LeDain,
J
(dissenting):—This
is
an
appeal
from
a
judgment
of
the
Trial
Division
allowing
the
respondent’s
appeal
from
income
tax
assessments
for
the
taxation
years
ending
in
February
1966,
1967,
1968
and
1969.
What
is
in
issue
is
the
nature
of
an
expenditure
of
$268,623.48
made
by
the
respondent
in
1953
but
amortized
by
it
over
a
period
of
twenty-five
years
and
deducted
in
the
proportion
of
1/25,
or
the
amount
of
$10,744.94,
from
income
in
each
of
the
taxation
years
in
question.
The
issue
is
whether
the
expenditure
was
an
income
expenditure
or
an
outlay
of
capital,
and
if
the
latter,
whether
it
resulted
in
an
asset
or
advantage
that
is
subject
to
capital
cost
allowance.
The
respondent
was
incorporated
in
1952
under
the
Canada
Corporations
Act,
pursuant
to
an
agreement
dated
August
15,
1951
(hereafter
referred
to
as
the
“Main
Agreement”)
between
Anglo-Canadian
Pulp
and
Paper
Mills
Ltd
(hereafter
referred
to
as
“Anglo-Canadian”)
and
Deerfield
Glassine
Company
Inc
(hereafter
referred
to
as
“Deerfield”).
The
respondent
was
incorporated
as
a
subsidiary
of
Deerfield,
a
Massachusetts
company,
to
manufacture
glassine
and
grease-proof
papers
and
other
lightweight
specialty
papers.
The
interest
of
Anglo-
Canadian
in
the
arrangement
was
to
supply
the
respondent
with
the
pulp
it
required.
The
proposed
arrangement
permitted
Anglo-Canadian
to
offer
the
respondent
its
pulp
requirements
on
a
long-term
basis
at
a
price
sufficiently
advantageous
to
make
it
worthwhile
for
Deerfield
to
establish
a
subsidiary
business
in
Canada.
The
inducement
also
included
an
undertaking
by
Anglo-Canadian
to
supply
the
respondent’s
requirements
of
steam
upon
certain
terms
and
conditions.
The
Main
Agreement
provided
for
incorporation
of
the
respondent
with
a
certain
authorized
share
capital,
the
sale
by
Anglo-Canadian
to
the
respondent
of
land
for
the
location
of
its
plant,
and
the
execution
by
Anglo-Canadian
and
the
respondent
of
an
agreement
(hereafter
referred
to
as
the
“Construction
Contract”)
whereby
Anglo
Canadian
would
undertake
to
construct
at
its
own
expense
two
underground
pipelines
to
convey
slush
pulp
and
steam
from
its
plant
to
that
of
the
respondent,
an
agreement
(hereafter
referred
to
as
the
“Pulp
Contract”)
whereby
Anglo-Canadian
would
undertake
to
supply
the
respondent
for
an
initial
period
of
twenty
years
with
its
requirements
of
slush
pulp,
and
an
agreement
(hereafter
referred
to
as
the
“Steam
Contract”)
whereby
Anglo-Canadian
would
undertake
to
supply
the
respondent
for
an
initial
period
of
five
years
with
its
requirements
of
steam.
The
Construction
Contract,
the
Pulp
Contract
and
the
Steam
Contract
were
executed
on
April
25,
1952
in
essentially
the
form
provided
for
in
the
Main
Agreement.
The
Main
Agreement
provided
that
in
consideration
of
the
sale
by
Anglo-Canadian
of
land
to
the
respondent,
the
construction
by
Anglo-
Canadian
of
the
pulp
and
steam
pipelines,
and
the
execution
by
Anglo-
Canadian
of
the
Pulp
Contract
and
the
Steam
Contract,
the
respondent
would
allot
and
issue
to
Anglo-Canadian
Class
“B”
shares
and
other
securities
to
an
amount
or
value
equal
to
twenty-five
percent
of
the
issued
and
outstanding
shares
and
other
securities
of
the
respondent.
In
accordance
with
this
provision
Anglo-Canadian
subscribed
for
and
was
allotted
and
issued
in
June
1953,
Class
B
shares
and
5%
notes
of
the
respondent
upon
the
following
terms:
THAT
the
subscription
of
Anglo-Canadian
Pulp
and
Paper
Mills
Limited
(hereinafter
called
“Anglo-Canadian”)
for
100,000
fully
paid
and
nonassessable
Class
“B”
Shares
without
nominal
or
par
value
of
the
capital
stock
of
the
Company
at
an
aggregate
price
of
$171,518.22
and
for
5%
Notes
of
the
Company
in
the
aggregate
principal
amount
of
$281,250,
the
whole
for
and
in
consideration
of
the
aggregate
sum
of
$452,768.22
made
up
as
follows:
(a)
The
sum
of
$150,922.74,
which
represents
cash
advances
already
made
by
Anglo-Canadian
to
the
Company,
and
(b)
The
sum
of
$301,845.48,
which
represents
the
value
of
(i)
the
land
in
the
City
of
Quebec
transferred
by
Anglo-Canadian
to
the
Company,
(ii)
the
agreement
made
by
Anglo-Canadian
to
complete,
at
its
expense,
the
construction,
before
the
Company’s
plant
is
ready
to
begin
operations,
of
underground
steam
and
pulp
pipelines
from
Anglo-Canadian's
plant
to
the
Company’s
plant,
both
in
the
City
of
Quebec,
subject
to
the
condition
that
the
cost
of
the
steam
pipeline
be
reimbursed
to
Anglo-
Canadian
by
the
Company,
and
(iii)
the
execution
by
Anglo-Canadian
of
the
Pulp
Contract
and
the
Steam
Contract
with
the
Company;
as
set
forth
in
the
Agreement
made
between
Anglo-Canadian
and
the
Company
on
the
25th
day
of
April,
1952;
be
and
it
is
hereby
accepted;
and
THAT
the
sum
of
$171,518.22
be
and
it
is
hereby
fixed
as
the
aggregate
price
or
consideration
for
the
allotment
and
issue
of
the
said
Class
“B”
ares
and;
THAT
the
said
land
transferred
by
Anglo-Canadian
to
the
Company
for
the
sum
of
$1.00
be
and
it
is
hereby
valued
at
$33,222;
and
THAT
the
said
agreement
made
by
Anglo-Canadian
to
complete
the
construction,
at
its
expense,
of
underground
steam
and
pulp
pipelines,
which
agreement
has
been
carried
out
by
Anglo-Canadian
and
the
execution
by
Anglo-Canadian
of
the
Pulp
Contract
and
the
Steam
Contract
with
the
Company
be
and
they
are
hereby
valued
at
$268,623.48;
The
Construction
Contract
provided
that
the
underground
pipelines
running
from
the
plant
of
Anglo-Canadian
to
the
plant
of
the
respondent
would
remain
the
property
of
Anglo-Canadian,
although
the
respondent
was
to
reimburse
Anglo-Canadian
for
the
cost
of
their
maintenance
and
repair.
The
contract
further
provided
that
the
respondent
was
to
reimburse
Anglo-Canadian
for
the
cost
of
construction
of
the
steam
pipeline
to
the
extent
of
advances
made
by
Anglo-
Canadian,
and
it
is
agreed
by
the
parties
that
the
full
cost
of
the
steam
pipeline
in
the
amount
of
$71,882
was
in
fact
reimbursed
by
the
respondent.
There
was
no
obligation
to
reimburse
Anglo-Canadian
for
the
cost
of
the
pulp
pipeline.
In
determining
the
cost
of
pulp
and
steam
for
purposes
of
the
pulp
and
steam
contracts
no
charge
was
to
be
included
by
Anglo-Canadian
for
depreciation
of
the
pipelines.
The
Pulp
Contract
has
an
initial
term
of
twenty
years,
and
is
automatically
renewable
for
successive
periods
of
five
years,
unless
terminated
by
either
party
upon
giving
at
least
five
years’
notice
to
take
effect
at
the
end
of
the
initial
period
or
a
subsequent
period
of
renewal.
The
comptroller
of
the
respondent
testified
that
the
Pulp
Contract
was
still
in
force,
having
been
automatically
renewed
at
the
end
of
the
initial
period.
Under
the
Pulp
Contract
Anglo-Canadian
undertakes
to
supply
all
the
pulp
requirements
of
the
respondent
up
to
a
maximum
of
12,000
tons
per
annum.
It
agrees
that
it
will
not,
without
the
prior
written
consent
of
the
respondent,
deliver
pulp
to
any
other
producer
of
glassine
or
grease-proof
papers
or
other
lightweight
specialty
papers.
The
respondent,
for
its
part,
agrees
that
it
will
not,
without
the
prior
written
consent
of
Anglo-Canadian,
use
the
pulp
delivered
to
it
by
Anglo-Canadian
for
the
manufacture
of
any
pulp
or
any
kind
or
variety
of
papers
other
than
glassine
and
grease-proof
papers
and
other
lightweight
speciality
papers.
The
central
provision
of
the
Pulp
Contract
is,
of
course,
the
clause
respecting
price,
which
provides,
in
effect,
that
the
price
to
the
respondent
will
be
the
prevailing
price
to
destinations
in
the
United
States
east
of
the
Mississippi
River
less
one
half
the
amount
of
freight
from
Anglo-Canadian’s
plant
in
Quebec
City
to
the
Deerfield
plant
in
Massachusetts.
Since
the
prevailing
price
includes
freight
to
destination,
the
essence
of
the
agreement
between
Anglo-Canadian
and
the
respondent
is
to
share
the
saving
in
freight
resulting
from
the
pipeline
supply
arrangement.
This
appears
to
have
been
the
principal
consideration
that
led
Deerfield
to
establish
a
Canadian
subsidiary
on
land
adjacent
to
the
Anglo-
Canadian
plant.
The
saving
in
the
cost
of
pulp
to
the
respondent
during
the
years
1955-1972
was
some
$802,000.
The
Steam
Contract
is
for
an
initial
period
of
five
years
and
is
automatically
renewable
for
successive
periods
of
one
year
unless
terminated
by
either
party
upon
two
years’
notice
given
at
any
time
after
the
first
three
years
of
the
contract.
The
evidence
in
the
Trial
Division
showed
that
the
steam
contract
was
still
in
force.
An
assured
supply
of
steam
is
essential
to
the
respondent
since
its
machinery
is
operated
by
steam
turbines.
The
respondent
set
up
what
it
obtained
for
the
sum
of
$268,623.48,
namely
the
construction
of
the
pipelines
and
the
execution
of
the
pulp
and
steam
contracts,
as
an
asset
on
its
financial
statements,
and
showed
the
annual
amortization
of
it
as
a
charge
against
income.
tt
was
shown
as
“Leasehold
improvements”
on
the
balance
sheet
and
other
documents
reflecting
the
assets
of
the
company
and
their
depreciation.
The
deductions
from
income
were
disallowed
by
the
appellant.
The
notices
of
reassessment
contained
the
following
notation:
Add:
Capital
cost
allowance
claimed
on
land
improvements
$10,744.94
In
its
Notice
of
Objection
the
respondent
indicated
its
reasons
for
objection
as
follows:
The
taxpayer
alleges
that
the
sum
of
$268,623.48
paid
to
Anglo
constitutes
the
cost
of
the
right
of
using
the
steam
and
slush
pulp
pipelines
and
was
therefore
a
leasehold
interest
on
which
deductions
could
be
claimed
under
the
provisions
of
subparagraph
(a)
of
paragraph
(1)
of
Section
11
of
the
Income
Tax
Act
of
Canada,
and
subparagraph
(b)
of
paragraph
(1)
of
Section
1100
of
the
Regulations,
AND
ALTERNATIVELY
constitutes
an
outlay
or
expense,
incurred
by
the
taxpayer
for
the
purpose
of
earning
income
from
its
business
and
as
such
deductible
under
the
provisions
of
subparagraph
(a)
of
paragraph
(1)
of
Section
12
of
the
Income
Tax
Act
of
Canada,
properly
amortized
over
the
lifetime
of
the
Pulp
and
Steam
Contracts
in
accordance
with
proper
accounting
practice
in
a
business
of
the
kind
with
which
the
taxpayer
is
concerned.
In
the
Trial
Division
the
respondent
made
three
alternative
submissions:
(a)
that
the
expenditure
of
$268,623.48
constituted
the
cost
of
the
right
to
use
the
steam
and
slush
pulp
pipelines
and
was
a
leasehold
inierest
on
which
capital
cost
allowance
could
be
claimed
under
paragraph
11
(1)(a)
of
the
Act
and
paragraph
1100(1)(b)
of
the
Regulations;
(b)
that
the
said
expenditure
constituted
money
paid
for
a
franchise
on
which
capital
cost
allowance
could
be
claimed
under
paragraph
11(1)(a)
of
the
Act
and
paragraph
1100(1)(c)
of
the
Regulations;
and
(c)
that
the
said
expenditure
was
an
outlay
or
expense
for
the
purpose
of
earning
income
from
its
business
and
not
an
outlay
or
payment
on
account
of
capital,
and
that
it
was
properly
amortized
for
purposes
of
deduction
from
annual
income
over
a
period
of
twenty-five
years,
being
the
Initial
term,
plus
one
renewal
period,
of
the
Pulp
Contract.
The
learned
trial
judge
held
that
the
contracts
did
not
give
the
respondent
a
leasehold
interest
in
the
pipelines
since
Anglo-Canadian
retained
the
possession
of
them
and
the
contracts
therefore
lacked
an
essential
element
of
a
contract
of
lease,
namely,
the
delivery
of
the
thing
leased
to
the
lessee
so
as
to
give
him
the
possession
or
enjoyment
of
it.
The
trial
judge
further
held
that
the
contracts
did
not
give
the
respondent
a
franchise
within
the
meaning
of
Class
14
of
Schedule
B
of
the
Regulations
since,
even
assuming
that
the
rights
acquired
by
the
respondent
could
be
considered
to
be
a
franchise,
they
were
not
a
franchise
for
a
limited
period
as
required
by
the
terms
of
Class
14.
Finally,
the
trial
judge
held
that
the
expenditure
in
question
was
an
expenditure
incurred
for
the
purpose
of
earning
income
from
the
business
of
the
taxpayer
within
the
meaning
of
paragraph
12(1)(a)
of
the
Act,
that
it
was
not
an
outlay
or
payment
on
account
of
capital
within
the
meaning
of
paragraph
12(1)(b),
and
that
it
was
properly
deductible
and
could
be
amortized
for
such
purposes,
in
accordance
with
proper
accounting
practices
and
principles,
over
a
twenty-five
year
period.
The
reasoning
of
the
learned
trial
judge
in
support
of
this
conclusion
was
that
the
advantage
which
the
taxpayer
obtained
by
the
expenditure
in
question
was
not
one
for
the
“enduring
benefit”
of
its
trade,
within
the
meaning
of
the
well-known
dictum
of
Viscount
Cave,
LC
in
British
Insulated
and
Helsby
Cables,
Limited
v
Atherton,
[1926]
AC
205,
at
213-14,
which
reads:
.
.
.
But
when
an
expenditure
is
made,
not
only
once
and
for
all,
but
with
a
view
to
bringing
into
existence
an
asset
or
an
advantage
for
the
enduring
benefit
of
a
trade,
I
think
that
there
is
very
good
reason
(in
the
absence
of
special
circumstances
leading
to
an
opposite
conclusion)
for
treating
such
an
expenditure
as
properly
attributable
not
to
revenue
but
to
capital.
The
trial
judge
held
that
“enduring”
meant
“permanent”,
and
that
since
the
Pulp
Contract
and
the
Steam
Contract
were
for
fixed
terms
and
terminable
by
Anglo-Canadian
upon
giving
the
required
notice
they
could
not
be
said
to
confer
enduring
benefits.
He
relied
on
the
decision
in
Anglo-Persian
Oil
Company,
Limited
v
Dale,
[1932]
1
KB
124,
as
reflecting
principles
or
considerations
that
covered
the
facts
of
the
present
case,
and
concluded
that
like
the
payment
made
in
that
case
for
the
cancellation
of
an
onerous
agency
agreement,
the
expenditure
in
question
here
was
made
for
the
purpose
of
reducing
the
taxpayer’s
operating
expenses
and
did
not
make
any
addition
to
its
fixed
capital.
The
trial
judge
held
that
the
expenditure
could
be
amortized
over
a
twenty-five
year
period
in
accordance
with
the
‘‘matching
principle”
allowed
in
MNR
v
Tower
Investment
Inc,
[1972]
CTC
182;
72
DTC
6161.
It
has
been
said
on
the
highest
authority
that
there
is
no
single,
clear
test
for
determining
whether
a
particular
expenditure
is
to
be
considered
an
income
expenditure
or
a
capital
expenditure,
and
that
the
decisions
afford
at
most
a
series
of
illustrations
indicative
of
the
various
factors
to
be
considered
and
on
which
a
court
must
in
the
final
analysis
exercise
a
commonsense
judicial
judgment
in
the
light
of
the
particular
circumstances
of
each
case.
See
BP
Australia
Ltd
v
Commissioner
of
Taxation
of
the
Commonwealth
of
Australia,
[1966]
AC
224
at
264;
Regent
Oil
Co
Ltd
v
Strick
(Inspector
of
Taxes),
[1966]
AC
295
at
312-13;
MNR
v
Algoma
Central
Railway,
[1968]
SCR
447
at
449;
[1968]
CTC
161;
68
DTC
5096.
A
number
of
criteria
or
expressions
of
the
essential
distinctions
have
been
suggested
as
working
approaches
in
the
cases.
The
one
most
frequently
referred
to
and,
indeed,
the
one
treated
in
many
of
the
decisions
as
the
authoritative
test
is
the
concept
of
“an
asset
or
an
advantage
for
the
enduring
benefit”
of
the
trade
of
the
taxpayer,
expressed
by
Lord
Cave
in
British
Insulated
and
Helsby
Cables,
Limited
v
Atherton
(supra).
Then
there
is
the
distinction
between
an
expenditure
for
the
establishment
or
enlargement
of
the
profit-making
structure
or
organization
of
a
company
and
an
expenditure
incurred
in
the
operation
of
that
structure
or
organization.
See
Van
den
Berghs
Ltd
v
Clark,
[1935]
AC
431
at
442-3;
Sun
Newspapers
Limited
v
The
Federal
Commissioner
of
Taxation
(1938),
61
CLR
337
at
359-361;
Halistroms
Proprietary
Limited
v
The
Federal
Commissioner
of
Taxation
(1946),
72
CLR
634
at
646-7;
Canada
Starch
Company
Limited
v
MNR,
[1968]
CTC
466
at
471;
68
DTC
5320
at
5323.
Emphasis
has
also
been
placed
on
the
distinction
between
fixed
capital
and
circulating
capital:
Anglo-Persian
Oil
Company,
Limited
v
Dale,
[1932]
1
KB
124
at
138.
There
has
been
approval
of
the
following
formulation
of
the
essential
considerations
by
Dixon,
J
(as
he
then
was)
in
the
Sun
Newspapers
case
(supra)
at
page
363:
There
are,
I
think,
three
matters
to
be
considered,
(a)
the
character
of
the
advantage
sought,
and
in
this
its
lasting
qualities
may
play
a
part,
(b)
the
manner
in
which
it
is
to
be
used,
relied
upon
or
enjoyed,
and
in
this
and
under
the
former
head
recurrence
may
play
its
part,
and
(c)
the
means
adopted
to
obtain
it;
that
is,
by
providing
a
periodical
reward
or
outlay
to
cover
its
use
or
enjoyment
for
periods
commensurate
with
the
payment
or
by
making
a
final
provision
or
payment
so
as
to
secure
future
use
or
enjoyment.
There
has,
however,
been
a
certain
amount
of
judicial
skepticism
expressed
from
time
to
time
with
respect
to
the
suggested
criteria,
and
there
has
been
an
increasing
disposition
to
emphasize
the
approach
suggested
by
Dixon,
J
himself
in
the
Halistroms
case
(supra)
when
he
said
that
the
distinction
between
income
expenditure
and
capital
expenditure
must
depend
upon
.
what
the
expenditure
is
calculated
to
effect
from
a
practical
and
business
point
of
view,
rather
than
upon
the
iuristic
classification
of
the
legal
rights,
if
any,
secured,
employed
or
exhausted
in
the
process”.
This
approach
has
been
characterized
as
a
search
for
the
business
or
commercial
reality
of
what
was
sought
by
the
expenditure:
Bowater
Power
Company
Limited
v
MNR,
[1971]
CTC
818
at
837;
71
DTC
5469
at
5480-81;
Pigoit
Investments
Limited
v
The
Queen,
[1973]
CTC
693
at
702:
73
DTC
5507
at
5514;
R
v
F
H
Jones
Tobacco
Sales
Co
Ltd,
[1973]
CTC
784
at
791;
73
DTC
5577
at
5581.
What
the
respondent
obtained
by
the
expenditure
in
this
case
was
the
construction
by
Anglo-Canadian
of
underground
pipelines
for
the
delivery
of
pulp
and
steam
from
its
plant
to
that
of
the
respondent
and
the
execution
by
Anglo-Canadian
of
long-term
contracts
for
the
supply
of
pulp
and
steam
to
the
respondent.
The
appellant
contends
that
what
the
respondent
thus
obtained
was
an
assured
means
of
supplying
itself
with
pulp
and
steam,
and
that
this
was
an
advantage
of
enduring
benefit
to
its
business.
It
is
said
that
the
expenditure
was
part
and
parcel
of
the
fundamental
financial
arrangements
—
the
basic
capital
transactions
—
by
which
the
respondent
was
established,
and
that
the
Construction
Contract,
the
Pulp
Contract,
and
the
Steam
Contract
constituted
the
basis
on
which
it
was
to
operate.
The
respondent
contends
that
the
expenditure
was
part
of
the
cost
of
obtaining
pulp
and
steam,
an
advance
or
“front-end”
payment
that
must
be
included
in
operating
costs.
Alternatively,
the
respondent
contends
that
if
the
expenditure
be
regarded
as
an
outlay
of
capital.
what
was
obtained
by
it
was
a
franchise
for
which
capital
cost
allow-
ance
may
be
taken.
In
this
Court
the
respondent
abandoned
the
contention
that
it
obtained
a
leasehold
interest.
There
are,
therefore,
two
aspects
to
the
consideration
for
which
the
respondent
paid
$268,623.48
in
the
form
of
Class
B
shares
and
5%
notes:
the
pipelines
and
the
supply
contracts.
Obviously,
they
are
closely
related;
the
one
would
not
exist
without
the
other.
Together
they
constitute
a
special
arrangement
or
system
for
the
long-term
supply
of
pulp
and
steam
upon:
particularly
favourable
conditions.
Anglo-Canadian
remains
owner
of
the
pipelines
and
retains
full
possession
and
control
of
them.
As
such,
they
are
assets
of
Anglo-
Canadian
and
not
of
the
respondent.
The
respondent
has
no
right
to
them
whatever.
It
was
obliged
to
reimburse
Anglo-Canadian
for
the
cost
of
the
steam
pipeline
and
for
the
maintenance
and
repair
of
both
pipelines,
but
it
has
acquired
no
interest
in
them.
At
the
same
time
the
pipelines
exist
for
the
exclusive
purpose
of
delivering
pulp
and
steam
to
the
respondent.
Although
the
respondent
enjoys
no
right
of
property
in.
them
they
afford
it
a
direct,
immediate
physical
access
to
its
source
of
supply
of
pulp
and
steam
which
undoubtedly
carries
with
it
particular
advantages.
It
may
be
assumed,
for
example,
that
such
physical
access
assures
ready
and
rapid
supply
with
close
control
over
delivery
problems.
Can
this
access
to
the
pipelines
be
considered
to
be
an
advantage
of
enduring
benefit
to
the
business
of
the
respondent,
within
the
meaning
of
Lord
Cave’s
dictum?
For
a
time
I
was
much
impressed
with
the
possibility
that
it
could.
Upon
further
consideration,
however,
I
am
of
the
opinion
that
the
access
to
the
pipelines
is
indistinguishable
in
its
essential
nature
from
the
advantage
which
any
customer
may
be
said
to
derive
from
the
means
by
which
his
supplier
makes
delivery
to
him.
The
physical
assets
of
a
supplier
cannot
be
said
to
be
an
advantage
of
enduring
benefit
to
the
business
of
its
customer,
for
purposes
of
income
tax,
merely
because
they
are
essential
to
the
maintenance
of
supply.
lt
is
true
that
what
was
obtained
by
the
expenditure
in
this
case
was
indicated
on
the
financial
statements
of
the
respondent
as
an
asset
under
the
designation
“Leasehold
Improvements”,
but
that
does
not,
as
I
see
it,
prevent
the
respondent
from
adopting
the
alternative
position
that
it
adopted
in
its
Notice
of
Objection
to
the
assessments
and
before
this
Court,
that
the
expenditure
was
an
income
expenditure
that
could
be
spread
over
twenty-five
years.
The
manner
in
which
the
respondent
amortized
the
expenditure
and
charged
it
against
income
in
each
of
the
taxation
years
in
question
was
consistent
with
this
alternative
position.
The
character
of
this
expenditure
or
what
was
obtained
for
it
is
to
be
determined
by
reference
to
the
applicable
agreements
and
the
terms
upon
which
the
Class
B
shares
and
5%
notes
were
allotted
and
issued,
and
not
by
subsequent
designations
of
it
on
the
financial
statements
of
the
respondent.
I
agree
with
the
conclusion
of
the
trial
judge
that
the
agreements,
in
so
far
as
the
pipelines
are
concerned,
lack
an
essential
requirement
or
characteristic
of
the
civil
law
contract
of
lease,
namely,
the
obligation
to
deliver
the
thing
so
as
to
afford
a
peaceable
enjoyment
of
it;
and,
indeed,
in
this
Court,
the
respondent
abandoned
the
contention
that
it
had
obtained
a
leasehold
interest.
I
do
not
think
that
a
mistaken
legal
characterization
in
the
respondent’s
financial
statements
should
prevent
it
taking
the
alternative
position
as
to
the
nature
of
the
expenditure.
Further,
it
is
clear,
I
think,
that
the
operation
by
Anglo-
Canadian
of
the
pipelines
for
the
exclusive
purpose
of
delivering
pulp
and
steam
to
the
respondent
cannot
be
said
to
be
a
franchise.
obtained
by
the
respondent
.Even
if
the
term
“franchise”
were
appropriate
to
designate
an
exclusive
right
to
use
pipelines,
the
respondent
has
not
been
given
such
a
right.
Anglo-Canadian
has
the
use
of
the
pipelines
to
deliver
pulp
and
steam
to
the
respondent;
whatever
advantage
this
confers
on
the
respondent,
it
is
not
one
that
is
subject
to
capital
cost
allowance.
The
elusive
character
of
this
advantage,
viewed
from
the
point
of
view
of
capital,
reinforces
my
conviction
that
the
expenditure
should
be
regarded,
in
so
far
as
the
pipelines
are
concerned,
not
as
an
outlay
of
capital
but
as
an
operating
cost
of
obtaining
pulp
and
steam.
In
so
far
as
the
expenditure
was
made
for
the
execution
by
Anglo-
Canadian
of
the
Pulp
Contract
and
the
Steam
Contract,
can
it
be
said
to
have
created
an
advantage
of
enduring
benefit
to
the
business
of
the
respondent,
within
the
meaning
of
Lord
Cave’s
dictum?
There
would
appear
to
be
little
or
no
direct
authority
on
the
nature
of
a
lump
sum
payment
to
obtain
a
supply
contract.
In
John
Smith
and
Son
v
Moore,
[1921]
2
AC
13,
a
taxpayer
who
had
acquired
the
coal
merchant’s
business
of
his
father
attempted
unsuccessfully
to
deduct
in
the
determination
of
profits
an
amount
of
£30,000
which
was
the
value
that
had
been
placed
in
the
acquisition
on
certain
short-term
contracts
with
collieries
for
the
supply
of
coal
to
the
business.
The
son
had
not
actually
disbursed
this
sum
but
had
paid
something
less
as
the
net
value
of
the
business
as
a
whole.
A
majority
in
the
House
of
Lords
held
that
the
sum
of
£30,000
was
not
a
permissible
deduction
for
the
purpose
of
determining
profits.
Two
of
the
members
of
the
majority,
Lord
Haldane
and
Lord
Sumner,
held
that
it
was
in
the
nature
of
a
capital
expenditure—a
sum
to
be
employed
in
fixed
capital.
The
third
member
of
the
majority,
Lord
Cave,
rested
his
conclusion
on
the
view
that
the
business
was
a
continuing
one,
and
that
the
expenditure
for
the
supply
contracts
was
not
made
by
the
business
for
its
trading
purposes
but
by
the
son
out
of
his
own
pocket.
It
was
a
payment
that
could
have
no
bearing
on
the
profits
of
the
continuing
business.
Viscount
Finlay,
dissenting,
held
that
the
sum
in
question
was
a
payment
for
coal.
There
has
been
considerable
judicial
commentary
on
the
Smith
case,
but
the
general
conclusion
would
appear
to
be
that
in
view
of
its
very
special
facts
and
the
differing
reasons
for
the
majority
opinions
there
is
little,
if
anything,
in
the
way
of
general
principle
to
be
drawn
from
it.
See
Commissioner
of
Taxes
v
Nchanga
Consolidated
Copper
Mines
Ltd,
[1964]
AC
948
at
962-4;
BP
Australia
Ltd
v
Commissioner
of
Taxation
of
the
Commonwealth
of
Australia,
[1966]
AC
224
at
268-9;
Regent
Oil
Co
Ltd
v
Strick
(Inspector
of
Taxes),
[1966]
AC
295
at
322-
3
and
353.
It
cannot
be
said
to
be
authority
for
the
proposition
that
a
lump
sum
payment
made
to
a
supplier
to
obtain
a
supply
contract
is
to
be
considered
a
capital
expenditure.
As
Lord
Pearce
put
it
in
the
BP
Australia
case
(supra)
at
page
269:
“One
certainly
cannot
deduce
that
the
result
would
have
been
the
same
if
the
son
had
paid
£30,000
to
the
collieries
for
the
contracts.”
In
my
opinion
a
supply
contract,
whatever
its
term
and
however
advantageous
it
may
be,
is
not
an
asset
or
advantage
in
the
nature
of
fixed
capital.
It
cannot
be
considered
in
any
sense
a
part
of
the
profitmaking
structure
or
organization
of
an
enterprise.
It
is
not
productive
or
generative
or
distributive
of
anything.
It
is
what
is
supplied
under
it
that
is
used
to
make
profit.
The
contract
is
simply
evidence
of
legal
obligations
with
respect
to
operating
transactions.
No
doubt
it
is
a
thing
of
value
to
the
enterprise
but
that
does
not
mean
that
it
has
the
value
of
fixed
capital.
Its
value
is
reflected
by
and
is
of
the
same
nature
as
that
which
is
to
be
supplied
under
it.
In
my
view
a
payment
for
the
contract
must
be
considered
to
be
a
payment
for
the
supply.
The
appellant
relied
particularly
on
the
decision
in
Hood
Barrs
v
Inland
Revenue
Commissioners,
[1957]
1
All
ER
832,
as
indicating
that
a
lump
sum
payment
to
obtain
a
means
of
supplying
oneself
with
raw
material
or
stock-in-trade
is
a
capital
expenditure.
In
that
case
payments
were
made
for
the
right
to
cut
large
quantities
of
standing
timber.
It
was
held
by
a
majority
in
the
House
of
Lords
that
they
were
capital
expenditures.
The
taxpayer
had
not
purchased
stock-in-trade
but
a
means
by
which
he
could
obtain
stock-in-trade.
Lord
Keith
of
Avonholm
said:
.
.
.
I
find
it
impossible
to
hold
that
this
very
peculiar
right
is
capable
of
being
treated
as
stock-in-trade
of
the
appellant.
The
nature
of
the
right,
the
indefiniteness
of
the
period
for
its
exercise,
and
the
lack
of
identification
of
the
trees
on
which
the
right
was
to
be
exercised,
to
which
may
be
added
the
size
of
the
transaction
and
the
absence
of
any
evidence
of
intention
or
means
to
complete
it
within
any
foreseeable
time,
all,
in
my
opinion,
negative
the
idea
that
the
appellant
had
anything
that
could
be
called
stock-in-trade.
In
my
opinion,
what
the
appellant
acquired
here
was
merely
a
right
to
go
on
to
the
company’s
land
to
mark,
cut
and
carry
away
such
trees,
up
to
a
specified
number,
as
fell
within
the
size
and
description
mentioned
in
the
agreements.
The
money
paid
for
this
right
was,
in
my
opinion,
a
capital
and
not
a
revenue
expenditure.
Their
lordships
referred
with
approval
to
the
decision
in
the
similar
case
of
Stow
Bardolph
Gravel
Co
Ltd
v
Poole,
[1954]
3
All
ER
637,
in
which
it
was
held
that
payments
made
for
deposits
from
which
the
taxpayers
excavated
sand
and
gravel
for
sale
in
their
business
were
capital
expenditures.
In
my
opinion
the
rights
which
were
obtained
by
the
expenditures
in
these
cases
are
not
truly
analogous
to
the
supply
contracts
in
the
present
case,
or
to
the
whole
supply
arrangement,
including
the
physical
means
of
delivery
provided
by
the
pipelines.
By
virtue
of
the
supply
contracts
and
by
means
of
the
pipelines
the
respondent
is
supplied
directly
with
pulp
and
steam
without
the
necessity
of
any
intervening
productive
or
extractive
activity
on
its
part,
such
as
was
involved
in
the
exercise
of
the
right
to
cut
timber
or
to
excavate
sand
and
gravel.
Whether
the
rights
in
these
cases
be
regarded
as
an
interest
in
land
or
otherwise
they
are
clearly
different
in
their
essential
nature
from
the
rights
which
the
respondent
enjoys
under
the
pulp
and
steam
contracts.
