Citation: 2012 TCC 20
HER MAJESTY THE QUEEN,
REASONS FOR JUDGMENT
will provided for particular legacies and divided the residue of her succession
among her three children, two of which, the appellants, are non‑residents.
After Ms. Crelinsten
died in 2006, her succession made five capital distributions to each of her
These distributions did
not trigger any tax liability.
When the fifth
distribution was made, the appellants sent a notice to the Minister of National
Revenue (Minister) pursuant to subsection 116(3) of the Income Tax Act (Act).
The appellants did not send any notice in respect of the other distributions.
Subsequently, the Minister
assessed each of the appellants for penalties pursuant to subsection 162(7) for
failing to send a notice in respect of three of the distributions.
Each of the penalties
was for a maximum amount under the said subsection.
These penalties were
for a total of $15,000 as well as a total of over $3,900 in interest at the
time of the assessments.
Agreed Statement of Facts
There is no factual
dispute in this case. The evidence went in by means of an Agreed Statement of Facts
together with agreed documents.
The Agreed Statement of
1. On June 18, 1940, Esther Crelinsten
married Julius Lipson.
2. At all material times, Esther Crelinsten was
resident in Canada.
3. On September 15, 1995, Julius Lipson
4. On September 24, 1996, Esther Crelinsten
executed her Last Will and Testament (the Will).
5. The Will provided for particular legacies and
the residue of the succession was bequeathed to the three children of Esther
Crelinsten, namely: Howard Lipson, Harriet Lipson and Joan Lipson-Bloomberg.
6. On June 16, 2003, Esther Crelinsten died
and her last domicile was in the Province of Quebec.
7. Harriet Lipson refused to act as liquidator
of the Succession of Esther Crelinsten (the Succession) and therefore the two
persons acting in that capacity were Howard Lipson and Joan Lipson-Bloomberg.
8. The assets of the Succession were located in Canada and the administration of the
Succession was also done in Canada. At all material times, the Succession was resident in Canada.
9. . . . the three residual legatees:
Howard Lipson, Harriet Lipson and Joan Lipson‑Bloomberg.
10. The Succession made capital distributions to
each residual legatee as follows:
December 12, 2003
January 23, 2004
October 29, 2004
July 22, 2005
June 12, 2007
11. On or about June 22, 2007, Howard Lipson
and Harriet Lipson sent to the Minister of National Revenue (the Minister) the
notice of subsection 116(3) of the Income Tax Act in respect of the
distribution of June 12, 2007.
12. On November 29, 2007, the Minister issued
a certificate under subsection 116(4) of the Income Tax Act to Howard
Lipson and Harriet Lipson in respect of the distribution of June l2, 2007.
13. No notice was sent to the Minister by either
Howard Lipson or Harriet Lipson regarding the distributions of December 12,
2003, January 23, 2004, October 29, 2004 and July 22, 2005.
14. At all material times, Howard Lipson and
Harriet Lipson were non-residents.
15. On January 7, 2008, the Minister assessed
Howard Lipson and Harriet Lipson under subsection 162(7) for failure to comply
with subsection 116(3) of the Income Tax Act regarding the distributions
of January 23, 2004, October 29, 2004 and July 22, 2005.
The relevant law
governing the succession of Ms. Crelinsten is the law of Québec.
Subsection 162(7) of
the Act creates a penalty when a person fails to file an information
return as required by the Act or when a person fails to comply with a
duty or obligation under the Act.
The Minister has
assessed the appellants on the basis that they failed to comply with subsection
116(3). That subsection provides that:
Every non-resident person who . . . disposes of any
taxable Canadian property of that person . . . shall, not later than
10 days after the disposition, send to the Minister, by registered mail, a
notice setting out . . .
Part of the definition
of “taxable Canadian property” in subsection 248(1) of the Act reads as
“taxable Canadian property” of a taxpayer at any time in a taxation
year means a property of the taxpayer that is
. . .
(h) a capital interest in a trust (other than a unit trust)
resident in Canada,
In the same subsection
“disposition” is defined to include:
(d) where the property is, or is part of, a
taxpayer’s capital interest in a trust, . . ., a payment made after
1999 to the taxpayer from the trust that can reasonably be considered to have
been made because of the taxpayer’s capital interest in the trust,
The respondent says
that the appellants disposed of capital interests in a trust and, accordingly,
had the obligation to send notices pursuant to subsection 116(3).
The respondent can only
be correct if a Québec succession is a trust for the purposes of the definition
of “taxable Canadian property”.
Under the Civil Code
of Québec there is no question that a succession is not a trust.
The respondent argues
that a succession is treated as a trust under the Act. She relies upon
subsection 248(1) of the Act which provides that:
“trust” has the meaning assigned by subsection 104(1);
and upon subsection 104(1) which provides that:
In this Act, a reference to a trust or estate (in this subdivision referred
to as a “trust”) shall, unless the context otherwise requires, be read to
include a reference to the trustee, executor, administrator, liquidator of a
succession, heir or other legal representative having ownership or control of
the trust property, but, except for . . .
