Canada: The Supreme Court Of Canada Finds A Limit To The Scope Of The Requirement To Pay Under Section 224 ITA

Last Updated: July 26 2011
Article by Marc Lemieux

The Supreme Court of Canada rendered a much awaited judgment in the case of Canada Trustco Mortgage Co. v. R. on July 15, 2011.

In that case, a lawyer, Mr. McLeod, owed tax to the federal government.

Revenue Canada issued requirements to pay to Canada Trustco Mortgage Co. (theBank), in a branch of which Mr. McLeod maintained a trust account for the purposes of his legal practice. Mr. McLeod also maintained at the same branch of the Bank a joint account together with another person. The requirements to pay were issued pursuant to pursuant to section 224 of the Income Tax Act (ITA), which provides that the Minister of National Revenue (the Minister) may require a person who is, or will be within one year, liable to make payment to a tax debtor to instead pay the money the person owes the tax debtor to the Receiver General.

The case concerns cheques which Mr. McLeod drew on his trust account, made payable to himself, and deposited in the joint account, during the period of effectiveness of these requirements to pay.

The Bank credited the proceeds of the cheques to the joint account notwithstanding the requirements to pay. The Minister accordingly assessed the Bank pursuant to section 224 ITA. The Bank filed an objection which the Minister rejected. The Bank unsuccessfully appealed to the Tax Court of Canada, and thereafter to the Federal Court of Appeal.

In a divided decision, the Supreme Court of Canada allowed the Bank's appeal and overturned all decisions below.

The majority emphasized at the outset two important concessions made by the Minister. On the basis of existing and unchallenged case law interpreting section 224 ITA, it was acknowledged that the requirements to pay did not apply to funds on deposit in the trust account, nor to funds on deposit in the joint account.

It was also undisputed that the Bank was not indebted to Mr. McLeod by reason only of the fact that the cheques payable to Mr. McLeod were drawn on the Bank. Section 126 of the Bills of Exchange Act (BEA) provides that a billdoes not operate as an assignment of funds in the hands of the drawee available for the payment thereof, and the drawee of a bill who does not accept [i.e., certify] is not liable on the instrument.

It followed that the central question on appeal was whether the Bank had become indebted to Mr. McLeod in the course of the receipt of the cheques by the Bank for deposit to the joint account, and presentment of the cheques to itself for payment out of the funds in the trust account .

The Minister argued thatthe best way to view the receipt of the cheques for deposit is to break the transactions down in two steps: at the first, Mr. McLeod demanded to be paid as payee of the cheques and also demanded, as drawer, that the amounts be repaid out of the funds owed to him in relation to the trust account; at the second, he instructed [the Bank] to deposit the funds into the joint account. In other words, notional payments were made to Mr. McLeod before the funds were deposited into the joint account.

The majority rejected this argument. It noted that Mr. McLeod's instructions were to deposit the funds into the joint account, and that he did not demand that any payment be made to him as payee. In addition the record showed that the joint account was credited with the funds prior to the cheques being paid and funds being debited from the trust account. The Bank accordingly made no payment to Mr. McLeod prior to crediting the amounts of the cheques to the joint account.

The majority then considered the Bank's obligations as collecting bank. It found that the Bank collected the cheques on behalf of Mr. McLeod and Mr. Meier jointly, not of Mr. Mcleod alone, as the contract that imposes on the Bank the duty to collect the cheques is one between the Bank and the holders of the joint account. Consistent with section 126 BEA, the majority stressed that there is no contract between the Bank and Mr. McLeod as payee of the cheque. Finally, the majority considered the Bank's obligation to pay the cheques as drawee, which it foundis triggered only at the time the holder presents the cheque to the drawee for payment, consistent with section 86 BEA. At the time of presentment, Mr. McLeod was no longer the holder of the cheques. The Bank was, in the accomplishment of its collection duties on behalf of the joint account holders.

It followed that in the course of the receipt of the cheques by the Bank for deposit to the joint account, and presentment of the cheques to itself for payment out of the funds in the trust account, the Bank had not become indebted to Mr. McLeod.

While agreeing with the majority that[o]rdinarily, the bank on which a cheque is drawn (the drawee bank) is under no liability to pay the payee of a cheque, the dissenting justices found thatwhere the payee and the drawer are the same person [...], the [drawee] bank is liable to the payee once the cheque is presented [for deposit by the payee]. They also expressed the view that the cheques were payable to the Bank as agent of the payee.

These views do not sit well with established principles governing banking and bills of exchange law, and given the outcome they must now be considered to be without merit.

The dissenting justices were obviously influenced by the equities of the case and the fact that the requirement to pay was frustrated by cheques which the tax debtor wrote to himself. They expressed concerns that the view of joint accounts adopted by the majoritymay negatively impact other areas of the law:Child and spousal support ought not to be defeated by the mere existence of a joint account.

These dissenting remarks, as well as the majority's conclusions, send a strong message to federal and provincial legislators: the current scope of application of the requirement to pay under section 224 ITA and perhaps other comparable garnishment provisions in other areas of the law (including family law) is limited, and suffers from a loopholes which from a policy perspective it may be appropriate to remedy by a revision of the applicable statutes.

About Fraser Milner Casgrain LLP (FMC)

FMC is one of Canada's leading business and litigation law firms with more than 500 lawyers in six full-service offices located in the country's key business centres. We focus on providing outstanding service and value to our clients, and we strive to excel as a workplace of choice for our people. Regardless of where you choose to do business in Canada, our strong team of professionals possess knowledge and expertise on regional, national and cross-border matters. FMC's well-earned reputation for consistently delivering the highest quality legal services and counsel to our clients is complemented by an ongoing commitment to diversity and inclusion to broaden our insight and perspective on our clients' needs. Visit:

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
23 Oct 2018, Other, Toronto, Canada

Dentons and SheEO are coming together for an evening of #radicalgenerosity on October 23, 2017. Meet Vicki Saunders, Founder of SheEO, and learn about how SheEO is changing the landscape for female entrepreneurs.

23 Oct 2018, Seminar, Montreal, Canada

Dentons is pleased to invite you to join us for a breakfast seminar as part of the Les Matinées Dentons series on issues relevant to you and your business.

24 Oct 2018, Other, Toronto, Canada

If you build it, claims may come. Join the Dentons Construction group for breakfast and an informative discussion on current topics in construction law.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions