Martland,
J:—The
issue
in
this
appeal
is
as
to
the
validity
of
a
notice
of
assessment
dated
August
8,
1975,
addressed
by
the
respondent
to
the
appellants
who
are
the
executors
of
the
estate
of
Roy
A
Jodrey,
deceased,
which
increased
the
total
value
of
the
estate
by
$3,784,273
and
which
assessed
duty
against
the
twelve
grandchildren
of
the
deceased.
The
parties
in
these
proceedings
agreed
to
a
statement
of
facts.
The
following
are
relevant
to
the
issues
in
this
appeal.
Roy
A
Jodrey,
who
died
on
August
12,
1973,
had
lived
at
Hantsport,
Nova
scotia,
for
approximately
thirty
years
prior
to
that
date.
At
the
time
of
his
death,
he
was
resident
and
domiciled
at
Hantsport.
He
had
twelve
grandchildren,
all
of
whom
were
then
resident
in
Nova
Scotia.
He
executed
a
will
on
August
13,
1963.
The
will
provided
that
the
executors
were
to
pay,
out
of
the
general
capital
of
the
estate,
all
just
debts,
funeral
and
testamentary
expenses
and
all
estate
taxes,
succession
duties,
inheritance
and
death
taxes
payable
on
the
property
passing
under
the
will,
with
the
intent
that
all
bequests
under
the
will
would
be
free
of
such
duties
and
taxes.
The
will
bequeathed
all
the
estate
of
the
deceased
to
the
executors
upon
trust
to
pay
certain
bequests
and
to
hold
the
rest
and
residue
of
the
estate
in
trust,
first
to
pay
to
the
wife
of
the
deceased
$500
per
month
during
her
lifetime,
unless
she
renounced
all
or
part
of
such
income,
and,
second,
on
her
death,
to
divide
the
rest
and
residue
of
the
estate
among
the
grandchildren
of
the
deceased.
On
January
1,
1972,
the
federal
government
vacated
the
field
of
federal
estate
taxation.
The
Province
of
Nova
Scotia,
as
well
as
five
other
provinces,
enacted
succession
duty
statutes.
These
provinces
were
reciprocating
provinces
and
entered
into
agreements
with
the
federal
government
to
administer
the
legislation
and
to
collect
the
succession
duties.
Alberta
did
not
enact
legislation
for
the
imposition
of
succession
duties.
The
Nova
Scotia
legislation,
which
is
in
issue
here,
is
An
Act
Respecting
Succession
Duties,
SNS
1972,
c
17,
enacted
on
May
15,
1972,
hereinafter
referred
to
as
“the
Act”.
It
was
made
effective
from
January
1,
1972.
The
provisions
of
that
Act,
relevant
to
this
appeal,
are
as
follows:
1.
(ae)
“successor”
in
relation
to
any
property
of
the
deceased
includes
any
person
who,
at
any
time
before
or
on
or
after
the
death
of
the
deceased
became
or
becomes
beneficially
entitled
to
any
property
of
the
deceased
(i)
by
virtue
of,
or
conditionally
or
contingently
on,
the
death
of
the
deceased,
2.
(5)
Where
a
corporation
which
is
not
resident
in
the
Province,
other
than
a
corporation
without
share
capital,
by
reason
of
the
death
of
a
deceased
acquires
or
becomes
beneficially
entitled
to
property
of
the
deceased,
(a)
the
corporation
shall
be
deemed
not
to
be
the
successor
of
the
property
except
to
the
extent
that
the
value
of
the
shares
of
the
shareholders
of
the
corporation
is
not
increased
in
value
by
the
corporation
acquiring
or
becoming
beneficially
entitled
to
the
property;
and
(b)
each
of
the
shareholders
of
the
corporation
shall
be
deemed
to
be
a
successor
of
property
of
the
deceased
to
the
extent
of
the
amount
by
which
the
value
of
his
shares
in
the
corporation
is
increased
by
the
corporation
acquiring
or
becoming
beneficially
entitled
to
the
property.
8.
(1)
Subject
as
hereafter
otherwise
provided,
duty
shall
be
paid
on
all
property
of
a
deceased
that
is
situated,
at
the
time
of
the
death
of
the
deceased,
with
the
Province.
(2)
Subject
as
hereafter
otherwise
provided,
where
property
of
a
deceased
was
situated
outside
the
Province
at
the
time
of
the
death
of
a
deceased
and
the
successor
to
any
of
the
property
of
the
deceased
was
a
resident
at
the
time
of
the
death
of
the
deceased,
duty
shall
be
paid
by
the
successor
in
respect
of
that
property
to
which
he
is
the
successor.
9.
Each
successor
to
any
property
of
a
deceased
on
which
duty
is
payable
under
subsection
(1)
of
Section
8
and
each
successor
liable
to
pay
duty
under
subsection
(2)
of
Section
18
shall
pay
the
duty
to
the
Minister
for
the
raising
of
a
revenue
for
provincial
purposes.
Following
the
enactment
of
this
legislation,
the
following
events
occurred:
1.
Solicitors
on
behalf
of
Mr
Jodrey
incorporated
three
Alberta
corporations:
(a)
On
September
13,1972,
JBH
Investments
Limited
(hereinafter
referred
to
as
“the
parent
company”)
was
incorporated
with
a
capital
stock
of
20,000
shares,
without
nominal
or
par
value.
The
two
persons
incorporating
this
company
were
a
Solicitor
and
an
articled
student
in
an
Edmonton
law
firm.
They
became
the
directors
and
officers
of
the
company.
Each
of
Mr
Jodrey’s
grandchildren
came
to
hold
100
shares
in
the
capital
stock
of
the
company.
(b)
On
September
13,1972,
JGC
Investments
Limited
(hereinafter
referred
to
as
“the
subsidiary
company”)
was
incorporated
with
a
capital
stock
of
20,000
shares,
without
nominal
or
par
value.
The
persons
incorporating
this
company
were
the
same
as
those
who
incorporated
the
parent
company.
Each
held
one
share
in
the
capital
stock
of
the
company
and
they
became
directors
and
officers
of
it.
On
the
same
date,
98
shares
of
the
capital
stock
of
the
company
were
allotted
to
the
parent
company.
Subsequently,
the
two
incorporators
of
the
company
made
declarations
of
trust
in
favour
of
the
parent
company
in
respect
of
the
two
shares
held
by
them.
(c)
White
Rock
Investments
Limited
(“White
Rock’’)
was
incorporated
on
September
13,
1972,
with
a
capital
stock
of
20,000
shares,
without
nominal
or
par
value,
by
the
same
two
persons
who
had
incorporated
the
other
two
companies.
These
persons
became
directors
and
officers
of
the
company.
Each
held
one
share
in
the
capital
stock
of
the
company.
One
of
these
shares
was
immediately
transferred
to
the
deceased,
Roy
A
Jodrey.
The
other
share
was
the
subject
of
a
declaration
of
trust
in
favour
of
the
deceased.
On
September
22,1972,
an
agreement
was
made
between
Roy
A
Jodrey
and
White
Rock
whereby
the
former
sold
to
White
Rock
4,600
shares
in
the
capital
stock
of
RA
Jodrey
Investments
Limited
for
a
consideration
of
$3,735,200
payable
by
a
demand
promissory
note
for
that
amount,
without
interest,
payable
at
the
office
of
the
company
in
Edmonton.
RA
Jodrey
Investments
Limited
is
a
Nova
Scotia
corporation,
with
head
office
at
Hantsport,
Nova
Scotia.
Its
authorized
capital
is
$50,000
divided
into
5,000
shares
each
with
a
par
value
of
$10.
Five
thousand
shares
had
been
issued,
of
which
4,600
shares
were
owned
by
and
registered
in
the
name
of
Roy
A
Jodrey
prior
to
the
September
22,
1972,
agreement.
2.
On
October
5,
1972,
Mr
Jodrey
executed
a
codicil
to
his
will
whereby
the
provisions
of
the
will
respecting
the
division
of
the
residue
of
the
estate
among
his
grandchildren
were
revoked
and,
instead,
it
was
directed
that
such
residue,
including
the
note
from
White
Rock,
be
given
and
bequeathed
to
the
subsidiary
company.
Mr
Jodrey’s
wife
survived
him
and
on
September
18,
1973,
gave
a
written
direction
to
the
executors
of
the
estate
renouncing
the
income
given
to
her
under
the
provisions
of
the
will.
The
net
result
of
these
various
incorporations
and
transactions
was
that,
at
the
time
of
Mr
Jodrey’s
death,
the
4,600
shares
of
RA
Jodrey
Investments
Limited,
formerly
owned
by
the
deceased,
were
the
property
of
White
Rock,
all
of
the
shares
of
which
were
beneficially
owned
by
the
deceased
and
would
become
a
part
of
his
estate.
The
note
given
by
White
Rock
on
the
acquisition
of
the
securities
was
bequeathed
to
the
subsidiary
company,
together
with
all
the
residue
of
the
estate.
All
of
the
shares
of
the
subsidiary
company
were
beneficially
owned
by
the
parent
company.
All
of
the
shares
of
the
parent
company
were
beneficially
owned
by
Mr
Jodrey’s
twelve
grandchildren.
Mr
Jodrey’s
will
and
the
codicil
were
duly
proved
by
his
executors
in
Nova
Scotia
and
probate
was
granted
by
the
Probate
Court,
Windsor,
Nova
Scotia,
on
September
28,
1973.
The
executors
filed
a
succession
duty
return
declaring
the
total
value
of
the
estate
under
the
Act
to
be
$162,009.50.
By
a
notice
of
assessment
dated
August
8,
1975,
the
total
value
of
the
estate
was
increased
by
$3,784,273.
By
the
notice,
duty
was
assessed
against
the
twelve
grandchildren
on
the
basis
that
they
were
successors
to
the
rest
and
residue
of
the
deceased’s
estate
under
paragraph
2(5)(b)
of
the
Act.
The
executors
filed
a
notice
of
objection
to
the
assessment,
based
on
two
grounds,
stated
as
follows:
1.
The
twelve
grandchildren
of
the
deceased
assessed
by
the
Notice
of
Assessment,
are
not
successors
within
the
meaning
of
the
Succession
Duty
Act
and
therefore
are
not
liable
to
pay
any
duty.
2.
Section
2(5)
of
the
Succession
Duty
Act
is
ultra
vires
the
powers
of
the
Nova
Scotia
Legislature.
The
Minister
of
Finance
of
Nova
Scotia
confirmed
the
assessment.
His
decision
was
appealed
by
the
appellants
to
the
Supreme
Court
of
Nova
Scotia.
The
appeal
was
based
upon
the
two
grounds
alleged
in
the
notice
of
objection.
The
Court
decided
both
the
issues
raised
the
favour
of
the
respondent.
The
appellants’
appeal
from
that
decision
was
dismissed
by
an
unanimous
judgment
of
the
Court
of
Appeal.
With
leave,
an
appeal
was
then
brought
to
this
Court.
There
are
two
issues
to
be
determined
in
this
appeal:
1.
Does
the
application
of
subsection
2(5)
of
the
Act
result
in
the
grandchildren
of
the
deceased
being
deemed
to
be
successors
in
respect
of
the
residue
of
his
estate.
2.
Is
subsection
2(5)
ultra
vires
of
the
Legislature
of
the
Province
of
Nova
scotia
to
enact.
First
Issue
The
courts
below
have
held
that
subsection
2(5)
of
the
Act
deems
the
grandchildren
of
the
deceased
to
be
successors
in
respect
of
the
residue
of
the
estate.
The
contention
of
the
appellants
is
that
subsection
2(5)
does
not
so
operate
because
the
corporation
not
resident
in
the
Province
under
the
terms
of
the
subsection
was
the
subsidiary
company
to
which
the
deceased
bequeathed
the
residue
of
the
estate.
The
grandchildren
of
the
deceased
were
not
shareholders
of
that
company
and
so
the
provisions
of
paragraph
(b)
of
the
subsection
did
not
operate
to
deem
them
to
be
successors
in
respect
of
the
residue
of
the
estate.
The
courts
below
were
of
the
opinion
that
the
parent
company,
which
owned
outright
98
of
the
100
issued
shares
of
the
subsidiary
company
and
beneficially
owned
the
remaining
two
shares,
was
a
non-resident
corporation
which
became
beneficially
entitled
to
the
residue
of
the
estate
of
the
deceased
within
the
meaning
of
the
opening
words
of
the
subsection
and
consequently
paragraph
(b)
took
effect
to
deem
the
shareholders
of
the
parent
company
(ie,
the
twelve
grandchildren)
to
be
successors
in
respect
of
the
residue
of
the
estate.
The
courts
below
considered
the
meaning
of
the
words
“beneficially
entitled”
as
used
in
subsection
2(5).
The
reasoning
of
Hart,
J,
in
the
court
of
first
instance,
adopted
the
reasons
he
had
given
in
a
case
heard
immediately
prior
to
the
present
case
(the
MacKeen
case
(1978),
43
APR
3;
[1977]
CTC
230)
in
which
the
same
issues
arose.
He
said,
in
that
case:
It
seems
to
me
that
the
plain
ordinary
meaning
of
the
expression
“beneficial
owner”
is
the
real
or
true
owner
of
the
property.
The
property
may
be
registered
in
another
name
or
held
in
trust
for
the
real
owner,
but
the
“beneficial
owner”
is
the
one
who
can
ultimately
exercise
the
rights
of
ownership
in
the
property.