Counsel
for
the
appellant
laid
great
stress
on
the
contention
that,
to
use
his
words,
the
expenditure
was
part
and
parcel
of
the
fundamental
financing
arrangements,
the
basic
capital
transactions,
by
which
the
respondent
was
established.
The
expenditure
was
incurred
before
the
respondent
commenced
manufacturing,
as
part
of
the
contractual
and
financial
arrangements
by
which
it
was
established,
but
this
is
not,
in
my
opinion,
conclusive
that
it
was
a
capital
rather
than
an
income
expenditure.
Entering
into
supply
contracts
is
a
necessary
part
of
the
operations
of
a
company,
and
if
the
expenditure
was
a
special
lump
sum
payment
in
advance
to
obtain
raw
material
and
power,
as
I
think
it
was,
it
would
be
an
income
expenditure
although
incurred
at
the
time
the
company
was
organized.
Operating
expenses
may
be
incurred
contemporaneously
with
organizational
and
capital
expenses.
Considerable
emphasis
was
placed
on
the
form
in
which
Anglo-Canadian
took
payment,
namely,
Class
B
shares
and
5%
notes,
in
accordance
with
the
provision
in
the
Main
Agreement
that
it
would
hold
at
least
twenty-five
per
cent
of
the
outstanding
shares
and
other
securities
of
the
respondent
with
a
right
to
representation
on
its
board
of
directors.
Obviously,
it
is
not
because
a
payment
takes
the
form
of
shares
or
other
securities
of
a
company
that
it
is
to
be
considered
a
capital
expenditure;
payment
may
be
made
in
such
a
form
to
meet
an
income
expenditure.
It
is
argued,
however,
from
the
manner
in
which
the
amount
of
the
expenditure
was
determined
and
related
to
the
financing
operations
by
which
the
respondent
was
established
that
the
expenditure
bore
no
relationship
to
the
cost
of
pulp
and
steam.
As
it
was
put
by
counsel,
the
expenditure
was
not
referable
to
units
of
pulp
and
steam.
It
is
not
necessary,
In
my
opinion,
in
order
for
the
expenditure
as
a
whole
to
be
regarded
as
a
payment
for
pulp
and
steam
that
it
be
clearly
applicable
in
certain
proportions
to
the
price
to
be
paid
for
units
of
pulp
and
steam.
It
need
not
be
a
prepayment,
in
the
strict
sense,
to
be
considered
as
part
of
the
operating
cost
of
obtaining
pulp
and
steam
.
While
I
arrive
at
the
same
conclusion
as
the
learned
trial
iudae
I
do
so
for
somewhat
different
reasons.
As
I
see
it,
the
expenditure
was
simply
part
of
the
operating
cost
to
the
respondent
of
obtaining
a
supply
of
pulp
and
steam
and
did
not
obtain
for
it
anything
that
can
be
regarded
as
an
asset
or
advantage
in
the
nature
of
fixed
capital.
I
would
not
rest
this
conclusion
on
the
meaning
to
be
given
to
the
term
“enduring”
in
the
dictum
of
Viscount
Cave
nor
on
the
idea
that
the
purpose
of
the
expenditure
was
to
reduce
operating
expenses.
If
a
supply
contract
could
be
considered
to
be
an
advantage
in
the
nature
of
fixed
capital,
I
would
be
disposed
to
hold
that
the
contracts
in
this
case
were
sufficiently
lasting
to
be
treated
as
of
enduring
benefit.
The
life
of
every
asset
has
some
limit.
The
broad
distinction
is
between
what
is
intended
to
be
kept
for
its
entire
life
and
that
which
is
to
be
turned
over.
Nor
do
I
think
the
fact
that
an
expenditure
is
intended
to
reduce
operating
expenses
is
conclusive
that
it
is
an
income
expenditure.
One
of
the
purposes
of
many,
if
not
most,
expenditures
in
the
form
of
fixed
capital
is
to
reduce
operating
expenses.
Certain
locations
and
designs
of
plant
and
certain
kinds
of
manufacturing
machinery
and
process
are
adopted
in
order
to
effect
operating
economies.
The
whole
purpose
of
capital
expenditure
is
to
achieve
a
profitable
cost
of
operation.
There
remains
the
question
of
whether
the
expenditure
may
be
spread
over
a
period
of
twenty-five
years
and
deducted
in
the
proportion
of
1/25,
or
$10,744.94,
as
the
respondent
has
done,
in
each
of
the
taxation
years
in
question.
The
proper
treatment
of
income
and
expense
in
determining
profits
for
income
tax
purposes,
so
as
accurately
to
reflect
the
true
income
position
of
the
taxpayer,
is
a
question
of
law
for
determination
by
a
court,
having
regard
to
evidence
of
accepted
accounting
practice
and
principles.
Accounting
practice
does
not
by
itself
automatically
determine
the
issue.
If
it
is
to
be
adopted
in
a
particular
case
as
the
rule
for
income
tax
purposes
it
must
not
be
in
conflict
with
the
provisions
of
the
Income
Tax
Act,
however
prudent
or
reasonable
it
may
appear
to
be
from
a
business
point
of
view:
MNR
v
Anaconda
American
Brass
Lid,
[1956]
AC
85;
[1955]
CTC
311;
55
DTC
1220.
The
only
evidence
in
the
present
case.
of
accepted
or
proper
accounting
practice
was
that
of
an
accountant
in
the
respondent’s
firm
of
auditors.
The
essentials
of
his
opinion
as
to
the
proper
treatment
of
the
expenditure
are
contained
in
the
following
passages
of
an
affidavit
which
were
read
into
the
record
and
on
which
he
was
cross-examined
by
counsel
for
the
appellant:
On
the
assumption
that
such
sum
constitutes
an
expenditure
properly
deductible
in
determining
the
income
of
Canadian
Glassine
Co
Ltd,
it
is
my
opinion
that
in
accordance
with
proper
accounting
practices
and
principles
such
sum
should
be
amortized
or
written
off
over
a
reasonable
period
of
years.
My
opinion
is
based
on
the
fact
that
revenues
are
normally
matched
with
expenditures.
This
expenditure
has
permitted
the
company
to
reduce
their
cost
of
production
in
each
subsequent
year.
Therefore,
this
amount
of
$268,623.48
is
properly
amortized
over
such
reasonable
period
of
years.
In
view
of
the
fact
that
the
contractual
arrangements
between
the
companies
for
the
supply
of
pulp
extend
for
a
period
of
20
years,
renewable
In
5
year
periods,
unless
appropriate
notice
of
termination
is
given,
it
Is
my
opinion
that
in
these
circumstances
a
reasonable
period
for
such
amortization
would
be
a
term
of
25
years.
This
uncontradicted
evidence
must
be
taken
to
establish
the
fact
of
accepted
accounting
practice
in
a
case
such
as
this.
The
question
is
whether
such
practice
is
permitted
by
the
Income
Tax
Act.
On
this
question
the
learned
trial
judge
relied
on
the
judgment
in
MNR
v
Tower
Investment
Inc,
[1972]
CTC
182;
72
DTC
6161,
in
which
after
a
review
of
the
pertinent
decisions,
Collier,
J
came
to
the
conclusion
that
the
“matching
principle”
was
proper
in
that
case,
as
reflecting
the
true
income
position
of
the
taxpayer,
and
was
not
prohibited
by
the
Act.
The
question
is
whether
we
are
to
infer
from
the
terms
of
paragraph
12(1)(a)
of
the
Income
Tax
Act
that
is
applicable
in
the
present
case—“In
computing
income,
no
deduction
shall
be
made
in
respect
of
an
outlay
or
expense
except
to
the
extent
that
it
was
made
or
incurred
by
the
taxpayer
for
the
purpose
of
gaining
or
producing
income
from
property
or
a
business
of
the
taxpayer”—that
an
expenditure
must
be
wholly
deducted
from
income
in
the
year
in
which
it
was
made
or
incurred.
In
Rossmor
Auto
Supply
Limited
v
MNR,
[1962]
CTC
123;
62
DTC
1080
at
126
[1082]
Thorson,
P
expressed
the
following
opinion
on
this
point:
As
I
view
Section
12(1)(a),
the
outlay
or
expense
that
may
be
deducted
in
computing
the
taxpayer’s
income
for
the
year,
namely,
an
outlay
or
expense
made
or
incurred
by
the
taxpayer
for
the
purpose
of
gaining
or
producing
income
from
property
or
a
business
of
the
taxpayer
is
limited
to
an
outlay
or
expense
that
was
made
or
incurred
by
the
taxpayer
in
the
year
for
which
the
taxpayer
is
assessed.
The
learned
President
referred
to
his
earlier
opinion
in
Consolidated
Textiles
Limited
v
MNR,
[1947]
Ex
CR
77
at
82;
[1947]
CTC
63
at
69;
3
DTC
958,
to
the
same
effect,
with
reference
to
paragraph
6(a)
of
the
Income
[War]
Tax
Act,
RSC
1927,
c
97,
in
which
he
said:
In
my
opinion,
section
6(a)
excludes
the
deduction
of
disbursements
or
expenses
that
were
not
laid
out
or
expended
in
or
during
the
taxation
year
in
respect
of
which
the
assessment
is
made.
This
is,
I
think,
wholly
in
accord
with
the
general
scheme
of
the
Act,
dealing
as
it
does
with
each
taxation
year
from
the
point
of
view
of
the
incoming
receipts
and
outgoing
expenditures
of
such
year
and
by
the
deduction
of
the
latter
from
the
former
with
a
view
to
reaching
the
net
profit
or
gain
or
gratuity
directly
or
indirectly
received
in
or
during
such
year
as
the
taxable
income
of
such
year.
In
Associated
Investors
of
Canada
Limited
v
MNR,
[1967]
CTC
138;
67
DTC
5096,
at
142
[5098]
(note),
Jackett,
P
expressed
the
opinion
that
the
principle
affirmed
by
Thorson,
P
was
not
“applicable
in
all
circumstances”,
and
that
“there
are
many
types
of
expenses
that
are
deductible
in
computing
profit
for
the
year
‘in
respect
of’
which
they
were
paid
or
payable.”
In
the
Tower
Investment
case
Collier,
J
concluded:
“In
my
view,
the
distinctions
made
by
Jackett,
P
are
applicable
in
a
case
such
as
this.
The
advertising
expenses
laid
out
here
were
not
current
expenditures
in
the
normal
sense.
They
were
laid
out
to
bring
in
income
not
only
for
the
year
they
were
made
but
for
future
years.”
I
agree
with
the
learned
trial
judge
that
this
conclusion
is
equally
applicable
to
the
expenditure
in
this
case.
The
opinion
of
Thorson,
P
is
not
a
conclusion
that
is
dictated
by
the
terms
of
paragraph
12(1)(a)
but
a
principle
deduced
from
“the
general
scheme
of
the
Act”,
and
as
such
it
should
be
subject
to
necessary
qualification
for
cases
such
as
the
present
one
in
which
its
application
would
seriously
distort
rather
than
fairly
and
reasonably
reflect
the
taxpayer’s
position
with
respect
to
income
and
expenditure.
Indeed,
in
this
Court
counsel
for
the
appellant
did
not
dispute
the
right
to
apply
the
“matching
principle”
to
the
present
case,
assuming
that
the
expenditure
was
found
to
be
one
that
was
deductible
in
determining
income.
He
merely
contended
that
it
was
not
appropriate
to
apportion
the
whole
of
the
expenditure
over
the
life
of
the
Pulp
Contract
since
some
part
of
it
must
be
attributable
to
the
cost
of
steam.
In
view
of
the
fact
that
the
expenditure
was
for
pulp
and
steam,
without
any
indication
of
the
proportions
to
be
assigned
to
each,
and
that
both
the
pulp
and
steam
contracts
have
remained
in
force
beyond
the
initial
period
of
twenty
years,
as
might
have
been
expected
at
the
time
they
were
entered
into,
I
am
of
the
opinion
that
it
was
not
unreasonable
to
apportion
the
expenditure
as
a
whole
over
a
period
of
twenty-five
years.
I
would
dismiss
the
appeal
with
costs.
Kerr,
DJ
(concurring):—The
facts
and
issues,
and
numerous
decisions
that
enunciate
various
indicia
and
tests,
are
sufficiently
set
forth
in
the
Reasons
for
Judgment
of
LeDain,
J,
which
I
have
had
the
advantage
of
considering.
I
have
also
had
a
like
advantage
of
considering
the
Reasons
for
Judgment
of
Pratte,
J.
The
case,
as
I
see
it,
is
not
easy
to
decide,
for
there
is
an
unusual
combination
of
features
to
be
considered.
Some
point
one
way,
some
another
way.
They
are
dealt
with
extensively
in
the
Reasons
for
Judgment
of
my
fellow
judges
in
this
appeal,
and
I
will
comment
briefly
on
several
of
them.
The
Pulp
Contract
provides
expressly
for
the
price
payable
for
the
pulp
and
for
payment
thereof.
The
price
includes
in
its
make-up
the
announced
price
from
time
to
time
of
similar
pulp
for
the
time
being
in
effect
,as
set
forth
in
paragraph
5
of
that
contract.
It
seems
to
me
that
payments
for
the
pulp
delivered
to
the
respondent
were
made
in
the
normal
course
of
the
operation
of
its
business
and
at
the
agreed
price
pursuant
to
that
contract,
and
that
no
part
of
the
$268,624.48
here
in
question
was
expended
to
make
such
payments.
The
Steam
Contract
also
provides
expressly
for
the
price
payable
for
the
steam
and
for
payment
thereof.
No
part
of
the
$268,624.48
was
expended
to
make
such
payments.
The
respondent
never
owned
the
pulp
and
steam
pipelines,
the
construction
of
which
was
to
be
completed
by
Anglo-Canadian
pursuant
to
the
Construction
Contract,
and
the
pipelines
never
became
fixed
physical
assets
owned
by
the
respondent.
However,
by
that
contract
Anglo-Canadian
obligated
itself
to
complete
the
construction
of
the
pipelines,
and
the
respondent
had
a
right
to
compel
Anglo-
Canadian
to
perform
its
obligation
in
that
respect.
In
the
Agreement
of
Facts
in
this
appeal
it
is
stated
that
the
$268,624.48
represents
the
value
of
the
agreement
by
Anglo-Canadian
to
complete
the
construction
of
the
pipelines
and
the
execution
by
it
of
the
Pulp
Contract
and
the
Steam
Contract.
Whether
that
expenditure
is
regarded
as
being
in
reality
payment
for
the
construction
of
the
pipelines
or
as
representing
the
value
of
Anglo-Canadian’s
agreement
to
complete
the
pipelines
and
its
execution
of
the
Pulp
Contract
and
the
Steam
Contract,
I
do
not
think
that
in
the
circumstances
the
fact
that
the
pipelines
were
not
owned
by
the
respondent
is
a
strong
indication
that
the
expenditure
was
not
of
a
capital
nature.
I
agree
substantially
with
the
conclusions
of
Pratte,
J.
In
my
view,
the
expenditure
in
question
was
made
once
and
for
all
and
with
a
view
to
obtain
for
the
respondent
advantages
for
the
long-term
benefit
of
its
trade
and
business.
Also,
from
the
overall
concept
and
planning
indicated
in
the
Main
Agreement
between
Deerfield
Glassine
Company
Inc
and
Anglo-Canadian
and
the
subsequent
agreements
and
events,
I
think
that
an
inference
may
reasonably
be
drawn
that
the
expenditure
was
made
for
the
establishment
of
the
profit-making
structure
of
the
respondent’s
trade.
Upon
considering
and
weighing
all
the
facts
and
the
circumstances
in
which
the
expenditure
was
made,
I
find
that
the
scales
incline
in
favour
of
the
expenditure
being
an
outlay
of
capital
within
the
meaning
of
those
words
inparagraph
12(1)(b)
of
the
Income
Tax
Act;
and
I
do
not
find
anything
in
that
Act
that
would
allow
all
or
any
part
of
the
expenditure
to
be
deducted
in
computing
the
income
of
the
respondent
for
income
tax
purposes.
Therefore,
I
would
allow
the
appeal
with
costs.
Re
McCreath
Ontario
High
Court
of
Justice
(Fraser,
J),
January
3,
1973,
on
appeal
from
statements
of
succession
duty
served
on
behalf
of
the
Minister
of
Revenue
for
Ontario.
For
Headnote
and
Cases
referred
to
see
judgment
of
the
Supreme
Court
of
Canada
(p
178).
Fraser,
J:—These
are
appeals
under
section
34
of
The
Succession
Duty
Act,
RSO
1960,
c
386,
as
amended
[1970,
c
51,
s
23;
now
RSO
1970,
c
449,
s
33],
to
which
I
will
refer
as
the
Act,
from
statements
of
succession
duty
served
on
behalf
of
the
Minister
of
Revenue
for
Ontario
on
the
appellants.
Myrtle
Louise
McCreath,
to
whom
I
will
refer
as
the
deceased,
died
domiciled
in
Ontario
on
May
21,
1968.
Probate
of
her
last
will
and
testament
with
codicils
thereto
(Exhibit
1
herein)
was
issued
out
of
the
Surrogate
Court
of
the
County
of
York
on
November
14,
1968.
