T-5374-73
The Queen (Plaintiff)
v.
Cyrus J. Moulton Limited (Defendant)
Trial Division, Collier J. Ottawa, May 13 and
31, 1976.
Income tax—Disregard of letter delivered pursuant to s.
224(1) of Income Tax Act requesting payment of $7,324.54 to
Receiver General for Canada—Sum claimed by plaintiff pur
suant to ss. 222 and 224(1) and (4) Onus on Crown to show
that person to whom debtor owes money is liable to pay
Receiver General sums demanded Relevant facts cannot be
inferred but must be shown by preponderance of evidence—
Minister must take initiating step to create liability to pay
tax—Minister cannot attach moneys forever—Arrangement
between Minister and taxpayer cannot be raised as estoppel by
third party Income Tax Act, R.S.C. 1952, c. 148, as am. ss.
153(1), 222, 224(1) and (4), 244(9)—Income Tax Regulation
108—Federal Court Rule 341.
Plaintiff claims that M owes $7,324.54 in tax and that a
"demand" was served on the defendant requiring it to pay all
monies otherwise payable by it to M to the Receiver General up
to $7,324.54. Plaintiff alleges that this demand was ignored and
monies equal to the amount specified were paid by the defend
ant to M. Defendant alleges that M told it that he had paid his
debt to the Department of National Revenue and the company
accepted this statement in good faith and awarded him a
subcontract for which it paid him $7,885.60. The defendant
argues that plaintiff has not shown that at the relevant time M
was liable to make a payment to her and is estopped from
claiming any amount from the defendant because of arrange
ments made by her with M. Defendant further claims that the
letter delivered to it could only attach sums owing as of its date
and could not cover any possible future indebtedness.
Held, the action is dismissed. If the Crown chooses to found
a claim against a third party on section 224(1), it must prove
that the person to whom the third party owes money is in fact
liable to pay the alleged sums to the Crown. The letter deliv
ered to the defendant was only prima facie evidence of M's
indebtedness and the plaintiff can only succeed if she can show
by a preponderance of evidence that the situation now asserted
was the case when the letter was delivered. The whole scheme
of the assessment and collection provisions of the Act supports
the view that some formal initiating step must be taken by the
Crown against an alleged defaulter before the extraordinary
collection remedy of garnishment proceedings can be resorted
to.
Cyrus J. Moulton Ltd. v. The Queen [1976] 1 F.C. 437
and The Queen v. Creative Graphic Services [1976] 2 F.C.
32, applied.
ACTION.
COUNSEL:
S. C. Kerr for plaintiff.
K. J. Ross for defendant.
SOLICITORS:
Deputy Attorney General of Canada for
plaintiff.
Wilson & Ross, Ottawa, for defendant.
The following are the reasons for judgment
delivered in English by
COLLIER J.: The plaintiff claims, pursuant to
section 222 and subsection 224(4) of the Income
Tax Act' 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
monies otherwise payable by it to Micucci to the
Receiver General up to the amount of $7,324.54.
The plaintiff then asserts no monies were paid by
the defendant to the Receiver General but, on the
other hand, monies equal to the amount specified
were paid, in disregard of the demand, to Micucci.
Reliance was placed on subsection 224(4) which
reads:
(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
he amount which he was required under this section to pay to
L:ie 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 plain
tiff, both during the eliciting of evidence and in
argument, there was no necessity for the plain-
R.S.C. 1952, c. 148 as amended up to and including 1973—
what is commonly called the "new Act".
tiff 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 particu
lar cause of action against the defendant. The
beginning of proof, so far as necessary for suc
cess in establishing the plaintiff's case, was, it
was contended, from the "demand" stage on.
(b) The Minister of National Revenue on Janu-
ary 15, 1973, believed or suspected the defend
ant was indebted or about to become indebted to
Micucci.
(c) A. "demand" was issued and served on the
defendant company.
(d) No monies were paid pursuant to the
demand. In fact, monies 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
Bytown Masonry Construction, on five separate
subcontracts to do masonry work. The subcon
tracts entailed primarily the supply of 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 subcon
tracts had been completed by the end of 1972.