I
believe
that
the
other
expression
“beneficially
entitled
to”
has
a
slightly
different
meaning
from
that
of
‘‘beneficial
owner”.
The
person
beneficially
entitled
to
property
may
be
further
removed
from
the
exercise
of
ultimate
ownership
of
the
property
than
the
“beneficial
owner”,
but
as
long
as
that
person
has
the
right
to
legally
establish
the
exercise
of
the
rights
of
ownership
over
the
property
then
it
may
be
said
that
he
is
beneficially
entitled
thereto.
This
distinction
between
the
two
expressions
is,
in
my
opinion,
clearly
shown
by
the
judgments
in
the
cases
of
Rodwell
Securities
([1969]
1
All
ER
257)
and
Montreal
Trust
[Torrance
Estate']
([1958]
SCR
146).
In
the
Rodwell
Securities
case
the
Court
was
dealing
with
the
situation
in
which
the
appellant
was
required
to
establish
beneficial
ownership
of
the
shares
of
two
separate
companies
in
one
third
company.
It
was
found
that
the
true
real
ownership
of
the
shares
was
in
a
subsidiary
company
rather
than
its
parent.
In
the
other
case
the
Supreme
Court
of
Canada
was
considering
the
meaning
of
the
expression
“beneficially
entitled
to”
where
the
Court
found
that
it
was
sufficient
if
the
property
in
question
could
be
applied
to
one’s
benefit
by
resort
to
an
effective
cause
of
payment.
In
my
opinion
the
Legislature
of
Nova
Scotia
in
using
the
expression
“Where
a
corporation
.
.
.
becomes
beneficially
entitled
to
property
of
the
deceased”
it
was
using
it
in
the
broad
sense
to
cover
the
situation
where
the
corporation
is
put
in
a
position
to
ultimately
exercise
the
rights
of
ownership
over
property
of
the
deceased.
It
would
be
unnecessary
to
use
additional
words
such
as
“‘directly
or
indirectly”
or
“is
controlled
by”
to
effect
its
purpose.
“Becomes
beneficially
entitled
to”
is
broad
enough
to
cover
situations
in
which
the
property
is
registered
in
another
name
or
held
in
trust
or
placed
in
the
form
in
which
the
corporation
can
legally
recover
the
property
for
its
own
benefit.
The
judgment
of
Hart,
J
was
sustained
on
appeal.
Chief
Justice
Mac-
Keagan,
wo
delivered
the
judgment
of
the
Court
of
Appeal
in
the
MacKeen
(supra)
case
and
in
the
present
case,
said
in
his
reasons
in
the
former
case:
I
agree
that
being
“entitled”
to
property
means
being
able
to
“legally
recover”
it,
that
is,
in
the
present
context,
to
have
the
right
and
power,
by
lawful
means,
to
fully
enjoy
the
property.
The
adverb
“beneficially”
indicates
that
the
person
entitled
to
enjoyment
of
the
property
may
not
have
full
legal
title.
In
the
modern
sense
of
the
phrase,
a
person
is
“beneficially
entitled”
to
property
if
he
is
the
real
or
beneficial
owner
of
it,
even
though
it
is
in
someone
else’s
name
as
nominal
owner.
The
nominal
owner
of
the
property,
whether
real
property,
choses
in
action
or
other
personal
property,
has
legal
title
to
it.
The
real
owner,
the
person
“beneficially
entitled”
to
it,
can
require
the
nominal
owner
to
let
him
use
or
have
possession
of
the
property,
or
to
give
him
the
income
from
it,
or
otherwise
to
let
him
have
the
benefit
and
enjoyment
of
it.
He
usually
can
require
the
nominal
owner
to
convert
the
property
into
another
form
or
to
transfer
the
legal
title
to
some
other
nominal
owner.
Above
all,
he
is
able,
unless
restricted
by
the
terms
of
a
specific
trust,
to
call
on
the
nominal
owner
to
convey
the
property
to
him
and
to
transfer
its
legal
title
to
him,
the
real
owner.
If
he
does
so,
he
will
then
fully
acquire
the
property
by
achieving
full
ownership
and
will
cease
to
be
merely
beneficially
entitled
to
it.
The
contention
of
the
appellants
is
that
the
meaning
to
be
attributed
to
the
words
“beneficially
entitled”
should
be
that
which
has
been
given
by
courts
of
equity,
that
the'word
“entitled”
requires
the
existence
of
a
right
enforceable
by
a
court
of
law
or
equity
and
“beneficially”
is
used
to
distinguish
an
equitable
right
or
interest
from
a
legal
right
or
interest.
It
is
said
that
the
parent
company
had
no
legal
or
equitable
right
to
the
residue
of
the
estate
enforceable
against
the
executors
of
the
estate
and
that
the
court
is
not
entitled
to
ignore
the
separate
corporate
existence
of
the
subsidiary
company.
The
appellants
rely
upon
the
judgment
of
Wynn-Parry,
J
in
In
re
Miller’s
Agreement;
Uniacke
v
Attorney-General,
[1947]
1
Ch
615.
The
question
in
that
case
was
as
to
the
liability
of
three
daughters
of
the
deceased,
Thomas
William
Noad,
for
payment
of
succession
duties.
The
deceased
had
been
in
partnership
with
two
other
partners.
On
his
retirement
from
the
partnership
and
its
dissolution,
it
was
agreed
that
the
other
two
partners,
after
Noad’s
death,
would
pay
to
his
three
daughters
lifetime
annuities.
No
trust
in
favour
of
the
daughters
was
created.
It
was
held
that
the
daughters
were
not
liable
to
pay
succession
duties.
They
were
not
parties
to
the
agreement
made
by
Noad
with
his
partners
and
the
agreement
did
not
confer
any
rights
upon
them
enforceable
at
law
or
in
equity.
They
were
not,
by
virtue
of
the
agreement,
“beneficially
entitled”
to
any
property
within
the
meaning
of
section
2
of
the
Succession
Duty
Act,
1853.
Wynn-Parry,
J
at
624-25,
said:
It
is
clear
that
the
annuities
are
property
under
section
2,
since
they
represent
money
payable
under
the
engagement,
namely,
the
deed.
The
material
question,
as
it
seems
to
me,
is
whether
the
plaintiffs
became
“beneficially
entitled”
to
such
property
on
the
death
of
Mr
Noad.
Nothing
turns,
to
my
mind,
on
the
word
“beneficially.”
If
they
became
“entitled”
to
the
annuities,
they
became
entitled
to
them
beneficially.
The
crucial
question,
therefore,
is,
did
they
become
“entitled”
to
the
annuities
of
Mr
Noad’s
death?