The
appellant
herein
is
James
Scott
McCreath,
a
son
of
the
deceased,
born
June
8,
1948.
In
addition
to
James
Scott
McCreath,
similar
appeals
have
been
made
by
Martin
R
McCreath—son—born
December
8,
1950.
Paul
C
McCreath—son—born
June
1,
1955.
Michelle
A
McCreath—daughter—born
October
17,
1960.
Ralph
Scott
McCreath—husband.
Annie
Franceschini—mother.
No
children
or
other
issue
predeceased
the
deceased
.
At
all
relevant
times
the
deceased
and
all
the
appellants
were
domiciled
in
Ontario.
Appropriate
steps
have
been
taken
by
the
parties
under
section
34
and
separate
records
filed
on
behalf
of
each
of
the
appellants.
All
the
records
are
similar
and
for
convenience
the
record
in
the
appeal
of
James
Scott
McCreath
is
referred
to.
The
Official
Guardian
represents
the
two
infant
appellants
and
Mr
Robinette
ail
the
adult
appellants.
All
the
appeals
were
argued
together.
On
November
29,
1948,
the
deceased
entered
into
a
trust
agreement,
to
which
I
will
refer
as
the
agreement,
with
the
National
Trust
Company.
In
that
agreement
the
deceased
was
referred
to
as
the
settlor
and
the
National
Trust
Company
as
the
Trustee.
The
parts
of
that
agreement,
which
are
material
for
present
purposes,
are
as
follows:
WHEREAS
the
Settlor
will
be
entitled
to
a
voting
trust
certificate
representing
99,986
common
shares
in
the
capital
stock
of
Mount
Royal
Paving
&
Supplies
Limited;
AND
WHEREAS
the
ettior
desires
to
establish
a
trust
respecting
the
said
voting
trust
certificate
as
hereinafter
set
forth;
AND
WHEREAS
the
foregoing
recitals
are
made
by
the
Settior
and
not
by
the
Trustee;
NOW
THEREFORE
THIS
INDENTURE
WITNESSETH
that
in
consideration
of
the
sum
of
one
dollar
by
each
of
the
parties
hereto
to
the
other
paid,
the
receipt
whereof
by
each
of
the
parties
is
hereby
acknowledged,
it
is
agreed
by
and
between
the
parties
hereto
as
follows:
1.
The
Settlor
shall
forthwith
after
the
receipt
thereof
deliver
to
the
Trustee
a
voting
trust
certificate
representing
99,986
common
shares
in
the
capital
Stock
of
Mount
Royal
Paving
&
Supplies
Limited
and
the
Trustee
shall
receive
such
voting
trust
certificate
to
constitute
a
trust
fund
to
be
held,
applied
and
dealt
with
by
the
Trustee
upon
the
following
trusts:
(a)
During
the
lifetime
of
the
Settlor
to
pay
or
apply
the
whole
net
income
of
the
trust
fund
in
each
year
to
or
for
the
benefit
of
the
Settlor
and
her
issue
from
time
to
time
alive
or
some
one
or
more
of
the
Settlor
and
her
said
issue
as
the
Trustee
may
from
time
to
time
in
its
absolute
discretion
determine
and
if
paid
or
applied
to
or
for
the
benefit
of
more
than
one
of
them
to
pay
or
apply
the
same
in
such
proportions
as
the
Trustee
may
from
time
to
time
in
its
absolute
discretion
determine.
(b)
On
the
death
of
the
Settlor,
if
she
shall
die
leaving
issue
her
surviving,
to
hold
the
trust
fund
in
trust
for
the
issue
of
the
Settlor
or
such
one
or
more
of
them
and
in
such
proportions
and
subject
to
such
terms
and
conditions
as
the
Settlor
may
by
will
direct
and
in
default
of
such
direction
or
insofar
as
the
same
may
be
void
or
shall
not
extend
or
take
effect
to
pay
or
transfer
the
trust
fund
to
the
issue
of
the
Settlor
who
shall
be
living
at
her
death
and
If
more
than
one
in
equal
shares
per
stirpes.
I
will
refer
to
the
fund
set
up
under
the
agreement
as
the
1948
Trust.
The
value
of
the
estate
of
the
deceased
passing
under
will,
as
determined
by
the
Succession
Duty
Branch,
was
large
but
the
corpus
of
the
1948
Trust
at
the
time
of
the
death
of
the
deceased
was
much
larger.
The
deceased
did
not
exercise
the
power
of
selection
given
to
her
under
paragraph
1(b)
of
the
agreement.
There
is
no
dispute
€
as
to
the
facts.
The
Minister
has
added
the
value
of
the
corpus
of
the
Trust
to
the
value
of
the
estate
passing
under
the
will
and
takes
the
position
that
that
corpus
is
property
passing
on
the
death
of
the
deceased
or
property
deemed
to
pass
on
the
death
of
the
deceased
pursuant
to
subclause
(viii)
of
clause
(p)
of
section
1
[now
subclause
1
(r)(x)]
of
the
Act.
The
Minister
also
denied
that
the
disposition
under
the
agreement
was
exempt
under
clause
5(1
)(g)
of
the
Act.
The
appellants
take
the
position
that
the
corpus
of
the
trust
is
not
taxable
as
claimed
by
the
Minister.
The
parties
have
taken
the
requisite
proceedings
and
the
matter
comes
before
the
Court
for
disposal.
The
appellants
Ralph
Scott
McCreath,
the
husband
of
the
deceased,
and
Annie
Franceschini,
the
mother
of
the
deceased,
have
no
interest
in
the
corpus
of
the
1948
Trust
but
are
appellants
because
the
inclusion
of
the
value
of
that
Trust
in
the
assets
of
the
estate
would
increase
the
rate
of
duty
payable
on
other
benefits
which
they
take
under
the
will
of
the
deceased.
It
is
common
ground
that
the
settlor
Myrtle
Louise
McCreath
received
some
of
the
income
from
the
1948
Trust
in
the
years
1966,
1967
and
1968.
The
notice
of
appeal
reads
in
part
as
follows:
1.
The
Statement
should
not
include
the
value
of
the
MYRTLE
LOUISE
McCREATH
(1948)
TRUST.
2.
The
corpus
of
the
Trust
Is
not
property
passing
on
the
death
of
the
deceased
within
the
meaning
of
The
Succession
Duty
Act
and
it
is
not
property
which
is
deemed
to
pass
on
the
death
of
the
deceased
under
the
said
Act.
3.
The
Trust
makes
a
disposition
to
me
of
my
interest
in
the
corpus
of
the
Trust
and
to
each
of
the
other
beneficiaries,
among
whom
the
corpus
is
to
be
divided,
and
all
of
such
dispositions
are
exempt
under
Section
5(1
)(g)
of
The
Succession
Duty
Act.
There
was
also
a
paragraph
numbered
4,
setting
out
an
additional
ground
but
this
was
abandoned
at
the
hearing.
We
are
therefore
concerned
with
the
grounds
set
out
in
paragraphs
2
and
3.
I
will
refer
to
them
respectively
as
the
first
and
second
grounds.
In.
Johnston
v
MNR,
[1948]
SCR
486;
[1948]
4
DLR
321;
[1948]
CTC
195,
a
majority
of
the
Supreme
Court
of
Canada
held
that
in
an
appeal
by
a
taxpayer
as
to
income
tax,
in
which
the
proceedings
were
analogous
to
those
in
the
instant
case,
an
onus
rested
on
the
appellant.
In
Re
Webster
Estate,
[1949]
OWN
581;
[1949]
CTC
263,
Gale,
J
(as
he
then
was),
after
referring
to
Johnston
v
MNR
(supra)
and
other
relevant
cases,
held
that
in
a
taxpayer’s
appeal
under
the
Ontario
Succession
Duty
Act,
an
onus
rested
on
the
appellant
of
showing
affirmatively
that
the
assessment
made
by
the
Treasurer
was
erroneous.
In
Re
Taylor
and
Re
Hume,
[1958]
OR
335;
13
DLR
(2d)
470,
Spence,
J
had
before
him
an
appeal
under
The
Succession
Duty
Act.
He
reviewed
the
case
law
and
referred
to
the
well-established
principle
that
in
the
first
instance
it
is
for
the
taxing
authority
to
bring
its
case
within
the
words
of
the
taxing
statute.
He
then
held
that
where
the
taxpayer
is
appealing,
after
notice
of
dissatisfaction,
reply
and
confirmation
have
been
served,
as
was
the
case
in
Re
Webster
Estate
(supra),
the
onus
rests
on
the
appellant.
At
page
338
OR,
page
473
DLR,
he
said:
Therefore,
the
circumstances
would
seem
to
be
exactly
those
considered
by
Gale,
J
in
Re
Webster
Estate,
[1949]
OWN
581,
[1949]
CTC
263,
where
he
came
to
the
conclusion
that
the
appellant
should
show,
affirmatively,
that
the
assessment
made
by
the
Treasurer
was
one
which
ought
not
to
have
been
made,
and
that
if
the
appellant
failed
to
meet
that
burden,
then
the
appeal
must
fail.
Gale
J’s
view
seems
to
be
in
accordance
with
Johnston
v
Minister
of
National
Revenue,
[1948]
SCR
486,
[1948]
4
DLR
321,
[1948]
CTC
195,
and
the
opposite
view
as
advanced
by
counsel
for
the
appellant
is
reflected
in
the
judgment
of
Lamont,
J
In
that
case,
in
which,
however,
he
was
in
the
dissenting
minority.
The
view
of
Gale,
J
was
adopted
by
LeBel
J
(as
he
then
was)
in
Re
Ross
Estate,
[1954]
OR
778
at
779;
I
shall
therefore
proceed
to
consider
these
cases
upon
the
basis
that
the
appellants
must
show
that
the
decisions
of
the
Treasurer
are
wrong.
As
I
have
said,
the
facts
are
agreed
upon
and,
therefore,
this
consideration
of
onus
is
reduced
to
a
mere
onus
to
persuade
the
Court
that
the
interpretation
put
upon
the
statutory
provisions
by
the
Treasurer
is
an
incorrect
one.
I
respectfully
agree
with
the
law
as
to
onus
stated
in
that
case
and
find
it
applicable
to
the
case
at
bar.
However,
I
add
that
I
would
have
reached
the
same
conclusions
had
!
been
of
opinion
that
the
onus
rested
on
the
respondent.
Whether
or
not
this
fund
is
taxable
depends
on
two
legal
issues,
which
are
succinctly
stated
in
paragraphs
2
and
3
of
the
notice
of
appeal
set
out
above.
It
is
common
ground
that
there
is
no
authority
binding
on
this
Court
with
respect
to
either
of
them.
Section
6
of
the
Act
reads,
in
part,
as
follows:
6.
Subject
to
sections
4
and
5,
on
the
death
of
any
person
whether
he
dies
domiciled
in
Ontario
or
elsewhere,
(a)
where
any
property
situate
In
Ontario
passes
on
his
death,
duty
shall
be
levied
on
such
property
in
accordance
with
the
dutiable
value
thereof;
(b)
where
there
is
any
transmission,
duty
shall
be
levied
on
the
person
to
whom
there
is
such
transmission,
with
respect
to
such
transmission,
in
accordance
with
the
dutiable
value
thereof;
(c)
where
any
disposition,
other
than
of
realty
situate
outside
Ontario,
is
made
in
Ontario
on
or
after
the
1st
day
of
July,
1892,
to
any
person
who
is
resident
in
Ontario
at
the
date
of
death
of
the
deceased,
duty
shall
be
levied
on
such
person,
with
respect
to
such
disposition,
in
accordance
with
the
dutiable
value
thereof;
For
the
moment
I
will
defer
any
consideration
of
the
opening
words
“Subject
to
sections
4
and
5”
and
will
discuss
the
matter
as
if
those
words
were
omitted.
At
a
later
stage
it
will
be
necessary
to
consider
them
in
some
detail.
Section
1
of
the
Act
reads,
in
part,
as
follows:
1.
In
this
Act,
(f)
“disposition”
means,
(i)
any
means
whereby
any
property
passes
or
is
agreed
to
be
passed,
directly
or
indirectly,
from
the
deceased
during
his
lifetime
to
any
person,
(ii)
any
means
whereby
any
person
is
benefited,
directly
or
indirectly,
by
any
act
of
the
deceased
during
the
lifetime
of
the
deceased,
(ix)
any
creation
of
trust,
and
(p)
“property
passing
on
the
death
of
the
deceased”
is
deemed
to
include,
(viii)
any
property
passing
under
any
past
or
future
settlement,
including
any
trust,
whether
expressed
in
writing
or
otherwise
and
if
contained
in
a
deed
or
other
instrument
effecting
the
settlement,
whether
such
deed
or
other
instrument
was
made
for
valuable
consideration
or
not,
as
between
the
settlor
and
any
other
person,
made
by
deed
or
other
instrument
not
taking
effect
as
a
will,
whereby
an
interest
in
such
property
or
the
proceeds
of
sale
thereof
for
life,
or
any
other
period
determinable
by
reference
to
death,
is
reserved
either
expressly
or
by
implication
to
the
settior,
or
whereby
the
settlor
may
have
reserved
to
himself
the
right
by
the
exercise
of
any
power
to
restore
to
himself,
or
to
reclaim
the
absolute
interest
in
such
property,
or
the
proceeds
of
the
sale
thereof,
or
to
otherwise
resettle
the
same
or
any
part
thereof,
The
first
question
falling
to
be
decided
is
whether
under
paragraphs
1(a)
and
(b)
of
the
1948
Trust,
the
corpus
of
that
trust
is
to
be
deemed
property
passing
on
the
death
of
the
deceased
under
subclause
1(p)
(viii).
That
question
depends
on
whether
or
not
the
provisions
of
the
trust
agreement
bring
the
matter
within
the
words
“whereby
an
interest
in
such
property
or
the
proceeds
of
sale
thereof
for
life,
or
any
other
period
determinable
by
reference
to
death,
is
reserved
either
expressly
or
by
implication
to
the
settlor”.
It
is
not
suggsted
that
the
property
can
be
brought
within
the
words
of
that
clause
which
follow
those
just
quoted.
The
question
of
what
is
an
interest
under
English
legislation,
similar
to
subclause
1(p)(viii)
has
received
much
judicial
consideration.
In
Attorney-General
v
Heywood
(1887),
19
QBD
326,
a
question
arose
under
the
Customs
and
Inland
Revenue
Act,
1881
(UK),
c
12,
s
38(2).
That
Act
contained
a
provision
similar
to
the
part
I
have
quoted
from
subclause
1(p)(viii)
of
the
Act.
In
that
case
the
settlor
had
provided
that
the
trustees
should
apply
the
income
for
the
benefit
of
the
settlor
and
his
wife
and
children,
or,
at
their
discretion,
for
the
benefit
of
one
or
more
of
such
persons
to
the
exclusion
of
the
others,
and
after
the
settlor’s
death
the
money
was
to
be
held
subject
to
trusts
in
favour
of
his
widow
and
children.
It
was
held
that
notwithstanding
the
power
conferred
upon
the
trustees
of
depriving
the
settlor
of
the
benefit
of
any
income
from
the
settled
property
at
their
discretion,
an
interest
in
such
property
for
life
was
reserved
to
him
within
the
meaning
of
the
Act
to
which
I
have
referred.
At
page
330
Stephen,
J
said:
The
whole
question
here
is
whether
by
this
settlement
an
interest
for
life
is
reserved,
either
expressly
or
by
implication,
to
the
settlor.
The
clause
on
which
this
question
turns
ought
to
be
interpreted
with
reference
to
the
scheme
of
the
Act,
and
adopting
that
principle
of
construction
I
have
come
to
the
conclusion
that
the
word
“interest”
in
the
statute
ought
to
be
Interpreted
so
as
to
include
that
which
was
reserved
to
the
settlor
in
the
present
case.
By
the
terms
of
the
settlement
during
the
lifetime
of
the
settlor
the
trustees
were
to
apply
the
income
of
the
settled
property
to
his
use
or
to
that
of
certain
other
persons
who
were
specified,
but
they
had
a
discretion,
which
would
have
enabled
them,
if
they
had
thought
fit,
to
apply
the
whole
for
the
benefit
of
such
other
persons
to
the
exclusion
of
the
settlor.
I
am
clearly
of
opinion
that
what
was
reserved
to
the
settlor
was
a
a
life
interest,
for
certain
other
persons
would
receive
a
benefit
by
his
death.
Wills,
J
said
at
pages
331-2:
I
am
of
the
same
opinion.
The
question
is,
whether
under
the
settlement
of
June
15,
1878,
any
interest
was
reserved
to
Edmund
Peel,
the
settior,
for
if
any
interest
was
reserved
to
him
it
was
clearly
a
life
interest,
because
it
terminated
on
his
death.
The
word
“interest”
is
capable
of
different
meanings,
according
to
the
context
in
which
it
is
used
or
the
subject-matter
to
which
it
is
applied.
