Canada Trustco Mortgage Co. v. Canada, 2011 SCC 36

This is a Supreme Court of Canada case concerning the power of the CRA to garnish and intercept funds that are to be paid to the taxpayer by a third party. In this instance, a garnishment was in place that required the Canada Trustco to pay to directly to the Receiver General any funds otherwise payable to the taxpayer. A cheque payable to the taxpayer as an individual was given to Canada Trustco with instructions to deposit it to a joint bank account the taxpayer held with a business partner. The key question was who the bank became liable to make a payment to as a result of the cheque - the payee of the cheque or the holders of the joint account to which it was deposited? Interestingly, the CRA conceded that funds in a joint bank account would not fall under the garnishment of an individual taxpayer which is not an argument they give up so readily at the early stages of most collection efforts. As a result the case came down to the technicalities of the banking process and in a 4-3 split decision, the majority of the Court determined that the bank was only contractually obligated to the holders of the joint account and not to the individual to whom the cheque was initially made payable. This meant that the cheque could be deposited to the joint account without the bank having to forward the payment to the Receiver General under the garnishment.

Before taxpayers who owe money to the CRA start rushing to ask their spouses to deposit cheques for them, the practical application of this precedent is likely not as advantageous as you may think. Firstly, if there is a garnishment in place, many banks will forward funds from joint accounts without turning their mind to the legal details. Secondly, depositing funds to another person’s account or to a joint account can create issues with Section 160 or other provisions through which the CRA can hold third parties responsible for another person’s tax debt. Using someone else’s account in this fashion could cause the CRA to look at their affairs as well as your own. In addition, making such deposits is likely to only be possible as a short term solution. The CRA can easily access bank records and once they find out where the cheques are coming from, the source would likely also receive a garnishment letter so the funds can be intercepted. In effect, there would eventually be no remaining source to still be sending cheques to a taxpayer in this position.

Although the fact scenario in this case is likely to be a fairly unique situation, an extrapolation of the principles in the decision suggest that anyone wanting to avoid a garnishment could either deposit cheques to a joint account or to an account in someone else’s name. While this may not be of significance for garnishments relating to tax, as was pointed out by the minority in the case this could have significant repercussions in other areas of law such as child and spousal support.

You can read the full case on CanLII - Canada Trustco Mortgage Co. v. Canada, 2011 SCC 36