The
word
“entitled,”
as
used
in
this
section,
appears
to
me
necessarily
to
carry
the
implication
that
for
a
person
to
be
entitled
to
property
under
this
section
it
must
be
capable
of
being
postulated
of
him
that
he
has
a
right
to
sue
for
and
recover
such
property.
This
statement
was
relied
upon
by
the
taxpayers
in
this
Court
in
Montreal
Trust
Company
(Torrance
Estate)
v
MNR,
[1958]
SCR
146;
[1958]
CTC
60;
58
DTC
1051.
Succession
duties
were
claimed
in
the
following
circumstances.
A
testator
set
up,
out
of
the
residue
of
his
estate,
a
“Charities
Fund’’
to
be
divided
equally
between
two
charitable
institutions.
This
gift
was
exempt
from
succession
duties.
There
were
dutiable
gifts
to
other
beneficiaries.
The
gifts
to
the
two
institutions
were
made
“absolutely
conditional”
upon
payment
by
them,
equally,
of
all
duties
payable
on
the
estate.
If
they
failed
to
pay
such
duties,
the
gifts
to
them
were
to
lapse
and
the
Charities
Fund
would
be
used
by
the
trustees
to
pay
the
duties.
The
question
in
issue
was
as
to
whether
the
beneficiaries
whose
succession
duties
were
directed
to
be
paid
by
the
two
institutions
were
subject
to
succession
duties
in
respect
of
the
amount
of
the
duties
to
be
paid
on
their
behalf,
ie
whether
the
benefit
to
the
legatees
of
the
tax
exoneration
was
itself
a
succession.
Paragraph
2(m)
of
the
Dominion
Succession
Duty
Act
defined
“succession”
in
the
following
manner:
2(m)
.
.
.
every
past
or
future
disposition
of
property,
by
reason
whereof
any
person
has
or
shall
become
beneficially
entitled
to
any
property
.
.
.
upon
the
death
of
any
deceased
person,
.
.
.
either
certainly
or
contingently,
.
.
.
Rand,
J,
with
reference
to
the
statement
of
Wynn-Parry,
J,
said
at
149:
Mr
Marler
for
the
appellants
urged
as
the
test
to
determine
whether
a
successor
had
become
“beneficially
entitled
to
any
property”
that
formulated
by
Wynn-
Parry,
J
in
In
Re
Miller’s
Agreement;
Uniacke
v
Attorney-General.
The
test
was,
that
it
must
be
‘‘postulated
of
him
[the
successor]
that
he
has
a
right
to
sue
for
and
recover
such
property”.
If
the
word
“recover”
extends
to
the
application
of
money
to
one’s
benefit,
and
“sue
for”
to
an
ultimate
and
alternative
resort
as
the
effective
cause
of
payment,
I
am
disposed
to
accept
it.
Locke,
J
said,
at
147:
In
my
opinion,
the
legacies
in
question
each
included
the
amounts
designated
and,
in
addition,
the
right
to
have
either
the
corpus
of
the
Charities
Fund
or
the
moneys
paid
by
the
charities,
pursuant
to
their
respective
agreements,
if
they
elected
to
accept
the
legacy
to
them
upon
the
terms
of
the
will,
applied
in
payment
of
the
duties.
As
matters
stand,
the
covenants
of
the
charities
to
pay
the
duties
are
enforceable
against
them
by
the
trustees.
It
is
true
that
the
legatees
have
no
remedy
directly
against
the
charities,
but
they
may
each
require
the
trustees
under
the
will
to
enforce
compliance
with
these
covenants
and,
failing
such
compliance,
to
pay
the
succession
and
other
duties
out
of
the
corpus
of
the
Charities
Fund,
as
directed
by
the
will.
In
the
result,
it
was
held
that
the
duties
were
payable.
The
feature
of
this
case
which
is
relevant
to
the
present
appeal
is
that
the
beneficiaries
had
no
enforceable
rights
as
against
the
charitable
institutions
but
they
had
an
effective
means
to
compel
payment
by
seeking
the
intervention,
on
their
behalf,
of
the
trustees.
Another
case
cited
by
the
appellants
in
support
of
their
position
is
Re
Chodikoff,
[1971]
1
OR
321.
This
case
dealt
with
the
application
of
the
Ontario
Succession
Duty
Act,
RSO
1960,
c
386.
The
question
in
issue
was
as
to
the
proper
rate
of
tax
to
be
applied
in
respect
of
dispositions
made
by
the
deceased
during
his
lifetime.
The
Minister
contended
that
the
dispositions
were
made
to
a
“stranger”.
The
executors
of
the
estate
contended
that
the
dispositions
were
for
the
benefit
of
the
wife
and
children
of
the
deceased
and,
accordingly,
were
taxable
at
a
lower
rate.
The
deceased
controlled
two
companies,
one
a
realty
company,
the
other,
Bemar
Investment
Limited,
at
no
time
actively
engaged
in
any
business.
Bemar
had
two
classes
of
shares,
Class
A
owned
by
trustees
for
the
benefit
of
the
wife
and
children
of
the
deceased,
and
Class
B
owned
by
the
deceased.
The
deceased
transferred
shares
owned
by
him
in
the
realty
company
to
Bemar.
He
also
caused
Bemar
to
subscribe
for
shares
in
the
realty
company,
and
the
realty
company
to
issue
them
to
Bemar.
In
each
case
the
price
was
less
than
the
real
value.
It
was
conceded
that
both
transactions
constitutes
“dispositions”
under
the
Act.
Arnup,
JA,
delivering
the
judgment
of
the
Court
of
Appeal,
dealt
with
the
contention
of
the
executors
as
follows,
at
329-30:
Counsel
for
the
respondent,
on
the
other
hand,
again
relies
on
the
definition
of
s
1(f)(ii):
(ii)
any
means
whereby
any
person
is
benefited,
directly
or
indirectly,
by
any
act
of
the
deceased
.
.
.
He
says
that
the
only
persons
who
benefited
by
the
transaction
were
the
wife
and
children
of
the
deceased,
as
the
beneficiaries
of
the
Marvin
Chodikoff
Number
One
Trust,
that
the
“corporate
veil”
should
be
cut
through
or
lifted
by
the
Court,
and
the
transaction
should
be
regarded
as
in
substance
and
in
reality
one
by
which
the
deceased
benefited
his
wife
and
children.
This
submission
makes
it
necessary
to
examine
exactly
what
the
legal
position
of
those
“beneficiaries”
was
at
the
time
of
the
transaction.
The
trustees
then
held
all
of
the
issued
Class
A
shares
of
Bemar;
as
previously
pointed
out,
Class
A
shareholders
were
entitled
ratably
to
the
property
of
Bemar
on
its
winding
up,
subject
to
prior
payment
of
the
principal
and
interest
owing
to
Class
B
shareholders.