If
the
contention
for
the
defendants
is
right
nobody
has
any
interest
in
the
property
settled,
and
yet
the
whole
fund
was
io
be
held
for
the
benefit
of
three
classes
of
persons—the
husband,
the
wife,
and
the
children;
and
the
sum
of
the
benefits
conferred
on
all
these
three
classes
taken
together,
being
the
sum
of
three
nothings
amounts
to
nothing,
whereas,
on
the
other
hand,
it
must
necessarily
comprehend
the
whole
interest
in
the
fund.
This
is
simply
a
reductio
ad
absurdum.
The
application
of
the
word
“interest”
is
not
confined
to
a
vested
or
a
necessarily
contingent
interest.
The
Act
was
meant
to
cast
a
wider
net
than
such
a
construction
would
imply.
The
settior
here
could
only
be
deprived
of
the
benefit
he
would
otherwise
get
under
the
settlement
by
the
exercise
of
the
power
of
depriving
him
of
such
benefit
which
was
vested
in
the
trustees,
and
unless
the
trustees
so
deprived
him
he
would
necessarily
get
a
benefit.
In
certain
events,
also,
if
a
portion
of
the
fund
were
unappropriated,
the
decisions
shew
that
the
Court
might
make
a
division
among
the
members
of
the
class
for
whose
benefit
the
property
was
held,
of
which
class
the
settlor
was
one,
so
that
in
that
case
he
would
get
a
benefit,
and
this,
I
think,
is
an
interest.
In
Attorney-General
v
Farrell,
[1931]
1
KB
81,
the
transaction
in
question
was
complex
but
for
present
purposes
it
is
sufficient
to
say
that
there
was
a
settlement
by
which
A
and
his
mother
appointed
property
to
trustees
upon
trust
for
the
mother
for
life
and
after
her
death
upon
trusts
for
management
during
the
life
of
A.
and
after
payment
of
expenses
to
apply
the
net
rents
and
profits
for
the
benefit
of
any
one
or
more
exclusively
of
the
other
or
others
of
A
and
his
wife
and
children
or
remoter
issue
as
the
trustees
should
in
their
absolute
discretion
think
fit
and
(subject
to
this
discretionary
trust)
to
pay
or
apply
the
surplus
of
the
rents
and
profits
to
the
person
or
for
the
purposes
to
or
upon
which
the
same
would
be
payable
or
applicabie
if
A
were
dead
and
after
his
death
and
in
the
events
which
happened
the
trustees
were
directed
to
hold
the
trust
estate
in
trust
for
A’s
brother
for
life
with
remainders
over.
The
mother
died
in
1925
and
estate
duty
was
paid
on
her
death
on
the
settled
property.
A
died
in
1926
having
received
£50
a
month
from
the
trustees
under
the
discretionary
trust.
The
surplus
profits
which
were
considerable
nad
been
paid
to
A’s
brother.
It
was
held,
following
Attorney-General
v
Heywood,
(supra)
that
by
making
himself
one
of
the
possible
objects
of
the
discretionary
trust,
A
had
reserved
to
himself
an
interest
in
the
property
settled
within
the
meaning
of
paragraph
38(2)(c)
of
the
Act
of
1881
as
re-enacted
in
1894.
Lord
Hanworth,
MR,at
pages
95-7,
said:
To
this
extent
then
the
terms
of
the
statute
are
satisfied,
and
!
turn
back
to
consider
whether
or
not
the
last
portion
has
been
fulfilled,
that
is,
to
ascertain
whether
or
not
what
has
happened
falls
within
s
38
of
the
Customs
and
Inland
Revenue
Act,
1881.
Sect
38,
sub-s
2,
provides:
“The
personal
or
movable
property
to
be
included
in
an
account
shall
be
property
of
the
following
description,
viz.:
.
.
.
(c)
any
property
passing
under
any
past
or
future
voluntary
settlement
made
by
any
person
dying
on
or
after
such
day
by
deed
or
any
other
instrument
not
taking
effect
as
a
will,
whereby
an
interest
in
such
property
for
life
or
any
other
period
determinable
by
reference
to
death
is
reserved
either
expressly
or
by
implication
to
the
settlor,
or
whereby
the
settlor
may
have
reserved
to
himself
the
right,
by
the
exercise
of
any
power,
to
restore
to
himself,
or
to
reclaim
the
absolute
interest
in
such
property.”
Mr
Spens
says,
and
with
force,
that
although
the
purposes
necessary
io
bring
the
case
within
the
statute
may
so
far
have
been
fulfilled
that
there
was
a
disposition
by
the
deceased,
yet
there
was
no
interest
reserved,
either
expressly
or
by
implication,
to
the
deceased
as
setilor.
Ail
that
was
reserved
to
him
was
a
chance
of
receiving
a
sum
from
the
trustees,
if
they
should
in
their
discretion
think
fit
to
give
him
something;
and
more
than
that,
the
trust
was
not
simply
a
discretionary
trust
for
the
benefit
of
a
class,
but
there
was
an
express
provision
as
regards
any
surplus
remaining
after
the
Class
had
or
had
not
been
paid
any
part
of
the
rents
and
profits,
that
the
surplus
was
to
be
paid
or
applied
to
the
persons
or
for
the
purposes
to
and
upon
which
the
net
rents
and
profits
of
the
trust
estate
would
be
payabie
or
applicable
if
the
deceased
were
dead,
that
is
to
the
brother
Edward.
Therefore
we
have
the
case
of
a
discretionary
trust
for
the
benefit
of
a
class.
with
a
trust
over,
and
it
is
not
a
case
where
an
application
could
be
made
to
the
Court
to
enforce
the
trust
in
favour
of
the
class,
because
though
a
discretionary
trust,
the
discretion
had
to
be
exercised
in
favour
of
some
or
one
of
the
persons
included
in
that
class
and
nobody
else.
We
have,
therefore,
to
consider
what
is
the
meaning
of
the
word
“interest”,
in
s
38,
sub-s
2(c),
of
the
Act
of
1881.
Does
the
chance
that
the
deceased
had
of
receiving
some
money
before
the
trustees
paid
over
the
surplus
renis
and
profits
to
his
brother
Edward
constitute
an
interest
within
the
meaning
of
s
38,
sub-s
2(c)?
I
confess
the
matter
is
one
by
no
means
free
from
difficulty
and
doubt,
but
in
Attorney-Genera!
v
Heywood
19
QBD
326,
which
was
decided
forty-three
years
ago
by
two
distinguished
judges,
Stephen
and
Wills,
JJ,
it
was
held
that
where
in
a
settlement
a
discretionary
trust
was
given
to
trustees
to
apply
income
for
the
benefit
of
the
settlor,
his
wife,
any
future
wife
and
any
children,
an
interest
was
taken
by
the
settlor
which
was
Sufficient
to
bring
the
case
within
this
sub-s
2(c).
That
case,
of
course,
is
not
binding
upon
this
Court.
An
attempt
was
made
by
Mr
Spens
to
distinguish
it
by
saying
that
there
was
a
much
larger
class
indicated
in
the
present
case
than
in
that
case
when
the
trust
was
for
the
benefit
of
the
settlor,
his
present
wife
or
any
future
wife
and
his
children.
It
was
said
that
this
was
a
narrow
trust
for
the
family,
or
one
or
other
of.
them,
whereas
in
the
present
case
there
was
a
more
numerous
class
indicated
with
the
trust
over.
I
am
not
prepared
to
accept
an
interpretation
of
the
word
“interest”
which
would
vary
according
to
the
number
of
persons
who
are
indicated
in
a
discretionary
trust.
It
cannot
be
merely
a
question
of
degree.
One
has
got
to
put
a
definite
interpretation
on
the
word
“interest”
irrespective
of
whether
or
not
the
discretionary
trust
is
given
in
favour
of
a
larger
or
a
smaller
class.
I
therefore
am
unable
to
accept
the
suggested
distinction
which
Mr
Spens
has
put
before
us
with
regard
to
Heywood's
case.
Again
I
am
unwilling
to
indicate
dissent
from,
still
less
to
overrule
a
case
which
has
stood
now
for
so
long
a
period
of
time,
and
must
have
taken
its
place
as
a
guide.
in
a
great
number
of
cases,
and
been
acted
upon
as
an
integral
part
of
the
interpretation
to
be
placed
upon
this
system
of
statutes.
That
case
has
decided,
in
such
a
case
as
the
present,
that
an
interest
within
the
meaning
of
this
very
section
is
reserved
to
the
seitlor.
After
some
discussion
of
Drummond
v
Collins,
[1915]
AC
1011,
he
said
[at
p
98]:
-'
However,
even
without
the
support
which
can
be
gathered
from
Drummond
v
Collins
[1915]
AC
1011,
I
think
it
is
too
late
for
us
to
reopen
the
question
which
was
decided
in
Attorney-General
v
Heywood
19-QBD
326:
and
I
think
that
for
the
purposes
of
the
interpretation
of
s
38,
sub-s
2(c),
it
must
be
held
that
where
there
is
a
discretionary
trust,
a
possible
object
of
that
trust
holds
an
interest
within
sub-s:
2(c).
Greer,
LJ
came
to
the
same
conclusion.
Romer,
LJ
held
the
same
view
and
expressed
the
opinion
that
Attorney-General
v
Heywood
(supra)
was
rightly
decided.
In
Re
Beckett's
Settlement,
[1940]
1
Ch
279,
it
was
held
that
the
object
of
a
discretionary
trust
is
not
a
vested
or
contingent
interest
in
a
trust
fund.
In
the
course
of
his
judgment
Simonds,
J
said
at
page
285:
It
is
quite
true
that
in
one
sense
the
objects
of
a
discretionary
trust
have
an
interest
in
the
fund
which
is
being
administered
for
their
benefit.
It
is
so
far
true
that
if
the
whole
of
the
fund
is
applicable
for
their
benefit,
and
they
are
of
full
age,
they
are
together
entitled
to
put
an
end
to
the
discretionary
trust.
If
authority
is
needed
for
that
obvious.
proposition
it
is
to
be
found
in
/n
re
Smith
[1928]
Ch
915.
Again,
if
any
authority
is
needed
for
the
proposition
that
in
such
circumstances
the
object
of
a
discretionary
trust
has
an
interest
in
the
fund
it
is
to
be
found
in
the
line
of
authority
of
which
the
Attorney-
General
v
Farrell
[1931]
1
KB
81,
may
be
taken
as
an
example,
where
it
was
held
that
for
the
purpose
of
the
Finance
Act,
1894,
which
was
there
under
consideration,
a
settlor
reserves
to
himself
an
interest
in
a
settled
fund
if
he
remains
under
its
provisions
one
of
the
objects
of
a
discretionary
trust.
That,
however,
is
not
quite
the
point
which
I
have
to
decide.
I
have
to
decide
whether
an
object
of
a
discretionary
trust
is
on
the
true
construction
of
the
words
“entitled
to
any
prior
life
or
other
interest,
whether
vested
or
contingent.”
I!
think,
according
to
the
ordinary
language
of
conveyancing,
and
that
is
what
—I
have
to
bear
in
mind
for
the
purpose
of
construing
this
statute,
it
would
not
be
right
to
predicate
of
a
person
who
is
the
object
of
a
discretionary
trust
that
he
is
entitled
to
a
vested
or
contingent
interest
in
the
trust
fund.
One
can
only
base
one’s
view
on
experience
of
conveyancing
practice,
and,
in
my
view,
although,
indeed,
the
object
of
a
discretionary
trust
has
an
interest
in
equity
in
the
trust
fund,
yet
he
would
not
be
appropriately
described
as
a
person
entitled
to
an
interest,
vested
or
contingent.
In
Gartside
et
al
v
Inland
Revenue
Commissioners,
[1968]
AC
553,
the
House
of
Lords
considered
subsection
43(1)
of
the
Finance
Act,
1940
(UK),
c
29,
and
paragraph
2(1)(b)
and
subsection
7(7)
of
the
Finance
Act,
1894
(UK),
c
40.
The
former
reads
as
follows
[headnote]:
Subject
to
the
provisions
of
this
section,
where
an
interest
limited
to
cease
on
a
death
has
been
disposed
of
or
has
determined,
whether
by
surrender,
assurance,
divesting,
forfeiture
or
in
any
other
manner
(except
by
the
expiration
of
a
fixed
period
at
the
expiration
of
which
the
interest
was
limited
to
cease),
whether
wholly
or
partly,
and
whether
for
value
or
not,
after
becoming
an
interest
in
possession,
and
the
disposition
or
determination
{or
any
of
them
if
there
are
more
than
one)
is
not
excepted
by
subsection
(2)
of
this
section,
then—(a)
if,
had
there
been
no
disposition
or
determination,
as
aforesaid
of
that
interest
and
no
disposition
of
any
interest
expectant
upon
or
subject
to
that
interest,
the
property
in
which
that
interest
subsisted
would
have
passed
on
the
death
under
section
1
of
the
Finance
Act,
1894,
that
property
shall
be
deemed
by
virtue
of
this
section
to
be
included
as
to
the
whole
thereof
in
the
property
passing
on
the
death;
or
(b)
if,
had
there
been
no
disposition
or
determination
as
aforesaid
of
that
interest
and
no
disposition
of
any
interest
expectant
upon
or
subject
to
that
interest,
the
property
in
which
the
interest
subsisted
would
have
been
deemed
by
virtue
of
paragraph
(b)
of
subsection
(1)
of
section
2
of
the
said
Act
to
be
included
to
a
particular
extent
in
the
property
passing
on
the
death,
the
property
in
which
the
interest
subsisted
shall
be
deemed
by
virtue
of
this
section
to
be
Included
to
that
extent
in
the
property
passing
on
the
death.
Paragraph
2(1)(b)
and
subsection
7(7)
of
the
Act
of
1894
are
as
follows:
2.
(1)
Property
passing
on
the
death
of
the
deceased
shall
be
deemed
to
include
the
property
following,
that
is
to
say:—
(b)
Property
in
which
the
deceased
or
any
other
person
had
an
interest
ceasing
on
the
death
of
the
deceased,
to
the
extent
to
which
a
benefit
accrues
or
arises
by
the
cesser
of
such
interest;
but
exclusive
of
property
the
interest
in
which
of
the
deceased
or
other
person
was
only
an
interest
as
holder
of
an
office,
or
recipient
of
the
benefits
of
a
charity,
cr
as
a
corporation
sole;
7.
(7)
The
value
of
the
benefit
accruing
or
arising
from
the
cesser
of
an
interest
ceasing
on
the
death
of
the
deceased
shall—
(a)
if
the
interest
extended
to
the
whole
income
of
the
property,
be
‘the
principal
value
of
that
property;
and
(b)
if
the
interest
extended
to
less
than
the
whole
income
of
the
property,
be
the
principal
value
of
an
addition
to
the
property
equal
to
the
income
to
which
the
interest
extended.
The
testator
bequeathed
a
fourth
share
of
the
residue
of
his
estate
to
trustees
to
apply
the
fund
at
their
discretion
for
the
maintenance
or
benefit
of
all
or
any
of
his
son,
his
son’s
wife
or
children
(if
any),
and
to
accumulate
surplus
income
as
an
addition
to
capital
with
power
at
any
time
to
resort
to
the
accumulations
and
to
apply
them
as
current
income,
and
(2)
after
the
son’s
death,
to
hold
the
capital,
income,
and
accumulations
upon
trust
for
such
of
the
son’s
children
as
being
maie
attained
21
or
being
female
attained
that
age
or
married.
The
trustees
were
also
given
power
to
advance
at
any
time
to
a
grandchild
of
his
sums
of
up
to
one-half
of
the
presumptive
or
vested
share
of
that
grandchild
in
the
fund.
The
son
married
after
the
death
of
his.
father
and
had
twin
sons.
There
were
no
other
children.
The
trustees
exercised
their
power
of
advancement
in
favour
of
the
testator’s
grandsons.
They
declared
that
they
held
investments
and
the
income
thereof
on
trust
for
each
grandson
should
he
attain
21
years.
The
testator’s
son
died
shortly
after
the
power
of
investment
was
exercised.
The
Crown
claimed
estate
duty
on
the
two
funds.
It
was
disputed
by
the
trustees
on
the
ground
that
neither
the
discretionary
objects
nor
the
accumulation
beneficiaries
had
an
“Interest
in
possession”
or,
indeed,
any
“interest”
at
all
in
the
trust
fund,
within
the
meaning
of
section
43
of
the
Finance
Act,
1940;
and
(2)
even
if
there
was
an
interest
in
possession,
it
was
not
of
a
measurable
amount
as
contemplated
by
paragraph
2(1)(b)
and
subsection
7(7)
of
the
Finance
Act,
1894.
It
was
held
that
the
only
right
of
an
object
of
a
discretionary
trust
of
income
is
to
require
the
trustees
to
consider
from
time
to
time
whether
or
not
to
apply
the
whole
or
some
part
of
the
income
for
his
benefit,
and
this
right
is
not
an
interest
in
the
whole
fund
or
any
part
of
it
within
the
meaning
of
section
43
of
the
Finance
Act,
1940.