There had been, as is so common in the construc
tion 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% hold-backs 2 on each subcontract. In some
cases the cost to the defendant of remedying the
defects had overrun the amount of the particular
hold-back.
On January 15, 1973, there were no outstanding
subcontracts between the defendant and Micucci.
There was some remedial work still to be done in
respect of the Torbolton Public School subcon-
2 Pursuant to The Mechanics' Lien Act, R.S.O. 1970, c. 267.
tract. 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 Na
tional 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 require
ment 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 monies 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.
3 Subsection 224(1) refers to a "letter", not a "demand".
From here on in these reasons I shall refer to whatever was
served as a letter, or the letter, or the requirement. The latter
term is the one used in section 224.
DEPARTMENT OF NATIONAL REVENUE, TAXATION
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 the
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 Gener
al for Canada, attach to form T1118R Third Parties Remit
tance 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 require
ments 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,
R.R. 1,
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 collec
tion unit of the Department of National Revenue
had been advised that Micucci owed monies 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 that a field audit had
been performed, an amount of $7,324.54 estab
lished, and a demand for payment made by the
field auditor. Mr. Miklaucic, 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. Mik-
laucic, before preparing the letter under subsection
224(1), made inquiries. He established to his satis
faction 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 subcon
tract. 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 sub
contractor 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 con
struction 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 award
ed 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 bid
ding and obtaining a contract in respect of the
Almonte Arena. The defendant's officers con
sidered Micucci for a subcontract of the masonry
work. They discussed with him the letter of Janu-
ary 15, 1973. Micucci told them he had made an
arrangement with the Department of National
Revenue to pay off any monies owing. He said he
had given post-dated 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 Na
tional Revenue. The documentary evidence
(Exhibit 2) indicates that post-dated cheques were
in fact given to the Department. Unfortunately,
they were returned N.S.F. 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:
March 23 $ 331.80
March 30 935.00
May 4 212.00
$1,478.80
On April 27, 1973, a cheque for $1,500 was
issued by the defendant to Micucci. As I earlier
recounted, the defendant had retained hold-backs
in respect of the subcontracts performed in 1972.
By April 1973, the work required to remedy
defects on the Torbolton Public School contract
had been carried out and the cost arrived at. I
accept 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 hold-back on the
Torbolton job less the cost of remedying defects. It
was the total amount owing on hold-backs after
deducting the cost of remedying defects on other
1972 projects as well. It will be recalled that some
of those costs overran particular hold-backs. The
$1,500 sum is a bookkeeping net. I accept Mr.
Kent's contention that it, plus the sum of $200
earlier 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 ...
(subsection 224(1).)
As I have earlier indicated, the plaintiff submits
she is not required to establish that facto; that it is
not relevant to the claim against the defendant; if
anyone is entitled to raise the point it is Micucci
4 I paragraph 2 of the amended statement of claim it is
specifically alleged that Micucci "... was liable to make a
payment under the provisions of section 153 and regulations
thereunder, of the Income Tax Act ...." I assume that amend
ed plea was inserted because of certain comments by the
Appeal Division when this suit was on its first journey through
the Federal Court (see [1976] 1 F.C. 437 at p. 439).
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 Minis
ter to which the appellant is not a party. With respect, the de
facto existence of the indebtedness of Micucci to the Crown for
monies 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 of indebtedness on Janu-
ary 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 Rule 341.
I 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 6 .
5 Cyrus J. Moulton Ltd. v. The Queen [1976] 1 F.C. 437 per
Thurlow J. at 441-2 and 443.
6 The requirement issued here under subsection 224(1) is a
formidable, if not appalling, piece of paper confronting a
layman third party. It indicates 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 Act of 9 of the 10 provinces. The
layman is, I suppose, driven to each one of those statutes to try
(Continued on next page)
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 pursuant 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 T1118 entitled
"Demand on Third Parties" which was made by K.L. Reid,
Director-Taxation, on behalf of the Minister of National Reve
nue, exercising powers of the Minister pursuant to section
224(1) of the Income Tax Act, R.S.C. 1952, c. 148 as amended
by s. 1 S.C. 1970-71-72, c. 63.