Undoubtedly,
the
effect
of
the
transaction
was
to
increase
the
assets
of
Bemar,
but
the
making
of
the
disposition
did
not
in
itself,
it
seems
to
me,
“benefit”
the
beneficiaries
under
the
trust.
Whether
in
the
long
run
they
would
be
better
off
by
reason
of
the
disposition
depended
on
a
number
of
factors
which
might
occur
in
the
future,
including
the
winding
up
of
Bemar,
and
the
ownership
by
Bemar
at
that
time
of
sufficient
assets
to
pay
off
the
Class
B
shareholders
and
have
a
surplus
distributable
to
Class
A
shareholders.
Putting
it
in
another
way,
on
the
date
of
the
disposition
the
wife
and
children
of
the
deceased
were
the
cestuis
que
trustent
of
a
trust,
which
owned
some
of
the
shares
in
Bemar.
No
property
interest
accrued
to
the
trust,
either
at
law
or
in
equity,
by
reason
of
the
disposition.
The
only
effect
was
that
in
certain
events
an
asset
which
it
already
held
might
become
more
valuable.
It
is
unnecessary
to
consider
if
this
judgment
is
well
founded.
The
facts
in
the
present
case
are
substantially
different
from
those
in
Chodikoff.
The
subsidiary
company
to
which
the
residue
of
the
estate
was
bequeathed
was
wholly
owned
and
controlled
by
the
parent
company.
There
were
no
other
shareholders.
The
statutory
provisions
under
consideration
in
Chodikoff
were
entirely
different
from
those
now
under
consideration.
The
appellants
also
rely
upon
Rodwell
Securities
Ltd
v
IRC,
[1968]
1
All
ER
257.
This
case
involved
a
claim
for
exemption
from
payment
of
stamp
duty
in
respect
of
a
conveyance
of
land.
The
wholly-owned
subsidiary
of
a
parent
company
conveyed
land
to
a
company
which
was
a
wholly-owned
sub-
sidiary
of
another
wholly-owned
subsidiary
of
the
parent
company.
An
exemption
from
payment
of
stamp
duty
was
permitted
under
subsection
42(2)
of
the
Finance
Act,
1930,
which
provided:
This
section
applies
to
any
instrument
as
respects
which
it
is
shown
to
the
satisfaction
of
the
Commissioner
of
Inland
Revenue
(a)
that
the
effect
thereof
is
to
convey
or
transfer
a
beneficial
interest
in
property
from
one
company
with
limited
liability
to
another
such
company;
and
(b)
that
either—(i)
one
of
the
companies
is
beneficial
owner
of
not
less
than
ninety
per
cent
of
the
issued
share
capital
of
the
other
company;
or
(ii)
not
less
than
ninety
per
cent
of
the
issued
share
capital
of
each
of
the
companies
is
in
the
beneficial
ownership
of
a
third
company
with
limited
liability.
Neither
the
transferor
nor
the
transferee
company
had
beneficial
ownership
of
shares
of
the
other
company.
The
parent
company
wholly
owned
the
transferor
company,
but
the
transferee
company
was
not
wholly
owned
by
the
parent
company,
but
by
a
subsidiary
of
the
parent
company.
Pennycuick,
J
held
that
the
exempting
provision
did
not
apply.
He
said,
at
259:
In
order
to
escape
from
that
position,
counsel
for
the
Securities
company
has
to
get
through
the
company
structure
and
establish
that
the
exempting
provision
covers
the
position
where
one
company
has
the
entire
interest,
to
use
a
neutral
term,
in
another
company,
through
the
medium
of
a
subsidiary
of
the
first
company
of
which
the
second
company
is
in
itself
in
turn
a
subsidiary.
That
is
a
position
which
it
seems
to
me
is
not
covered
by
the
wording
of
section
42.
At
260,
he
said:
.
.
.
According
to
the
legal
meaning
of
the
words,
a
company
is
not
the
beneficial
owner
of
the
assets
of
its
own
subsidiary.
The
legal
meaning
of
the
words
takes
account
of
the
company
structure
and
the
fact
that
each
company
is
a
separate
legal
person.
It
should
be
noted
that
that
case
was
concerned
with
the
meaning
of
the
words
“beneficial
owner”
and
not
with
the
words
“beneficially
entitled”
and
I
agree
with
Hart,
J
that
there
is
a
distinction.
Further,
Pennycuick,
J
was
Careful
to
distinguish
the
ownership
of
the
shares
as
contrasted
with
a
controlling
interest
in
the
company.
The
judgment
of
the
Court
of
Appeal
in
Littlewoods
Mail
Order
Stores,
Ltd
v
McGregor,
[1969]
3
All
ER
855,
is,
in
my
opinion,
much
more
relevant
to
the
circumstances
of
this
appeal.
It
dealt
with
a
deduction
claimed
in
computing
income
for
income
tax
purposes.
The
taxpayer,
which
carried
on
business
in
London,
leased
its
business
premises
under
a
99-year
lease,
of
which
88
years
were
unexpired.
The
annual
rent
was
£23,444.
Under
an
arrangement
made
with
the
freehold
owner,
the
freehold
title
to
the
land
was
acquired
by
a
wholly-owned
subsidiary
of
the
taxpayer,
Fork
Manufacturing
Co,
Ltd.
Fork
leased
the
premises
to
the
former
owner
for
22
years
and
ten
days
at
a
rent
of
£6
per
year.
The
former
owner
then
sub-leased
the
premises
to
the
taxpayer
for
22
years
at
an
annual
rent
of
£42,450.
The
taxpayer
claimed
that
amount
as
a
deduction
for
income
tax
purposes.
The
Inland
Revenue
Commissioners
disallowed
the
difference
between
£42,250
and
the
rent
of
£23,444
previously
being
paid.
The
claim
of
the
taxpayer
was
that
Fork
was
a
separate
and
independent
entity
and
must
be
treated
in
the
same
way
as
if
its
shares
were
held
by
someone
other
than
the
taxpayer.
The
freehold
title
would
be
acquired
by
Fork
and
the
taxpayer,
as
a
result
of
the
transaction,
would
acquire
no
capital
asset
at
all.
This
submission
was
dealt
with
by
Lord
Denning,
MR,
at
860,
as
follows:
I
cannot
accept
this
argument.
I
decline
to
treat
the
Fork
company
as
a
separate
and
independent
entity.
The
doctrine
laid
down
in
Salomon
v
Salomon
&
Co,
Ltd
([1897]
AC
22;
[1895-99]
All
ER
Rep
33)
has
to
be
watched
very
carefully.
It
has
often
been
supposed
to
cast
a
veil
over
the
personality
of
a
limited
company
through
which
the
courts
cannot
see.
But
that
is
not
true.
The
courts
can
and
often
do
draw
aside
the
veil.