It
was
also
held
that
an
interest
in
possession
had
to
be
such
an
interest
that
the
object
could
claim
whatever
might
be
the
subject
of
the
interest
and
that
the
right
to
consideration
does
not
enable
the
obiect
to
make
such
a
claim.
Lord
Reid
reviewed
the
case
law
and
particularly
the
decision
in
Attorney-General
v
Heywood
(supra)
and
agreed
with
the
decision
in
that
case.
At
page
612
he
said:
But
then
the
respondents
founded
on
two
decisions
on
the
meaning
of
the
word
“interest”
in
a
different
provision
which
was
obviously
passed
to
deal
with
a
different
problem.
The
Customs
and
Inland
Revenue
Act,
1881,
required
certain
property
to
be
brought
in
although
it
had
ceased
to
belong
to
the
deceased
at
the
date
of
his
death.
This
included
the
case
where
a
settlor
in
making
a
settlement
had
reserved
an
Interest
in
the
settled
property.
In
Attorney-General
v
Heywood
the
settlor
had
provided
that
the
trustees
had
a
discretion
to
apply
the
trust
income
for
the
benefit
of
himself
his
wife
and
children
or
any
one
or
more
of
them.
It
was,
i
think,
rightly
decided
that
he
had
reserved
an
interest
within
the
meaning
of
that
provision.
It
is
always
proper
to
construe
an
ambiguous
word
or
phrase
in
light
of
the
mischief
which
the
provision
is
obviously
designed
to
prevent,
and
in
light
of
the
reasonableness
of
the
consequences
which
follow
from
giving
it
a
particular
construction.
Here,
if
“interest”
were
given
a
narrow
or
technical
meaning
it
would
be
very
easy
to
defeat
the
obvious
purpose
of
the
provision
by
setting
up
a
discretionary
trust
and
choosing
trustees
who
might
be
expected
to
exercise
their
discretion
in
favour
of
the
settlor.
And,
on
the
other
hand,
no
unreasonable
consequences
would
follow
if
the
word
were
given
a
wider
meaning
so
as
to
include
possible
benefit
that
would
come
to
the
settlor
in
a
certain
event—in
the
event
of
the
trustees
deciding
that
ne
should
have
the
whole
or
part
of
the
income.
At
613
Lord
Reid
said
that
Attorney-General
v
Farrell
did
not
appear
to
throw
any
additional
light
on
the
matter
there
under
consideration.
In
the
result
he
found
that
the
discretionary
object
did
not
have
an
interest
in
possession
within
the
meaning
of
subsection
43(1).
At
pages
609-10;
after
reviewing
certain
of
the
older
cases,
he
said:
Counsel
for
the
respondents
put
his
case
so
high
as
to
argue
that
these
cases
show
that,
whenever
there
Is
a
primary
discretionary
trust
followed
by
..a
direction
to
deal
with
any
surplus
not
paid
to
the
discretionary
objects
by
accumulation
or
otherwise,
the
court
must
disregard
any
such
direction
and
treat
the
case
as
if
the
trustees
had
been
directed
to
divide
the
whole
income
among
the
discretionary
objects.
I
can
find
no
basis
and
no
rational
justification
for
any
such
artificial
rule.
The
present
case
must
be
decided
in
accordance
with
the
fact
that
neither
individually
nor
collectively
were
the
objects
of
this
discretionary
trust
entitled
in
any
year
to
receive
any
part
of
the
trust
income:*
that
is
shown
by
the
fact
that
in
only
one
out
of
twenty
years
did
any
of
them
receive
any
part
of
the
income.
In
this
aspect
the
Gartside
case
(supra)
is
clearly
distinguishable
from
the
Heywood
case
(supra)
and
the
Farrell
case
(supra)
which
followed
it.
In
the
two
lasi-mentioned
cases
the
trustees
had
powers
to
apportion
but
were
also
under
a
duty
to
distribute
the
income.
In
Gartside
they
could
accumulate.
Lord
Reid
gave
judgment
and
Lord
Morris
of
Borth-y-Gest
and
Lord
Guest
agreed
with
those
reasons.
Lord
Wilberforce
and
Lord
Hodson
came
to
a
like
conclusion
but
found
ii
unnecessary
to
express
any
view
as
to
the
correctness
of
the
decisions
in
Heywood
(supra)
and
Farrell
(supra).
At
page
615
Lord
Wilberforce
said:
I
have
said
that
no
one
of
the
discretionary
beneficiaries
had
at
the
relevant
time
any
right
to
receive
any
income,
but
this
is
not
the
whole
of
the
matter.
It
is
also
necessary
to
appreciate
that
the
discretionary
beneficiaries
taken
together
had
no
right
to
receive
any
or,
a
fortiori,
all
of
the
income.
Two
of
them
were
infants
but
even
if
they
had
been
of
age
they
could
not,
with
their
parents,
have
called
upon
the
trustees
to
pay
them
the
income
of
any
year;
the
reason
being
that
the
trustees
had
power
to
accumulate
so
much
as
they
did
not
distribute,
which
might
be
the
whole,
for
the
possible
benefit
of
persons
unborn.
To
describe
them
as
“the
only
people
who
could
during
the
relevant
period
obtain
any
benefit
from
the
property
or
have
any
beneficial
enjoyment
of
it”
may
be
misleading,
unless
one
bears
in
mind
that,
singly
or
collectively,
they
had
no
right
in
any
year
to
receive
a
penny.
At
pages
616-17,
after
referring
to
certain
provisions
of
paragraph
2(1)(b)
and
subsection
7(7),
he
went
on
to
Say:
This
shows
that
for
the
cesser
of
an
interest
to
give
rise
to
a
charge
for
duty,
it
must
be
possible
to
say
of
the
interest
that
it
extended
to
the
whole
Income,
or
to
a
definite
part
of
the
income,
This
notion
of
definite
extention
is,
in
my
opinion,
vital
to
the
understanding
and
working
of
section
2(1)(b)
and
consequently
of
section
43
of
the
Act
of
1940.
It
must
follow
that
the
discretionary
beneficiaries
under
the
settlement
had
no
“interest”
within
the
meaning
of
the
section:
no
single
member
of
this
class
had
any
right
to
any
income;
even
if
one
considers
them
collectively
they
had
no
right
to
any
Income
because
the
trustees
could
accumulaie
the
whole
of
it.
This
makes
it
unnecessary,
and,
indeed,
otiose
to
consider
whether
the
discretionary
beneficiaries
had
“interests
in
possession”,
but
the
use
of
these
words
in
the
subsection
do
provide
a
cross
check
as
to
the
meaning
of
“interest”.
As
is
well
illustrated
by
the
judgments
in
the
courts
below,
it
is
exceedingly
difficult
to
fit
the
rights
of
the
discretionary
beneficiaries
either
into
the
category
of
“interests
in
possession”
or
into
its
statutory
counterpart
“interests
in
expectancy”:
to
say
that,
as
it
is
not
one,
it
must
be
the
other
is
not
a
very
satisfactory
solution
(the
categories
though
mutually
exclusive
need
not
be
exhaustive)
especially
if
this
technique
can
be
used—as
it
has
been
used
by
the
courts
below—either
way.
Rather,
the
difficulty
of
giving
either
answer
endorses
the
conclusion
that
this
is
not
an
“interest”,
within
the
meaning
of
this
section
at
all.
At
pages
620-21,
reference
was
made
to
the
Attorney-General
v
Farrell
and
Attorney-General
v
Heywood
cases
(supra).
With
respect
to
these
two
cases
Lord
Wilberforce
said:
The
appellants
Invited
your
Lordships
to
overrule
these
cases.
The
Crown
supported
them
and
urged
that
they
should
be
treated
as
governing
the
meaning
of
“interest”
in
the
present
case.
I
see
no
need
to
take
either
course.
Perhaps
Attorney-General
v
Farrel
could
have
been
decided
the
other
way
on
the
ground
that
once
section
38(2)(c)
had
been
embodied
in
the
Finance
Act,
1894,
s
2(1),
the
word
“interest”
in
the
earlier
section
should
be
given
a
meaning
similar
to
that
which
it
bears
in
paragraphs
(b)
and
(d),
each
of
which
involved
the
conception
of
extent.
But
this
was
not
done
and
one
can
appreciate
why
not.
For
section
38(2)(c)
is
concerned,
broadly,
with
the
case
of
persons
who
settle
their
property,
yet
wish
to
benefit
from
it
so
long
as
they
live.
To
tax
them
in
such
a
case
is
perfectly
understandable,
however
large
or
small
the
reserved
benefit
may
be
and
whether
it
is
defined
in
extent
or
undefined.
No
definition
is
necessary,
because
the
measure
of
the
charge
is
the
whole
value
of
the
property.
So
naturally
no
reference
is
made
to
“extent”—the
mere
fact
of
reservation
is
enough.
I
think,
therefore,
that
the
decisions
in
principle
are
acceptable.
But—this
is
the
other
limb—acceptance
of
them
does
not
carry
the
present
case.
In
section
2(1
)(b)
of
the
Finance
Act,
1894
(and
the
same
is
true
of
section
2(1
)(d)),
a
duty
is
imposed
the
quantum
of
which
is
related
to
the
extent
of
the
interest
and
I
see
no
difficulty
in
saying
that
the
element
of
extent
is
relevant
under
the
two
sections
but
not
under
the
third:
the
distinction
is
both
made
in
the
language
and
is
necessary
if
the
tax
is
to
work.
Before
leaving
the
subject
of
discretionary
trusts
I
must
consider
one
further
point.
When
one
object
of
a
discretionary
class
dies,
there
is
no
charge
for
duty:
the
same
must
follow
(under
section
43
of
the
Finance
Act,
1940),
if
the
interest
of
one
object
is
disposed
of
or
determined
(if
that
can
be
done).
But
there
is
also
the
case
of
a
“closed
class’’,
that
is,
a
class
of
discretionary
objects,
no
one
of
whom
is
entitled
to
any
income,
but
who
between
them
can
claim
to
be
entitled,
in
each
year,
to
the
whole.
It
may
well
be
possible
to
apply
section
2(1)(b)
of
the
Finance
Act,
1894,
or
section
43
of
the
Finance
Act,
1940
(as
the
case
may
be),
to
such
a
situation,
as
some
of
their
Lordships
who
decided
the
recent
appeal
In
Re
Kirkwood
[1966]
AC
520
suggest.
I
do
not
find
it
necessary
to
pursue
this
particular
argument
since
we
are
not
concerned
with
a
closed
class.
The
present
case
in
the
aspect
under
discussion
is
similar
to
Heywood
and
Farrell
(supra).
While
Gartside
(supra)
is
readily
distinguishable,
the
reasoning
therein
and
the
discussion
of
Heywood
is
helpful.
In
the
case
at
bar
the
donees
of
the
income
are
entitled
collectively
to
the
payment
of
the
whole
thereof.
The
seitlor
is
one
of
those
donees.
In
the
provisions
of
subclause
1
(p)(viii)
the
word
“interest”
is
not
qualified
by
“in
possession”
or
words
of
a
like
import.
I
am
of
opinion
that
in
principle
and
applying
the
reasoning
in
the
cases
to
which
I
have
referred,
that
the
settlor
did
have
an
interest
in
the
income
from
the
1948
Trust
and
it
therefore
fails
within
the
definition
of
property
passing
on
death
found
in
subclause
1
(p)(viii).
From
this
it
follows
that
the
property
is
subject
to
tax
unless
it
escapes
under
the
exempting
or
excepting
provisions
of
the
Act
to
which
I
now
turn.
Under
the
provisions
of
clauses
6(a)
to
(c)
inclusive,
quoted
supra,
the
Act
provides
for
the
levying
of
a
duty
on
property
passing
on
death,
on
any
transmission
or
on
any
disposition.
I
have
already
quoted
part
of
section
1
containing
certain
definitions
of
property
passing
on
death
and
have
indicated
that
in
my
opinion
subclause
(viii)
of
clause
(p)
of
section
1
is
sufficiently
wide
to
include
the
corpus
of
the
1948
Trust.
However,
section
6,
which
is
the
charging
section,
commences
with
the
words
“Subject
to
sections
4
and
5”.
All
of
the
following
subsections
are
qualified
by
those
opening
words.
From
an
examination
of
the
section
and
the
defining
provisions
of
section
1,
it
is
clear
that
it
is
not
intended
that
the
clauses
of
section
6
are
necessarily
mutually
exclusive.
I
have
already
indicated
that
in
my
view
the
property
in
the
1948
Trust
is
property
passing
on
death
under
the
provisions
of
subclause
1(p)(viii).
As
property
passing
on
death
it
therefore
comes
under
clause
6(a).
It
is
also
a
disposition
under
clause
6(c)
as
defined
in
subclauses
(i),
(ii)
and
(ix)
of
clause
(f)
of
section
1.
Section
6
is
the
taxing
section.
The
corpus
of
the
1948
Trust
is
not
subject
to
succession
duty
if
it
falls
within
the
provisions
of
clause
(g)
of
subsection
5(1).
Those
provisions
read
as
follows:
5.
(1)
No
duty
shall
be
levied
on
any
of
the
following
property,
nor
on
any
person
to
whom
there
are
any
transmissions
of
any
of
the
following
property,
with
respect
to
such
transmissions,
nor
on
any
person
to
whom
any
of
the
following
dispositions
are
made,
with
respect
to
such
dispositions,
and
such
property
and
dispositions
shall
not
be
included
in
the
aggregate
value
nor
included
for
the
purpose
of
determining
any
rate
of
duty,
(g)
any
disposition
where
actual
bona
fide
enjoyment
and
possession
of
the
property
in
respect
of
which
the
disposition
is
made,
was
assumed
more
than
five
years
before
the
date
of
death
of
the
deceased
by
the
person
to
whom
the
disposition
is
made,
or
by
a
trustee
for
such
person,
and
thenceforward
retained
to
the
entire
exclusion
of
the
deceased
or
of
any
benefit
to
him
whether
voluntary
or
by
contract
or
otherwise;
The
disposition
in
the
instant
case
was
made
by
the
creation
of
the
trust
more
than
five
years
before
the
date
of
the
death
of
the
settior.
The
question
remains
whether
the
“actual
and
bona
fide
enjoyment
and
possession
of
the
property
in
respect
of
which
the
disposition
is
made,
was
assumed
more
than
five
years
before
the
date
of
death
of
the
deceased
.
.
.
and
thenceforward
retained
to
the
entire
exclusion
of
the
deceased
or
of
any
benfit
to
him
whether
voluntary
or
by
contract
or
otherwise’.
The
appellant
raises
no
question
with
respect
to
the
income
but
it
is
argued
on
behalf
of
the
Crown
that
for
those
purposes
the
corpus
and
the
income
are
not
completely
separate
or
severable.
A
similar
question
has
been
considered
by
English
and
Irish
courts
on
a
number
of
occasions.
In
Re
Finance
Act,
1894,
and
Cochrane,
[1905]
2
IR
626,
C
had
made
a
settlement
more
than
12
months
before
his
death,
whereby
he
conveyed
a
mortgage
debt
of
£15,000
to
trustees,
upon
trust
to
pay
£575
of
the
income
to
his
daughter
S
for
life,
and
after
her
death
in
trust
for
her
children
who
should
answer
a
particular
description,
with
power,
however,
by
her
will,
to
appoint
to
her
husband
during
his
life
a
yearly
sum
of
£300,
payable
out
of
the
income.
Failing
any
child
to
answer
the
specified
description
after
the
death
of
the
husband
that
subject
to
the
annuity
to
the
husband,
the
property
was
to
be
held
in
trust
for
the
settlor
absolutely.
Income
over
and
above
the
£575
was
also
to
be
held
in
trust
for
the
settlor.
The
Crown
claimed
that
the
whole
of
the
£15,000
was
subject
to
duty
as
falling
within
the
description
of
property
comprised
in
clauses
(a)
and
(c)
of
subsection
38(2)
of
the
Customs
and
Inland
Revenue
Act,
1881,
as
amended.
The
relevant
parts
of
these
clauses
were
[at
p
628,
footnote]:
(a)
.
.
.
property
taken
under
any
gift,
whenever
made,
of
which
bona
fide
possession
and
enjoyment
shail
not
have
been
assumed
by
the
donee
immediately
upon
the
gift,
and
thenceforward
retained,
to
the
entire
exclusion
of
the
donor,
or
of
any
benefit
to
him
by
contract
or
otherwise.
(c)
Any
property
passing
under
.
.
.
settlement
.
.
.
made
by
any
person
.
.
.
by
deed
or
any
other
instrument
not
taking
effect
as
a
will,
whereby
an
interest
in
such
property,
or
the
proceeds
thereof,
for
life,
or
any
other
period
determinable
by
reference
to
death,
is
reserved,
either
expressly
or
by
implication,
to
the
settior
.
The
King’s
Bench
Division
had
no
difficulty
in
deciding
that
even
if
an
interest
in
a
trust
fund
could
be
deemed
io
be
reserved
to
the
settlor,
it
would
not
be
an
interest
for
the
life
of
the
settlor
or
for
any
period
determinable
by
reference
to
his
death
within
the
meaning
of
clause
(c)
(supra).
