Background
Folasade Dejifasanya, a Toronto real estate lawyer practising as Foladeji Law Office, represented two vendors in selling a property. One vendor, Cassandra Blissett-Davis, owed $144,675.79 under the Income Tax Act and also had a separate GST lien of approximately $12,633 registered against the property.
Before closing, the Canada Revenue Agency sent Dejifasanya a seven-page package containing both information about discharging the GST lien and a Requirement to Pay directing her to remit to the Receiver General funds otherwise payable to Blissett-Davis, up to $144,675.79. After closing, Dejifasanya paid the GST lien and mortgage but transferred the remaining $537,152.32 in sale proceeds to Blissett-Davis without complying with the Requirement to Pay.
The Minister assessed Dejifasanya personally for $144,675.79 under paragraph 227(10)(a) and subsection 224(4) of the Income Tax Act. She appealed, arguing that she had complied by paying the lien, that the trust funds were outside the Requirement to Pay, that due diligence was a defence, and that the assessment should in any event be reduced.
The Court’s Holding
The Tax Court denied the appeal and upheld the $144,675.79 assessment. The Requirement to Pay plainly demanded that amount and was separate from the GST-lien documentation. Paying the approximately $12,634 GST lien therefore did not satisfy the demand or reduce the assessed Income Tax Act liability.
The Court held that subsection 224(1) was not confined to conventional debtor-creditor relationships. Because Dejifasanya was legally obligated to transfer the sale proceeds held in trust to Blissett-Davis, she was “liable to make a payment” to the tax debtor and the funds were subject to the Requirement to Pay despite their trust character and the vendors’ ownership arrangement.
The Court also held that subsection 224(4) provides no due-diligence defence because it creates a tax-collection liability rather than an administrative penalty. In any event, Dejifasanya had not exercised due diligence: the covering material identified the lien and the Requirement to Pay as separate matters, and she neither reviewed the demand adequately nor sought clarification before disbursing the funds. Costs remained to be resolved by agreement or written submissions.
Key Takeaways
- A person served with a Requirement to Pay may become personally liable for amounts transferred to the tax debtor instead of the Receiver General.
- The phrase “liable to make a payment” under subsection 224(1) encompasses a legal obligation to disburse trust funds and is not limited to debtor-creditor relationships.
- Subsection 224(4) does not provide a due-diligence defence, and payment of a separate GST lien does not reduce liability arising from an Income Tax Act demand.
Why It Matters
The decision underscores the personal financial exposure faced by lawyers and other professionals who control funds payable to a tax debtor. A Requirement to Pay must be reviewed independently from related lien, closing, or discharge documents, even when CRA sends them together.
For practitioners handling trust money, the ruling confirms that the trust character of funds does not itself prevent federal tax garnishment. Once a valid demand is served, disbursing covered funds to the client can shift liability for the demanded amount to the professional who made the payment.