They
can,
and
often
do,
pull
off
the
mask.
They
look
to
see
what
really
lies
behind.
The
legislature
has
shown
the
way
with
group
accounts
and
the
rest.
And
the
courts
should
follow
suit.
I
think
that
we
should
look
at
the
Fork
company
and
see
it
as
it
really
is—the
wholly-owned
subsidiary
of
the
taxpayers.
It
is
the
creature,
the
puppet,
of
the
taxpayers
in
point
of
fact;
and
it
should
be
so
regarded
in
point
of
/aw.
The
basic
fact
here
is
that
the
taxpayers,
through
their
wholly-owned
subsidiary,
have
acquired
a
capital
asset—the
freehold
of
Jubilee
House;
and
they
have
acquired
it
be
paying
an
extra
£19,006
a
year.
So
regarded,
the
case
is
indistinguishable
from
the
Land
Securities
case
([1969]
2
All
ER
430;
[1969]
1
WLR
604).
The
taxpayers
are
not
entitled
to
deduct
this
extra
£19,006
in
computing
their
profits.
Karminski,
LJ,
after
referring
to
the
submission
of
counsel
for
the
taxpayer
that
the
taxpayer
and
Fork
were
two
separate
entities
in
law,
went
on
to
say,
at
862:
.
.
.
There
is
no
doubt
as
to
the
correctness
of
that
submission,
based
as
it
is
on
the
rule
in
Salomon
v
Salomon
&
Co,
Ltd
([1897]
AC
22;
[1895-99]
All
ER
Rep
33)
of
many
years
standing.
But
it
is
necessary
here,
as
I
think,
to
look
at
what
I
believe
to
be
the
realities
of
this
situation.
The
taxpayers
are,
as
we
have
heard,
a
large
and
important
trading
company.
The
Fork
company
is
shown
by
its
balance
sheet,
which
we
have
seen,
to
be
not
only
a
separate
entity,
but
one
which
is
a
creation
of,
or
at
any
rate,
completely
dependent
on
the
taxpayers.
I
say
that
for
this
reason:
we
have
the
balance
sheets
for
a
number
of
years,
beginning
with
the
year
ending
December
1959,
and
finishing
with
the
balance
sheet
for
the
year
ending
December
1962.
The
authorised
capital
of
the
Fork
company
was
20,000
shares
of
£1
each.
The
issued
capital
was
more
modest,
being
two
shares
of
£1
each
fully
paid.
Otherwise
the
only
assets,
apart
from
that
modest
paid-up
capital,
was
freehold
land
and
buildings
valued
by
the
directos
in
1959
at
£20,000.
By
the
time
of
the
December
1962
balance
sheet
that
valuation
had
gone
up,
no
doubt
perfectly
rightly,
to
£86,202;
but
the
rest
of
the
balance
sheet
remained
remarkably
unchanged.
It
is
true
that
the
cash
in
hand
in
1958
was
£2;
but
so
it
was
in
1962.
But
meanwhile
the
cash
at
the
bank
had
increased
from
nothing
to
£13
75.
Those
figures,
not
perhaps
very
illuminating
in
themselves,
have
at
any
rate
convinced
me
that
the
only
object
of
the
Fork
company
in
1958
was
to
hold
this
very
valuable
property,
which
Lord
Denning,
MR,
has
described
in
detail,
for
the
taxpayers.
It
is
necessary
I
think
to
ask
myself,
after
that
examination
of
the
details,
who
really
benefited
from
getting
hold
of
the
freehold.
To
that
in
my
view
there
can
be
only
one
answer,
ie,
the
taxpayers,
and
not
the
Fork
company.
Another
instance
of
the
so-called
lifting
of
the
corporate
veil
is
to
be
found
in
another
judgment
of
the
Court
of
Appeal
in
DHN
Food
Distributors
Ltd
v
Tower
Hamlets
London
Borough
Council,
[1976]
1
WLR
852,
in
which
Lord
Denning,
at
860,
speaking
of
the
wholly-owned
subsidiaries
in
that
case
and
of
the
parent
company
said:
“These
subsidiaries
are
bound
hand
and
foot
to
the
parent
company
and
must
do
just
what
the
parent
company
says”.
Goff,
LJ,
at
861,
referred
to
the
fact
that,
in
that
case,
“the
two
subsidiaries
were
both
wholly
owned,
further
they
had
no
separate
business
operations
whatsoever”.
I
do
not
think
that
in
order
to
support
the
judgments
below
it
is
really
necessary
to
“‘lift
the
corporate
veil”.
Subsection
2(5)
comes
into
operation
not
only
when
a
corporation
“acquires”
property
of
the
deceased
but
also
when
it
“becomes
beneficially
entitled”
thereto.
This
last
expression,
coming
as
it
does
after
the
word
“acquires”,
clearly
contemplates
that
the
property
has
gone
to
another
person
for
the
benefit
of
the
corporation.
It
would
undoubtedly
cover
the
case
of
property
bequeathed
to
a
trustee
for
the
benefit
of
the
corporation.
It
cannot
be
denied
that
in
this
situation
the
corporation
would
become
“beneficially
entitled”
to
the
property.
However
the
statute
does
not
restrict
the
application
of
the
provision
to
such
a
case.
In
my
view,
the
corporation
is
no
less
“beneficially
entitled”
when
the
property
is
held
by
its
wholly-owned
subsidiary
as
when
it
is
held
in
trust
for
it.
Its
legal
entitlement
is
even
more
immediate
as
it
does
not
have
to
call
upon
a
third
party
to
perform
its
obligation
as
trustee.
It
only
has
to
exercise
its
rights
as
sole
shareholder
of
its
subsidiary.
Nothing
in
the
context
of
subsection
2(5)
justifies
giving
a
restricted
meaning
to
the
expression
“beneficially
entitled”,
which
ought
to
be
read
according
to
the
meaning
of
the
words
in
ordinary
language.
I
cannot
find
that
it
has
acquired
a
technical
meaning
to
which
it
must
be
restricted
in
this
statute.
In
my
opinion,
in
considering
the
application
of
subsection
2(5)
to
the
unusual
facts
of
this
case,
this
Court
should
not
feel
itself
rigidly
bound,
in
interpreting
the
words
“beneficially
entitled”,
by
rules
of
equity
evolved
in
the
courts
of
chancery
in
connection
with
trusts.
This
approach
was
manifested
by
this
Court
in
Minister
of
Revenue
for
the
Province
of
Ontario
v
McCreath
et
al,
[1977]
1
SCR
1;
[1976]
CTC
178.
During
her
lifetime,
Mrs
McCreath
established
a
trust
in
respect
of
certain
property.