Subsection 244(9) is as follows:
(9) An affidavit of an officer of the Department of National
Revenue, sworn before a commissioner or other person author
ized 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 docu-
(Continued from previous page)
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 B.C. 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 8 provinces. The
Unemployment Insurance Act, 1971 contains almost identical
provisions to those found in section 224. Exhibit 5 indicates
that some of the monies 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 refer
ence to the various provincial Income Tax Acts in the require
ment issued is because of arrangements reached with some of
the provinces under the Federal-Provincial Fiscal Arrange
ments Act, 1972 (S.C. 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.
ment 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, accord
ing 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 docu
ment 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 urged 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 remit
ting, income tax, Canada Pension Plan contribu
tions 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.
The plaintiff, for some reason unknown to me, chose not to
adduce evidence from her own officers and personnel showing
the liability of Micucci to make a payment, the amount, and
precisely how it arose. I have little doubt appropriate National
Revenue people could have given explicit, and probably irrefu
table, evidence on those points.
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'. I assume, although this
was not stated at trial, that reliance is placed as
well on section 22 of the Canada Pension Plan 9
and section 68 of the Unemployment Insurance
Act, 1971 10 .
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 prerequi
sites.
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 section 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 section 225). An employer
8 Paragraph 153(1)(a) provides for deduction or withholding,
and for remitting. Regulation 108(1) provides for the time of
payment of the amounts withheld or deducted.
9 R.S.C. 1970, c. C-5.
10 S.C. 1970-71-72, c. 48.
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 subsection
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 incor
rect, 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 post-dated cheques. I indicat
ed 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 Na
tional 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 arrangement, 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 The Queen v. Creative Graphic
Services". That case arose under the provisions of
" Federal Court of Appeal, [1976] 2 F.C. 32. The Appeal
Division affirmed the decision of mine at trial, reported under
the same style of cause [ 1974] 2 F.C. 75.
the Excise Tax Act 12 . 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 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 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 84:
I am in agreement that the provisions of the statute confer
ring 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 any
body that any tax is owing by anybody, nor issue, obtain or file
anywhere a certificate of indebtedness, 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 86-87:
The next defence is an alternative to the first one: if Kristens-
en 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 lia
bility 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 Kris-
tensen's salary, or the portion specified, from August 17, 1971
on into the future until the full amount demanded had been
satisfied.
12 R.S.C. 1970, c. E-13. That statute did not have a similar
provision to subsection 224(3) of the present Income Tax Act.
Under that subsection, as I read it, a "garnishment" order
directed to an employer specifically applies to all future pay
ments of wages to the employee, and not merely to those wages
owing at the time the garnishment order was served.
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 I 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 indebted
ness. 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]
C.T.C. 686 and Re Royal Bank of Canada and Attorney
General of Canada [1970] C.T.C. 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"."
The Appeal Division said in part [at pages
34-37]:
The appellant appeals from the judgment because, it is alleged,
that the learned Trial Judge erred
13 I have some diffidence in quoting from a previous decision
of my own. I only do so because my decision was affirmed on
this point by the Appeal Division.
In the extract cited from page 84 of the Creative Graphic
Services case, I said the Minister under the Excise Tax Act
need not, before issuing a demand,
... prove or establish to anybody that any tax is owing
by anybody....
As I have earlier indicated in these reasons, when one considers
the whole scheme of the Income Tax Act, I think there are
sufficient differences to warrant my conclusion that under the
Income Tax Act the Minister must, before succeeding on a
garnishment case of this kind, prove taxes owing or, to use the
words of the subsection in question here, liability to make a
payment.
(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 to 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 General to the extent of the liability dis
charged 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 (6).
(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 indebt
ed to a licensee.
If any one of these conditions is fulfilled, then he may make
the demand on such person to pay money, otherwise 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 person
ally as provided by subsection (8).
It is undisputed that at all material times Mr. Kristensen was
an employee of Craft earning in excess of $50.00 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 subsequent 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. Concommittant 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 to 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 to 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 indebt
edness to accrue imminently and might well extend to one
which might or might not come into existence at some indeter
minate 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 pay
ment". 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
monies forever into the future.
The defendant pleaded and argued a final
defence based on alleged trust provisions of The
Mechanics' 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.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.