All
three
Judges
of
the
King’s
Bench
Division
concluded
that
the
fact
that
the
settlor
had
the
right
to
surplus
income
and
would
also
be
the
beneficiary
of
the
corpus
of
the
trust,
in
the
event
specified
in
the
settlement,
did
not
bring
the
subject-matter
of
the
gift
within
clause
(a).
All
of
them
concluded
that
the
subject-matters
of
the
gift
were
equitable
interests
which
were
given
and
that
“bona
fide
enjoyment
and
possession”
had
been
assumed
immediately
after
the
gift
to
the
exclusion
of
the
donor
as
required
under
clause
(a).
What
the
settlor
had
after
making
the
settlement
was
outside
the
gift
as
it
was
never
given.
The
Court
of
Appeal
unanimously
affirmed
the
decision
of
the
King’s
Bench
Division
[[1906]
2
IR
200].
Each
of
the
Judges
of
that
Court
gave
short
reasons
substantially
in
agreement
with
those
given
in
the
King’s
Bench.
In
Commissioner
for
Stamp
Duties
of
New
South
Wales
v
Perpetual
Trustee
Co,
Ltd,
[1943]
AC
425,
by
an
indeniure
of
settlement
made
in
1917
between
the
settlor
and
five
trustees,
of
whom
the
settlor
himself
was
one,
it
was
declared
that
the
trustees
should
hold
certain
company
shares
of
which
the
settlor
was
the
owner
and
registered
holder,
and
which
were
transferred
into
and
registered
in
the
names
of
the
trustees,
in
trust,
to
apply
during
the
minority
of
his
son
the
whole
or
any
part
of
the
income
or
corpus
as
the
trustees
should
think
fit
for
the
maintenance,
advancement
or
benefit
of
the
son,
and
on
his
attaining
the
age
of
21
years
to
transfer
to
him
as
his
absolute
property
all
the
assets
and
property
whatsoever,
including
accumulations
of
income.
From
the
date
of
the
settlement
the
settlor
never
exercised
any
voting
power
in
respect
of
the
shares.
With
the
exception
of
premiums
paid
in
respect
of
a
policy
of
insurance
on
the
life
of
the
son
taken
out
by
the
trustees,
no
part
of
the
dividends
and
income
was
paid
or
applied
towards
the
infant’s
maintenance,
advancement
or
benefit,
any
balance
which
might
have
been
so
applied
being
accumulated
and
invested.
The
son
attained
the
age
of
21
years
in
1931,
when
the
assets
comprised
in
the
settlement
were
transferred
to
him.
The
revenue
authorities
claimed
that
on
the
death
in
1921
of
the
settlor
the
shares,
the
subject
of
the
settlement,
had
formed
part
of
the
settlor’s
dutiable
estate.
The
taxing
statute
contained
a
provision
similar
to
that
in
clause
5(1)(g).
It
was
held
that
the
settlement
was
a
disposition
without
full
consideration
and
that
the
interest
of
the
son
was
not
an
absolute
vested
interest
but
was
contingent
on
his
attaining
21
years
of
age,
that
the
property
comprised
in
the
gift
was
the
equitable
interest
in
the
shares,
and
that
bona
fide
possession
and
enjoyment
of
the
property
comprised
in
the
gift
was
assumed
by
the
donee,
the
son,
immediately
upon
the
gift
and
thenceforth
retained
to
the
entire
exclusion
of
the
deceased
or
of
any
benefit
to
him
of
whatsoever
kind
or
in
any
way
whatsoever,
and
accordingly
the
shares
did
not
form
part
of
the
settlor’s
dutiable
estate.
At
pages
439-40,
after
discussing
the
disposition
of
the
case
in
the
Australian
Court,
Lord
Russell
of
Killowen
said:
For
the
reasons
hereinafter
appearing
their
Lordships
are
in
agreement
with
the
decision
of
the
High
Court
in
this
case.
In
their
opinion
the
property
comprised
in
the
gift
was
the
equitable
interest
in
the
eight
hundred
and
fifty
shares,
which
was
given
by
the
settlor
to
his
son.
The
disposition
of
that
interest
was
effected
by
the
creation
of
a
trust,
ie,
by
transferring
the
legal
ownership
of
the
shares
to
trustees,
and
declaring
such
trusts
in
favour
of
the
son
as
were
co-extensive
with
the
gift
which
the
settlor
desired
to
give.
The
donee
was
the
recipient
of
the
gift;
whether
the
son
alone
was
the
donee
(as
their
Lordships
think)
or
whether
the
son
and
the
body
of
trustees
together
constituted
the
donee,
seems
immaterial.
The
trustees
alone
were
not
the
donee.
They
were
in
no
sense
the
object
of
the
setilor’s
bounty.
Did
the
donee
assume
bona
fide
possession
and
enjoyment
immediately
upon
the
gift?
The
linking
of
possession
with
enjoyment
as
a
composite
object
which
has
to
be
assumed
by
the
donee
indicates
that
the
possession
and
enjoyment
contemplated
is
beneficial
possession
‘and
enjoyment
by
the
object
of
the
donor’s
bounty.
This
question
therefore
must
be
answered
in
the
affirmative,
because
the
son
was
(through
the
medium
of
the
irusiees)
immediately
put
in
such
bona
fide
beneficial
possession
and
enjoyment
of
the
property
comprised
in
the
gift
as
the
nature
of
the
gift
and
the
circumstances
permitted.
Did
he
assume
it,
and
thenceforth
retain
it
to
the
entire
exclusion
of
the
donor?
The
answer,
their
Lordships
think,
must
be
in
the
affirmative,
and
for
two
reasons:
namely,
(1)
the
settlor
had
no
enjoyment
and
possession
such
as
is
contemplated
by
the
section;
and
(2)
such
possession
and
enjoyment
as
he
had
from
the
fact
that
the
legal
ownership
of
the
shares
vested
in
him
and
his
co-trustees.
as
joint
tenants,
was
had
by
him
solely
on
behalf
of
the
donee.
In
his
capacity
as
donor
he
was
entirely
excluded
from
possession
and
enjoyment
of
what
he
had
given
to
his
son.
Did
the
donee
retain
the
possession
and
enjoyment
to
the
entire
exclusion
of
any
benefit
to
the
settlor
of
whatsoever
kind
or
in
any
way
whatsoever?
Clearly,
yes.
In
the
interval
between
the
gift
and
his
death,
the
seitlor
received
no
benefit
of
any
kind
or
in
any
way
from
the
shares,
nor
did
he
receive
any
benefit
whatsoever
which
was
in
any
way
attributable
to
the
gift.
Indeed,
this
was
ultimately
conceded
by
the
appellant.
./
There
followed
a
discussion
of
the
Cochrane
case
(supra).
He
then
examined
the
case
of
Grey
(Earl)
v
Attorney-General,
[1900]
AC
124,
where
it
was
apparently
argued
that
this
overruled
the
decision
in
Cochrane.
He
then
said
[at
pp
445-6]:
The
learned
judges
who
decided
/n
re
Cochrane,
[1906]
2
IR
200
all
thought
that
Grey
(Earl)
v
Attorney-General
[1900]
AC
124
was
clearly
distinguishable,
and
their
Lordships
agree
that
it
was.
There
is
nothing
laid
down
as
law
in
that
case
which
conflicts
with
the
view
that
the
entire
exclusion
of
the
donor
from
possession
and
enjoyment
which
is
contemplated
by
s
11,
sub-s
1,
of
the
Act
of
1889
is
entire
exclusion
from
possession
and
enjoyment
of
the
beneficial
interest
in
property
which
has
been
given
by
the
gift,
and
that
possession
and
enjoyment
by
the
donor
of
some
beneficial
interest
therein
which
he
has
not
included
in
the
gift
is
not
inconsistent
with
the
entire
exclusion
from
possession
and
enjoyment
which
the
subsection
requires.
With
the
suggestion
that
/n
re
Cochrane
is
inconsistent
with
the
decision
in
Attorney-General
v
Worrall
[1895]
1
QB
99
their
Lordships
cannot
agree.
That
was
simply
a
case
in
which
the
Court
of
Appeal
held
on
the
facts
and
documents
there
disclosed
that
the
donor
had
obtained
a
collateral
benefit
in
reference
to
the
gift
which
he
had
made.
Possession
and
enjoyment
of
the
property
taken
under
the
gift
had
not
been
assumed
and
retained
to
the
exclusion
of
any
benefit
to
the
donor
by
contract
or
otherwise.
lt
was
decided
that
bona
fide
possession
of
the
property
comprising
in
the
gift
had
been
assumed
by
the
donee
and
thenceforward
retained
to
the
entire
exclusion
of
the
deceased.
In
MNR
v
National
Trust
Co
Ltd,
[1949]
SCR
127;.[1948]
CTC
339:
[1948]
4
DLR
529,
by
a
deed
of
settlement
the
settior
transferred
to
trustees
certain
securities
in
trust
to
pay
the
annual
income
arising
therefrom
to
his
daughter
during
the
lifetime
of
the
settlor,
and
upon
his
death
to
transfer
the
said
securities
and
the
accumulated
income
therefrom
to
the
daughter
for
her
absolute
use,
provided
that
shoula
the
daughter
die
before
the
settlor
the
trustees
should
transfer
the
securities
and
the
accumulated
income
therefrom
to
the
settlor
for
his
aboslute
use.
By
the
terms
of
the
settlement
the
settlor
retained
wide
powers
to
vary
the
investments
but
did
not
retain
any
beneficial
inerest
in
the
trust
property
except
as
stated
above
.
The
matter
came
up
on
an
appeal
under
the
Dominion
Succession
Duty
Act
then
in
force
which
contained
a
provision
as
to
possession
and
enjoyment
similar
to
that
contained
in
clause
5(1)(g).
At
pages
131-3
[350-52,
534-5]
Kerwin,
J
(as
he
then
was),
speaking
for
himself
and
the
Chief
Justice,
said:
That
there
was
a
gift
by
E
R
Wood
to
his
daughter
is
indisputable,
and
the
gift,
in
addition
to
that
of
the
income
from
the
securities
to
be
paid
quarterly,
is
an
equitable
interest
in
the
corpus
and
accumulated
income
contingent
upon
the
daughter
surviving
her
father.
So
far
as
the
father
is
concerned
the
principle
is
well
understood
that
a
contingent
reversion
reserved
to
the
donor
of
the
property
is
not
reserved
out
of
the
gift
but
is
something
not
comprised
in
it.
“The
property,
the
subject
matter
of
the
gift”,
to
use
the
phraseology
of
clause
(g),
is
the
daughter’s
equitable
interest
and
the
daughter
assumed
such
bona
fide
possession
and
enjoyment
of
the
property
immediately
upon
the
making
of
the
gift
as
the
nature
of
the
gift
and
the
circumstances
permitted.
In
similar
circumstances
it
has
been
held
to
be
so
by
the
Judicial
Committee
in
Commissioner
for
Stamp
Duties
of
New
South
Wales
v
Perpetual
Trustee
Co,
[1943]
AC
425
and
that
decision
should
be
followed.
It
is
true
that
the
word
“actual”
does
not
appear
in
the
statute
there
under
review
but
I
am
satisfied
that,
here,
the
daughter,
through
the
trustees,
had
actual
as
well
as
bona
fide
possession
and
enjoyment
of
the
property.
In
view
of
the
reference
to
“a
trustee
for
the
donee”
in
clause
(g),
the
argument
that
clause
(g)
applies
only
to
corporeal
property
capable
of
manual
or
physical
possession
falls
to
the
ground.
Furthermore,
this
reference
and
the
other
references
in
the
Act
to
equitable
interests
compel
me
to
disagree
with
the
view
presently
held
by
the
Supreme
Court
of
the
United
States
as
set
forth
in
its
decision
in
Helvering
v
Hallock
(1940),
309
US
106.
The
only
other
condition
to
be
met
under
clause
(g)
is
that
the
actual
possession
and
enjoyment
should
be
assumed
and
retained
by
the
daughter
“to
the
entire
exclusion
of
the
donor
or
of
any
benefit
to
him.”
It
logically
follows
from
the
principle
set
forth
above,
that
is,
that
the
reversion
of
the
father
is
something
not
comprised
in
the
gift
to
the
daughter,
that
the
former
was
excluded
from
any
benefit
in
the
subject
matter
of
the
gift.
This
was
decided
by
three
Judges
in
the
King’s
Bench
Division
in
the
Irish
case
of
In
re
Cochrane,
[1905]
IR
626
and
by
the
three
Judges
in
the
Court
of
Appeal,
[1906]
IR
200,
where
there
was
an
express
reversion,
and
that
decision
was
approved
by
the
Judicial
Committee
in
the
Perpetual
Trustee
case,
although
in
the
latter
there
was
no
express
reversion.
The
judgment
of
Lord
Russell
of
Killowen
on
behalf
of
the
Judicial
Committee,
after
referring
to
the
argument
that
the
Cochrane
case
was
in
conflict
with
the
decision
of
the
House
of
Lords
in
Grey
(Earl)
v
Attorney-General,
[1900]
AC
124,
proceeds
at
pages
445-6:
“There
is
nothing
laid
down
as
law
in
that
case
which
conflicts
with
the
view
that
the
entire
exclusion
of
the
donor
from
possession
and
enjoyment
which
is
contemplated
by
s
11,
sub-s
1,
of
the
Act
of
1889
is
entire
exclusion
from
possession
and
enjoyment
of
the
beneficial
interest
in
property
which
has
been
given
by
the
gift,
and
that
possession
and
enjoyment
by
the
donor
of
some
beneficial
interest
therein
which
he
has
not
included
in
the
gift
is
not
inconsistent
with
the
entire
exclusion
from
possession
and
enjoyment
which
the
subsection
requires.”
Finally,
on
this
branch
of
the
case
it
is
contended
that
there
was
no
entire
exclusion
of
Mr
Wood
or
of
any
benefit
to
him
because
of
the
power
of
substitution
of
securities
in
the
trust
fund.
The
evidence
discloses
that
what
was
actually
done
in
this
respect
certainly
did
not
inure
to
Mr
Wood’s
benefit
and
in
any
event
it
cannot
be
said
that
the
mere
power,
hedged
about
as
it
was,
in
itself
takes
the
matter
outside
the
provisions
of
clause
(g)
of
subsection
1
of
section
7.
The
argument
based
on
the
suggestion
that
the
trustees
might
be
under
the
control
of
the
settlor
since
they
were
either
his
employees
or
employees
of
a
company
dominated
by
him,
is
even
weaker
and
cannot
be
upheld.
Rand,
J
delivered
a
short
judgment
at
page
134
[347,
541]:
But
“any
gift”
in
section
7(1
)(g)
must
be
interpreted
to
embrace
ail
contingencies:
Commissioner
for
Stamps,
New
South
Wales
v
Perpetual
Trustee
Company
Limited,
[1943]
1
All
ER
525,
and
the
same
case
decides
that
bona
fide
possession
and
enjoyment
by
the
donee
to
the
entire
exclusion
of
the
donor
is
satisfied
by
a
conveyance
in
trust
to
vest
the
corpus
in
the
cestui
que
trust
upon
the
happening
of
the
contingency.
That
is
the
situation
here
and
it
is
unaffected
by
the
word
“actual”;
there
is
in
this
case
as
in
the
other,
to
use
the
words
of
Lord
Russell,
such
“beneficial
possession
and
enjoyment
of
the
property
comprised
in
the
gift
as
the
nature
of
the
gift
and
the
circumstances”
permit.
Kellock,
J
delivered
reasons
for
himself
and
Taschereau,
J
to
the
same
effect.
He
referred
to
Commissioner
for
Stamp
Duties
of
New
South
Wales
v
Perpetual
Trustee
Co,
Ltd
(supra)
at
some
length,
and
quoted
from
page
439
of
that
judgment,
including
the
excerpt
I
have
quoted
(supra).
He
concluded
his
judgment
by
saying
[at
p
138
[346,
540]]:
I
find
it
impossible
to
distinguish
this
decision
in
its
application
to
the
proper
construction
of
section
3(1)(d)
and
section
7(1)(g)
of
the
Canadian
statute.
The
only
distinction
suggested
by
Mr
Pickup
is
that
in
New
South
Wales
legislation
the
word
“actual”
was
not
used
and
he
contended
that
the
presence
of
that
word
in
the
Dominion
statute
indicates
that
neither.
section
3(1)(d)
nor
7(1)(g)
can
be
applied
to
equitable
interests
but
only
to
corporeal
property
capable
of
manual
or
physical
possession.
I
find
it
impossible
to
accept
this
contention
in
view
of
the
definition
of
“property”
itself
in
section
2(k)
quoted
above.
In
the
language
of
Lord
Russell
in
the
New
South
Wales
case,
already
quoted,
the
beneficiary
“was
(through
the
medium
of
the
trustees)
immediately
put
in
such
bona
fide
beneficial
possession
and
enjoyment
of
the
property
comprised
in
the
gift
as
the
nature
of
the
gift
and
the
circumstances
permitted.”