The
trust
provided
that,
during
her
lifetime,
the
trustee
was
required
to
pay
or
apply
the
whole
net
income
from
the
trust
fund
to
or
for
the
benefit
of
Mrs
McCreath
and
her
children,
or,
in
its
discretion,
to
any
one
or
more
of
the
group.
On
her
death,
the
trustee
was
to
dispose
of
the
fund
among
her
issue
or
such
of
them
as
she
might
by
will
direct.
In
default
of
such
direction,
there
was
to
be
an
equal
division.
The
taxing
statute
in
question
was
drafted
so
as
to
catch
all
forms
of
transactions
which
had
the
result
of
transferring
property
on
death.
Therefore,
“property
passing
on
the
death
of
a
deceased”
was
broadly
defined
and
was
deemed
to
include,
according
to
subparagraph
1
(p)(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
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,
or
the
proceeds
of
sale
thereof,
or
to
otherwise
resettle
the
same
or
any
part
thereof,
.
.
.
The
question
was
as
to
whether,
under
the
trust,
Mrs
McCreath
had
reserved
to
herself
“an
interest”
in
the
property
expressly
or
by
implication.
It
was
contended
on
behalf
of
the
respondents
that
no
interest
had
been
reserved.
The
distribution
of
the
annual
income
as
among
Mrs
McCreath
and
her
children
was
entirely
at
the
discretion
of
the
trustee
among
one
or
more
of
the
group.
Mrs
McCreath
had
no
enforceable
right
to
obtain
any
part
of
the
income.
This
submission
was
rejected
in
the
judgment
of
the
majority
of
the
Court
(the
other
member
of
the
Court
reached
the
same
result
on
other
grounds).
The
reasons
for
the
rejection
were
stated
at
15
[187]
as
follows:
I
conclude
that
Mrs
McCreath
retained
an
interest
in
the
settled
property
for
purposes
of
subparagraph
1(p)(viii)
by
making
herself
one
of
the
possible
objects
of
the
discretionary
trust.
The
primary
objects
of
the
donor’s
bounty
are
“‘the
Settlor
and
her
issue
from
time
to
time
alive”,
and,
in
fact,
the
settlor
did
receive
income
pursuant
to
para
1(a).
Mrs
McCreath
could
apply
to
the
Court
to
require
the
trustee
to
respect
the
terms
of
the
trust
if
it
refused
to
exercise
its
discretion.
The
fact
that
a
discretionary
object
may
have
no
interest
in
property
law
terms
because
she
has
no
“right”
to
a
definable
amount
is
irrelevant.
I
do
not
believe
that
the
niceties
and
arcana
of
ancient
property
law
should
be
fastened
upon
with
mechanical
rigidity
to
determine
the
effect
of
a
modern
taxation
statute
whose
purpose
is
plain.
In
my
opinion,
the
parent
company,
in
the
circumstances
of
this
case,
did
have
beneficial
entitlement
to
the
residue
of
the
estate
within
the
meaning
of
subsection
2(5).
The
fact
that
it
was
not
made
a
beneficiary
under
the
will
does
not
preclude
this
finding
in
view
of
the
fact
that
it
had
complete
and
absolute
control
of
the
named
beneficiary,
the
subsidiary
company,
and
had
the
legal
capacity
to
compel
that
company
to
turn
over
to
it
the
share
of
the
estate
bequeathed
to
it.
This
conclusion
is
fortified
by
the
fact
that
it
was
the
obvious
purpose
of
the
scheme
adopted
by
the
testator
that
the
Subsidiary
company
should
turn
over
to
the
parent
company
the
residue
of
the
estate
so
that
it
could,
in
turn,
divide
the
residue
among
its
shareholders,
ie
the
twelve
grandchildren
of
the
deceased.
His
intention
was
manifested
in
the
will
as
it
was
first
drawn.
The
clear
intention
of
the
testator
was
to
divide
the
residue
of
his
estate
among
his
grandchildren.
The
codicil,
plus
the
scheme
of
corporate
arrangement
with
the
parent
company
owning
all
the
shares
of
the
subsidiary
company,
accomplished
the
same
result,
but
involved
the
residue
passing
through
the
hands
of
two
corporations
before
finally
reaching
the
intended
beneficiaries.
Both
companies
were
incorporated
on
the
same
day
in
the
same
office
by
the
same
lawyers.
Neither
the
parent
company
nor
the
subsidiary
company
engaged
in
any
business
activity
between
their
dates
of
incorporation
and
the
date
of
Mr
Jodrey’s
death.
Neither
of
them
had
any
creditors.
Both
of
them
had
the
same
directors.
Both
had
the
same
officers.
This
is
eminently
a
case
in
which
the
Court
should
examine
the
realities
of
the
situation
and
conclude
that
the
subsidiary
company
was
bound
hand
and
foot
to
the
parent
company
and
had
to
do
whatever
its
parent
said.
It
was
a
mere
conduit
pipe
linking
the
parent
company
to
the
estate.
In
the
circumstances,
it
is
my
view
that
the
parent
company
was
beneficially
entitled
to
the
residue
of
the
estate
within
the
meaning
of
subsection
2(5).
Although
it
is
not
a
named
beneficiary
under
the
will,
the
corporate
scheme
evolved
by
the
deceased
has
clothed
it
with
total
control
over
the
named
beneficiary,
the
subsidiary
company,
and
has
enabled
it
legally
to
compel
the
subsidiary
company
to
turn
over
the
residue
of
the
estate
to
it.
The
reality
of
the
situation
is
that
the
parent
company
is
the
beneficial
owner
of
the
residue
of
the
estate
and
that
this
was
not
only
known
to
the
deceased
when
he
executed
the
codicil
to
his
will,
but
was
intended
by
him.
He
knew
that
the
codicil
bequeathed
the
residue
of
his
estate
to
a
company
which,
under
the
arrangement
evolved
for
him,
was
wholly
owned
by
the
parent
company
whose
shareholders,
his
grandchildren,
were
the
intended
recipients
of
his
bounty.
To
use
the
words
of
Rand,
J
in
the
Montreal
Trust
Company
(supra)
case,
the
parent
company,
though
having
no
right
as
a
beneficiary
of
the
will
to
sue
the
executors
directly,
had
“an
ultimate
and
altenative
resort
as
the
effective
cause
of
payment”.
This
conclusion
does
not
involve
any
conflict
with
the
principle
stated
in
cases
such
as
Macaura
v
Northern
Assurance
Company,
Limited
and
others,
[1925]
AC
619,
that
a
corporate
shareholder
does
not
have
a
right
to
the
corporate
assets
of
a
corporation.
The
point
in
issue
in
this
appeal
is
that
by
virtue
of
its
total
control
over
the
subsidiary
company,
the
parent
company
is
in
a
legal
position
to
compel
it
to
deal
with
its
assets
in
the
manner
dictated
by
the
parent
company.