The French language text of subsection 104(1) reads as
la présente loi, la mention d’une fiducie ou d’une succession (appelées « fiducie »
à la présente sous-section) vaut également mention, sauf indication contraire
du contexte, du fiduciaire, de l’exécuteur testamentaire, de l’administrateur
successoral, du liquidateur de succession, de l’héritier ou d’un autre
représentant légal ayant la propriété ou le contrôle des biens de la fiducie.
disagree, take the position that subsection 104(1) does not define the term “trust”
and submit that providing that a trust or estate is to be referred to as a “trust”
is a matter of labelling rather than definition. Consequently, it is wrong to
conclude that an estate is to be considered as a trust for all purposes of the Act.
I agree with the
appellants’ conclusion. I think it is helpful to take the analysis through some
The terminology “the
meaning assigned by” is used in a number of statutes and subsection 248(1) also
“estate” has the meaning assigned by subsection 104(1);
When I first considered
the appellants’ argument on this point, I was troubled by the question: What is
the effect of the definition of “trust” in subsection 248(1)? Parliament puts
in particular language for a purpose and, if the language of the statute is
susceptible of a reasonable meaning, that meaning should be given effect.
At first, it seemed
unclear what the point of the definition in subsection 248(1) combined with
subsection 104(1) was. Could it be that the two subsections constituted a
surprisingly worded attempt to treat estates as trusts and trusts as estates?
Clearly not. Not only
is subsection 104(1) worded in a way that is not suited to such a purpose, but
if one had wanted to equate trusts and estates, one would have written
something much more straightforward.
The words “‘trust’ has
the meaning assigned by subsection 104(1)” have to be understood as meaning
that throughout the Act a reference to “trust” shall be read to include
a reference to a “trustee, executor, administrator, liquidator . . .”
as the case may be.
The words do not import
into the Act as a whole a rule that the use of the word “trust” means “trust
This becomes clear when one examines the purpose of the subsection.
When one considers the
text of subsection 104(1) and that estates, successions and trusts are not
legal persons, it becomes apparent that the purpose of the subsection is to
simplify the drafting.
In the absence of this
provision, in some places where one is describing how to compute income, the
text of the law would have to refer to the trust or estate, which is not a legal
person, but in other places where one is placing an obligation to do something
such as filing a return, one would have to refer to the person charged with
carrying out that obligation, for example the trustee.
What this drafting
technique does is avoid the necessity of distinguishing between the trust or
estate and the person charged with doing something; one has to read each
section referring to “trust or estate” as referring either to the trust or
estate or to the person given an obligation in relation to the trust or estate.
The technique also avoids the necessity of repeating a series of alternative
persons who may be the person who has the obligation.
That is the effect of
the attribution of meaning provided for in subsection 248(1); it is not to
treat an estate as a trust.
Consequently, there was
no disposition of property described in paragraph (h) of the definition
of “taxable Canadian property” and accordingly there was no obligation on the
appellants to file a notice pursuant to subsection 116(3) of the Act.
As a result, the
penalties were not properly levied.
Given this conclusion,
it is not necessary for me to deal with the other arguments raised during the
For these reasons, the
appeals are allowed with costs.
Before concluding I
feel compelled to ask: In the circumstances, how did these cases get this far
with the amount of penalties in issue even if the assessments were,
hypothetically, correct in law?
A total of almost
$19,000 in penalties and interest was assessed against two non‑residents
living in California because of distributions in circumstances
where, apparently, no tax liability was triggered by the distributions.
Such penalties seem
unduly high in the circumstances known to me and it is hard to imagine how such
high penalties enhance compliance with the Act.
While it has been clear
since at least the English Bill of Rights of 1688 that the executive
does not have the power to suspend the application of the law, subsection
220(1) of the Act provides that:
The Minister shall administer and enforce this Act and the Commissioner
of Revenue may exercise all the powers and perform the duties of the Minister
under this Act.
That power to
administer allows the Minister to use resources efficiently and in a way that
enhances compliance with the Act. As a result, in administering the Act
the Minister is not required to apply every penalty any time the preconditions
of that penalty are met; he may use his judgment to apply a penalty or not. Specifically,
in the present cases he would not have been under an obligation, had subsection
116(3) been applicable, to levy penalties for each default on each appellant;
indeed, he would not necessarily have been under an obligation to levy any
penalty at all.
220(3.1) specifically provides that:
The Minister may, on or before the day that is ten calendar years
after the end of a taxation year of a taxpayer . . . or on
application by the taxpayer . . . on or before that day, waive or
cancel all or any portion of any penalty or interest otherwise payable under
this Act by the taxpayer . . . .
I note that subsection 220(3.1)
allows waiver by the Minister as well as cancellation after the fact; it also
allows partial waiver or cancellation.
Given this, unless
there are some other surprising background facts not directly relevant to the
immediate issues that were not brought out at the hearing, I find it hard to
understand why somewhere along the way, whether at the assessment stage or
after and well before trial, the Minister would not have used the power
contained in subsection 220(3.1) to levy much lower penalties ― or to reduce them to a much lower level.
From the perspective of promoting compliance, would it not have been enough to
levy the penalties once?
Signed at Ottawa, Ontario, this 13th day of January 2012.