In
my
opinion
this
language
is
as
apt
in
‘relation
to
actual
possession
of
property
included
in
the
wide
definition
of
the
Act
in
question
as
it
was
to
the
legislation
before
the
Judicial
Committee
in
that
case.
St
Aubyn
et
al
v
Attorney-General,
[1952]
AC
15.
This
case
arose
from
a
complex
series
of
corporate
and
settlement
transactions.
However,
for
present
purposes
the
only
relevant
part
is
when
the
settlor
surrendered
his
life
interest
in
50,000
ordinary
shares
of
the
company.
He
retained
an
interest
in
other
parts
of
the
settled
property
and
also
in
other
shares
of
the
company.
It
was
held
by
the
House
of
Lords
that
the
surrender
of
his
entire
interest
in
50,000
shares
was
not
subject
to
a
statutory
provision
similar
to
clause
5(1)(g).
At
pages
28-9
Lord
Simonds
said:
It
appears
to
me,
my
Lords,
that
this
is
nothing
but
the
logical
application
to
a
more
complex
situation
of
the
proposition
which
I
venture
to
think
was
self
evident
viz,
that
the
life
tenant
of
two
separate
pieces
of
property
can
surrender
his
life
interest
in
one
and
retain
it
in
the
other
without
duty
becoming
exigible
in
respect
of
the
former.
The
question
is
what
he
has
given:
It
may
be
a
life
interest
in
part
of
the
settled
property;
it
may
be
a
part
of
the
income
of
settled
funds
and
that
part
may
be
a
fixed
sum
which
is
payable
in
priority
or
the
residue
after
the
prior
payment
of
a
fixed
sum
thereout.
I
venture
to
think
that
much
of
the
argument
that
was
addressed
to
the
House
in
this
case
and
much
of
the
confusion
that
has
arisen
in
the
past
on
this
admittedly
difficult
branch
of
the.
law
have
been
due
to
the
failure
to
bear
in
mind
that
that
of
which
enjoyment
is
to
be
assumed
and
retained
and
from
which
there
is
to
be
exclusion
of
the
donor
and
any
benefit
to
him
by
contract
or
otherwise
is
that
which
is
truly
given,
a
proposition
which
is
obvious
enough
in
the
case
of
two
separate
estates
but
more
difficult
to
follow
and
apply
where
trusts
are
declared
of
a
single
property
which
are
not
completely
exhaustive
in
favour
of
a
donee.
it
should
at
least
be
clear
from
the
judgment
of
Lord
Russell
of
Killowen
that
by
retaining
something
which
he
has
never
given
a
donor
does
not
bring
himself
within
the
mischief
of
the
section.
I
venture
to
repeat
in
other
words
what
I
have
already
said
when
dealing
with
section
43
alone.
for
its
underlying
principle
is
not
altered
by
an
alliance
with
section
56.
In
the
simplest
analysis,
if
A
gives
to
B
all
his
estates
in
Wiltshire
except
Blackacre,
he
does
not
except
Blackacre
out
of
what
he
has
given:
he
just
does
not
give
Blackacre.
And
if
it
can
be
regarded
as
a
“benefit”
to
him
that
he
does
not
give
but
keeps
Blackacre,
it
is
a
benefit
which
is
in
no
relevant
sense
(to
use
the
language
of
Lord
Tomlin)
“referable”
or
(to
use
that
of
Lord
Russel!
of
Killowen)
“attributable”
to
the
gift
that
he
made
of
the
rest
of
the
Wiltshire
estate.
Applying
this
principle
to
the
artificial
situation
created
by
the
statutory
hypothesis,
I
see
no
reason
for
saying
that
that
which
Lord
St
Levan
gave
was
not
retained
by
the
donee
to
the
entire
exclusion
of
him
and
of
any
benefit
to
him
by
contract
or
otherwise.
There
was
no
dissent
with
respect
io
the
issue
discussed
in
the
foregoing
excerpt.
In
Oakes
v
Commissioner
of
Stamp
Duties
of
New
South
Wales,
[1954]
AC
57,
the
testator
owned
grazing
property
in
New
South
Wales
and
he
executed
a
deed
poll
under
which
he
held
property
upon
trust
for
himself
and
his
four
children
as
tenants
in
common.
The
deed
gave
him
wide
powers
of
management
and
in
particular
provided
that,
in
addition
to
reimbursing
himself
all
expenses
incurred
in
the
administration
of
the
trust,
he
was
entitled
to
remuneration
for
all
work
done
as
manager.
He
continued
in
this
fashion
until
his
death.
A
dispute
arose
as
to
whether
on
his
death
over
20
years
after
the
settlement
referred
to,
the
whole
property
was
subject
to
death
duty
or
only
one-fifth
thereof.
The
relevant
statutory
provisions,
on
which
the
dispute
centred,
were
similar
to
clause
5(1
)(g)
of
the
Ontario
Act.
The
appellant
claimed
that
only
a
one-fifth
share
of
the
property
was
subject
to
death
duty.
At
pages
72-3
Lord
Reid
delivered
the
judgment
of
the
Privy
Council.
After
noting
that
the
difference
in"
wording
between.
the
English
Act,
similar
to
our
clause
5(1)(g)
and
the
Australian
Act
of
New
South
Wales
were
not
material,
he
said:
In
St
Aubyn
v
Attorney-General
[1952]
AC
15
the
earlier
cases,
including
the
Australian
cases,
were
fully
considered.
In
their
Lordships’
judgment
it
is
now
clear
that
it
is
not
sufficient
to
bring
a
case
within
the
scope
of
these
sections
to
take
the
situation
as
a
whole
and
find
that
the
settlor
has
continued
to
enjoy
substantial
advantages
which
have
some
relation
to
the
settled
property;
it
is
necessary
to
consider
the
nature
and
source
of
each
of
these
advantages
and
determine
whether
or
not
it
is
a
benefit
of
such
a
kind
as
to
come
within
the
scope
of
the
section.
Their
Lordships
will
first
consider
whether
the
use
of
the
income
which
accrued
to
the
settlor’s
children
from
the
settled
estate
was
such
as
to
bring
the
case
within
the
section.
If
property
comprised
in
a
gift
is
to
be
excluded
from
the
estate
of
the
deceased
donor
the
statute
requires
that
bona
fide
possession
and
enjoyment
of
the
property
shall
have
been
assumed
and
retained
by
the
donee
to
the
entire
exclusion
of
the
donor.
!f
property
is
held
in
trust
for
the
donee,
then
the
trustee’s
possession
is
the
donee’s
possession
for
this
purpose,
and
it
matters
not
that
the
trustee
is
the
donor
himself.
The
donor
is
entirely
excluded
if
he
only
holds
the
property
in
a
fiduciary
capacity
and
deals
with
it
in
accordance
with
his
fiduciary
duty.
But
the
statute
requires
not
only
exclusion
of
the
donor
but
also
exclusion
of
any
benefit
to
him,
and
it
was
on
that
matter
that
the
argument
turned.
lt
appears
from
the
case
that
after
the
children
came
of
age
they
received
payment
of
their
shares
of
the
income;
it
is
not
said
that
that
involved
any
benefit
to
the
deceased.
But
before
they
came
of
age
their
shares
of
income
were
used
to
pay
for
their
maintenance
and
education,
and
it
was
said
that
this
afforded
some
relief
to
the
deceased,
who
would
otherwise
have
had
to
pay
out
of
his
own
money.
Two
arguments
were
submitted.
In
the
first
place
it
was
said
that
spending
the
children’s
money
in
this
way
was
improper
or
at
least
disadvantageous
to
them,
and
that
this
combination
of
advantage
to
the
donor
with
disadvantage
to
the
donee
brought
the
case
within
the
statute.
Their
Lordships
do
not
find
any
sufficient
basis
in
fact
for
this
argument.
There
is
nothing
in
the
case
from
which
it
can
be
inferred
that
the
deceased
acted
at
all
improperly
in
this
matter.
At
least
after
1925
this
money
could
properly
be
spent
on
the
children’s
maintenance
under
Statutory
powers
if
that
was
in
the
best
interests
of
the
children.
In
the
absence
of
anything
to
Indicate
the
contrary
it
must
be
taken
that
the
deceased
acted
properly
in
so
applying
his
children’s
income,
that
this
was
In
the
best
interest
of
the
children,
and
therefore
the
children
must
be
held
to
have
had
full
benefit
and
enjoyment
of
their
money.
The
case
might
have
been
very
different
if
it
had
appeared
that
the
deceased
had
so
spent
his
children’s
shares
of
the
income
from
the
trust
not
entirely
in
their
interests
but
wholly
or
partly
for
his
own
benefit
in
order
to
relieve
himself
from
expense
of
maintaining
his
children.
The
Privy
Council
also
held
that
the
provisions
for
remuneration
to
the
settlor
for
managing
the
property,
although
entirely
reasonable
in
amount,
came
out
of
the
trust
property
and
diminished
the
beneficial
interest
of
the
donees
and
was
a
benefit
to
the
testator.
The
death
duty
was
therefore
payable
on
the
whole
of
the
estate.
Chick
et
al
v
Commissioner
of
Stamp
Duties,
[1958]
AC
435,
was
an
appeal
from
New
Zealand.
A
father
transferred
by
way
of
gift
to
one
of
his
sons
a
pastoral
property
and
some
17
months
after
entered
into
a
partnership
with
his
donee
son.
The
father
was
given
power
over
the
management
of
the
partnership.
It
was
held
by
the
Privy
Council
that
the
property
given
to
the
son
was
subject
to
death
duty
as
the
son
had
not
retained
the
possession
and
enjoyment
to
the
entire
exclusion
of
the
father
as
under
the
partnership
agreement
the
father
had
some
possession
and
enjoyment
of
the
partnership
property.
The
cases
I
have
cited
on
this
branch
of
the
instant
case
can
be
distinguished
from
the
one
at
bar
and
from
each
other
on
their
facts
and
on
the
precise
wording
of
the
relevant
enactments.
However,
the
reasoning
in
them
is
applicable.
In
the
case
at
bar
the
settlor,
by
the
agreement,
in
1(a)
disposed
of
the
whole
of
the
income
and
in
1(b)
disposed
of
the
whole
of
the
corpus.
It
was
argued
on
behalf
of
the
Crown
that
this
was
a
case
in
which
the
disposition
of
the
corpus
could
not
be
brought
under
the
words
of
clause
5(1
)(g)
because
the
settlor
could
share
in
the
income
from
the
1948
Trust
during
her
lifetime.
I
do
not
agree.
In
the
agreement
the
gift
of
the
corpus
in
1(b)
is
clearly
severable
from
the
gift
of
the
income
in
1(a).
The
subject-matter
of
this
gift
was
the
equitable
remainder
in
the
corpus
and
not
the
income.
Each
of
these
dispositions
has
a
different
subject
and
a
different
object.
With
respect
to
the
gift
of
the
corpus
it
cannot
be
said
that
the
donees
did
not
have
possession
and
enjoyment
to
the
exclusion
of
the
settlor
after
the
making
of
the
agreement.
By
the
transfer
of
the
corpus
to
the
trustee
under
the
settlement
the
donees,
to
use
the
already
quoted
words
of
Lord
Russell
of
Killowen
in
Commissioner
for
Stamp
Duties
of
New
South
Wales
v
Perpetual
Trust
Co
(supra)
at
page
440,
“were
(through
the
medium
of
the
trustees)
immediately
put
in
such
bona
fide
beneficial
possession
and
enjoyment
of
the
property
comprised
in
the
gift
as
the
nature
of
the
gift
and
the
circumstances
permitted”.
I
find
that
by
reason
of
the
provisions
of
clause
5(1
)(g)
the
gift
of
the
corpus
is
not
subject
to
succession
duty.
On
behalf
of
the
Crown
it
was
submitted
that
because,
in
the
opening
part
of
subsection
5(1),
no
specific
mention
is
made
to
“property
passing
on
the
death’,
it
followed
that
the
exemption
or
exception
provided
for
in
that
section
did
not
apply
to
exempt
property
or
a
disposition,
falling
squarely
within
the
words
of
one
of
the
exempting
provisions
of
section
5,
if
such
property
or
disposition
could
also
be
brought
within
any
of
the
definitions
of
“property
passing
on
the
death
of
the
deceased”
contained
in
clause
(p)
of
section
1.
It
was
argued
that
the
opening
words
of
section
6,
which
is
the
charging
section,
ie
“Subject
to
sections
4
and
5”
have
no
application
to
any
property
or
disposition
which,
although
it
falls
squarely
within
the
definition
of
the
exemption
therein,
also
falls
within
the
definition
of
“property
passing
on
the
death”
of
the
deceased
as
defined
in
one
of
the
subclauses
of
section
1.
No
authority
was
cited
for
that
proposition
except
Re
Chodikoff,
[1971]
CTC
1;
[1971]
1
OR
321;
15
DLR
(3d)
275,
to
which
I
will
presently
refer.
I
have
already
found
that
the
property
comprised
in
the
1948
Trust
falls
within
the
definition
of
property
passing
on
death
contained
in
subclause
(viii)
of
clause
(p)
of
section
1.
The
settlement
of
the
property
in
the
1948
Trust
was
also
a
disposition
within
the
meaning
of
clause
(g)
of
subsection
(1)
of
section
5.
In
that
connection
I
need
only
refer
to
the
definitions
of
disposition
contained
in
subclauses
(I),
(ii)
and
(ix)
of
clause
(f)
of
section
1.
There
is
a
wide
overlap
between
the
subject-matter
for
the
levy
of
duty
defined
in
clauses
(f)
and
(p)
of
section
1.
Obviously
they
are
not
intended
to
be
mutually
exclusive.
However,
as
the
whole
of
section
6
is
expressly
made
subject
to
sections
4
and
5
a
disposition
as
defined
in
the
latter
section
is
exempt
even
if
it
can
be
brought
within
another
clause
of
section
1.
This
is
the
meaning
of
the
words
taken
in
their
ordinary,
literal
and
grammatical
sense.
The
words
are
clear
and
unambiguous.
So
construing
them
leads
to
no
absurdity
or
repugnancy.
There
is
therefore
no
need
to
refer
to
any
of
the
many
rules
to
which
resort
may
be
had
in
a
case
where
an
ambiguous
or
literal
construction
would
lead
to
an
obviously
absurd
result.
Moreover,
this
construction
would
give
effect
to
the
general
scheme
of
the
Act
which
seems
to
define
the
subject-matter
of
taxation
in
the
widest
terms
and
then
to
grant
certain
exemptions
in
narrower
and
more
precise
terms.
In
Re
Chodikoff
(supra)
it
was
held
by
the
Court
of
Appeal
that
where
succession
duty
could
be
levied
under
either
of
two
sections
the
Crown
could
elect
which
to
apply.
That
decision
was
supported
by
the
cases
cited
therein.
However,
neither
Re
Chodikoff
nor
any
of
the
cases
cited
therein
are
decisive
of
the
present
case,
where
the
provisions
for
levying
the
duty
are
made
expressly
subject
to
the
sections
giving
exemptions.
In
MNR
v
National
Trust
Co
Ltd,
[1949]
SCR
127;
[1948]
CTC
339;
[1948]
4
DLR
529,
the
exempting
section
(section
7),
of
the
then
Dominion
Succession
Duty
Act
was
relied
on.
Subsection
(1),
paragraph
(g)
of
that
section
exempted
certain
gifts
described
in
a
similar
fashion
to
clause
(g)
subsection
5(1)
of
the
Ontario
Act.
Under
the
Dominion
Act
“successions”
were
taxed
and
were
defined
in
wide
terms.
It
was
held
that
if
the
settlement
in
question
fell
within
the
exempting
provisions
of
paragraph
7(1
)(g)
that
it
was
immaterial
whether
or
not
it
fell
within
the
description
of
something
included
in
a
succession
under
some
subsection
other
than
the
one
defining
gifts.
I
refer
to
Kellock,
J,
for
the
majority,
at
pages
135-6
[343,
537-8]
where
he
refers
to
paragraph
7(1)(g)
as
an
‘overriding
exemption”.
Counsel
for
the
Crown
submitted
this
case
was
distinguishable
as
under
the
Dominion
Act
what
was
taxed
was
a
succession
as
defined
in
that
Act
and
that
under
the
Ontario
Act
a
distinction
is
made
between
property
passing
on
death,
transmission
on
death
and
dispositions.
For
present
purposes
that
is
immaterial
as
the
express
exemption
under
section
5
of
the
Ontario
Act
applies.
It
is
an
overriding
section
in
the
same
sense
as
that
referred
to
in
MNR
v
National
Trust
Co
Ltd
(supra).
For
the
reasons
indicated
I
am
of
the
opinion
that
although
apart
from
section
5
the
corpus
of
the
1948
Trust
would
be
taxable
as
property
passing
on
death
as
defined
in
subclause
(viii)
of
clause
(p)
of
section
1,
it
is
exempt
as
a
disposition
under
clause
(g)
of
subsection
5(1).
Judgment
may
issue
accordingly
allowing
the
appeal
with
costs.
Similar
judgments
may
issue
in
the
other
appeals
to
which
I
have
referred.
I
have
endorsed
all
six
records
accordingly.
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