui que trust relationship as well as express my concern about placing a trustee in the awkward position of being compelled to breach his or her fiduciary duties to a tax debtor in order to comply with a letter of demand issued pursuant to subsection 224(1) of the Act.
[2] As the respondent notes, there is a strong argument to be made that given the equitable obligations placed upon a trustee, in the absence of express language stating that subsection 224(1) applies to a trustee, it should be confined to a creditor-debtor relationship. Such clear wording is found in subsection 153(1)(l) of the Act.25 For this reason, I would have liked to limit subsection 224(1) to a creditor-debtor relationship as the Tax Court Judge did.
[3] The language of the section is broad and encompasses the trustee/cestui que trust relationship. In my view, to confine it to a creditor-debtor relationship would be to ignore its breadth. In the future, however, when dealing with situations which require a trustee to breach its fiduciary obligation it would be helpful if the legislation set out clearly that this was the intent and the desired result. While the collection of tax is of the utmost importance, so also is the maintenance of the trustee/cestui que trust relationship which, I would note, is what the respondent sought at all times to uphold.
[4] I would also stress that the applicability of this subsection to a trustee is limited. The only reason the respondent falls within the confines of subsection 224(1) is because the tax debtor instructed the trustee to pay the proceeds of his RRSP directly to him and because this instruction occurred within 90 days of the respondent receiving Revenue Canada's demand letter. The respondent, therefore, became a person liable to make a payment to the tax debtor. If the terms of the trust forbid the tax debtor from cashing out the trust, the respondent would not fall within the confines of subsection 224(1). Similarly, if there had been no request for payment made by the tax debtor the respondent would not be required to make a payment as subsection 224(1) would not apply. This reasoning is consistent with the decision of the New Brunswick Court of Appeal in DeConinck v. Royal Trust Corporation of Canada [1989] 1 C.T.C. 179 (N.B.C.A.). In that case Stratton C.J.N.B., speaking for the court, states at page 183:
| I am unable to agree with the conclusion of the judge of first instance in the present case that a trustee who holds funds that are fully vested in a cestui que trust would fall within the definition of person ,liable to make a payment' pursuant to subsection 224(1) of the Income Tax Act. Rather, it is my opinion that until a cestui que trust requests payments of the proceeds of an R.R.S.P. from his trustee, which he is able to do 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 subsection 224(1) of the Act. |
| [5] The same result was reached in Morgan Trust Corporation v. Dellelce [1985] 2 C.T.C. 370 where Gratton D.J.C. of the Ontario Supreme Court found at page 373: |
| In my view since the trustee has no 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 Dellecle 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 over such moneys to Revenue Canada . |
| [6] I would also note that subsection 224(1) implies that a trustee is only caught under this provision if the payment requested is being paid directly to the tax debtor and not to someone else. The relevant portion of this subsection states: "Where the Minister has knowledge or suspects that a person is, or will be liable within 90 days to make a payment to another person who is liable to make a payment under this Act..." As the Chief Justice notes in his reasons, the tax debtor's instructions in this case were to pay the proceeds directly to him. Thus, the subsection applied. |
| [7] The unfortunate result in this case, therefore, is that the respondent is liable to the government for refusing to breach what it believes was its fiduciary duty to the tax debtor. |
| [8] I would reluctantly dispose of the appeal in the manner set out by the Chief Justice. |
| "F.J. McDonald" J.A. |
1 R.S.C. 1985, c.1, (5th Supp.), as amended (the "Act").
12 (1984) 44 O.R. (2d) 129 (Ont. H.C.J.).
13 [1995] 3 S.C.R. 103 at 113.
15 (1988) 90 N.B.R. (2d) 321 (N.B.C.A.).
16 Belair, Compagnie D'Assurances v. Canada 94 D.T.C. 642 (T.C.C.); Manufacturers Life Insurance Co. v. Canada (Minister of National Revenue - MNR), 91 D.T.C. 1055 (T.C.C.); Saskatchewan Government Insurance v. Canada, (1992) 101 Sask. R. 166 (Q.B.); Delaire v. Delaire, [1996] 9 W.W.R., 469 (Sask. Q.B.); Re McMahon and Canada Permanent Trust Co., (1979), 108 D.L.R. (3d) 71 (B.C.C.A.); Re Bliss, Kirsh and Doyle et al; Montreal Trust Co., Garnishee, (1984), 44 O.R. (2d) 129 (Ont. H.C.J.); Vancouver A & W Drive-Ins Ltd. v. United Food Services Ltd. et al; A & W Food Services of Can. Ltd. v. Komarnisky, (1981), 13 B.C.L.R. 89 (B.C.S.C.); Re Morgan Trust Company and Dellelce et al, 85 D.T.C. 5492 (Ont. S.C.).
17 Littlewood v. Wimpey and Co. Ltd. [1953] 2 All E.R. 915 at 921, per Denning L.J.
18 [1982] 38 B.C.L.R. 55 at 56 (B.C.S.C.).
22 80 D.T.C. 6228 (Alta. C.A.).
23 80 D.T.C. 6228 (Alta. C.A.), (1995) 130 D.L.R. (4th) 632 (F.C.A.).
25 Subsection 153(1) provides that "Every person paying at any time in a taxation year;(l) a payment out of or under a registered retirement income fund or a fund referred to in subsection 146.3(11) as an ,amended fund'.shall deduct or withhold therefrom such amount as is determined in accordance with prescribed rules and shall, at such time as is prescribed, remit that amount to the Receiver General on account of the payee's tax for the year under this Part or Part XI.3, as the case may be, and, where at that prescribed time the person is a prescribed person, the remittance shall be made to the account of the Receiver General at a financial institution (within the meaning that would be assigned by the definition ,financial institution' in subsection 190(1) if that definition were read without reference to paragraphs (d) and (e) thereof).