In
my
opinion,
the
appeal
on
the
first
issue
fails.
Second
Issue
The
appellants
contend
that
subsection
2(5)
of
the
Act
is
ultra
vires
of
the
Legislature
of
Nova
Scotia.
it
is
said
that
subsection
2(5)
of
the
Act
requires
an
application
of
the
charging
provisions
of
subsection
8(2)
of
the
Act,
which
results
in
taxation
that
is
not
“within
the
Province”
and
is
indirect
and
thus
not
within
subsection
92(2)
of
The
British
North
America
Act.
For
purposes
of
convenience,
section
8
of
the
Act
is
repeated
here:
(1)
Subject
as
hereafter
otherwise
provided,
duty
shall
be
paid
on
all
property
of
a
deceased
that
is
situated,
at
the
time
of
the
death
of
the
deceased,
within
the
Province.
(2)
Subject
as
hereafter
otherwise
provided,
where
property
of
a
deceased
was
situated
outside
the
Province
at
the
time
of
the
death
of
a
deceased
and
the
successor
to
any
of
the
property
of
the
deceased
was
a
resident
at
the
time
of
the
death
of
the
deceased,
duty
shall
be
paid
by
the
successor
in
respect
of
that
property
to
which
he
is
the
successor.
It
is
submitted
by
the
appellants
that
the
proper
categorization
of
the
tax
imposed
by
subsection
8(2)
of
the
Act
is
that
it
is
a
succession
duty
and
that
the
subject
matter
of
the
tax
is
the
transmission
of
property.
The
appellants
relied,
in
support
of
their
contention,
upon
the
judgment
of
the
Court
of
Appeal
of
British
Columbia
in
The
Canada
Trust
Company
and
Olga
El
left
v
The
Attorney-General
of
British
Columbia,
[1979]
2
WWR
683;
[1979]
CTC
134,
which
held
that
section
6A
of
The
Succession
Duty
Act,
RSBC
1960,
c
372,
as
amended
by
SBC
1972,
c
59,
s
14,
was
invalid.
Subsection
(1)
of
6A
is
substantially
the
same
as
subsection
8(2)
of
the
Nova
Scotia
Act.
Section
6A
provides
as
follows:
(1)
Where
property
of
a
deceased
was
situated
outside
the
Province
at
the
time
of
the
death
of
the
deceased,
and
the
beneficiary
of
any
of
the
property
of
the
deceased
was
a
resident
at
the
time
of
the
death
of
the
deceased,
duty
under
this
Act
shall
be
paid
by
the
beneficiary
in
respect
of
that
property
of
which
he
is
the
beneficiary.
(2)
The
beneficiary
of
the
property
of
the
deceased
referred
to
in
subsection
(1)
shall,
except
as
provided
in
section
5,
pay
the
duty
in
respect
of
that
property
calculated
on
the
dutiable
value
thereof
at
the
rate
prescribed
in
the
Table
of
Rates
in
Schedule
C,
as
ascertained
according
to
the
following
method;
In
a
judgment
of
this
Court,
recently
delivered,
an
appeal
from
the
judgment
of
the
British
Columbia
Court
of
Appeal
was
allowed
and
section
6A
was
held
to
be
intra
vires
of
the
Legislature
of
British
Columbia.
It
was
held
that
section
6A
“imposes
an
in
personam
tax
on
a
resident
beneficiary”.
It
must
therefore
be
taken
as
settled
law
that
subsection
8(2)
of
the
Act
is
valid
legislation
and
that
the
tax
imposed
by
it
is
an
in
personam
tax
on
a
resident
Successor.
Subsection
(5)
of
section
2,
coupled
with
subsection
8(2),
merely
imposes
upon
resident
shareholder
successors
the
same
obligation
imposed
upon
resident
successors
by
subsection
8(2).
They
do
not
succeed
to
property
of
the
deceased
directly,
but
the
property
ultimately
devolves
upon
them
by
reason
of
his
death
through
their
ownership
of
shares
in
a
non-resident
corporation
which
becomes
beneficially
entitled
to
property
of
the
deceased.
The
tax
which
is
imposed
upon
the
grandchildren
of
the
deceased
by
the
combined
effect
of
subsection
8(2)
and
subsection
2(5)
is
a
tax
imposed
upon
residents
of
Nova
Scotia
measured
by
their
succession
to
the
estate
of
a
resident
of
Nova
Scotia,
whose
will
was
made
and
probated
in
Nova
Scotia.
This
is
a
tax
upon
residents
in
the
province
and
so
is
taxation
within
the
province.
The
tax
is
not
a
tax
upon
property
outside
the
province.
It
is
a
tax
upon
persons
within
the
province
measured
by
the
benefits
which
they
derive
as
a
result
of
the
bequest
made
to
a
non-resident
corporation
of
which
they
are
the
shareholders.
It
is
clearly
imposed
upon
the
very
persons
who
were
intended
to
pay
it,
and
so
it
cannot
be
regarded
as
an
indirect
tax.
In
my
opinion,
subsection
2(5)
was
intra
vires
of
the
Legislature
of
Nova
scotia
to
enact.
I
would
dismiss
the
appeal
with
costs.
Dickson,
J
(dissenting):—In
this
appeal
the
Court
is
asked
to
draw
the
line
between
acceptable
estate
tax
planning
and
unacceptable
tax
evasion.
In
broad
and
general
terms,
the
issue
is
this:
where
a
testator
or
taxpayer
has
studied
the
relevant
legislation
and
ordered
his
affairs
in
such
a
manner
as
to
avoid
the
apparent
reach
of
the
measure,
and
where
there
is
no
statutory
definition
of
improper
tax
avoidance,
in
what
circumstances
will
a
court
strike
down
his
acts?
There
is,
I
think,
a
distinction
to
be
made
between
cases
in
which:
(a)
tax
consequences
are
clearly
delineated
in
the
statute,
and,
cognizant
that
he
fails
squarely
within
its
ambit,
the
taxpayer
sets
out
to
disguise
or
alter
the
character
of
his
income;
and,
(b)
those
in
which
a
taxpayer
finds
a
lacuna
or
way
in
which
he
can
validly
take
his
income
wholly
outside
the
express
wording
of
the
statute.
The
taxpayer
does
not
falsely
represent
his
position
to
the
taxing
authorities;
he
merely
rearranges
his
affairs
in
a
legal
manner
so
as
to
minimize
tax
liability.
The
decision
as
to
whether
his
acts
constitute
(a)
reprehensible
tax
evasion
or
(b)
legitimate
tax
planning,
will
depend
upon
the
jurisprudence
as
applied
to
the
facts
of
the
particular
case.
I
propose
to
deal
with
this
question
under
the
following
heads:
I
Facts
ll
Interpretaion
of
Fiscal
Legislation
III
“Beneficially
Entitled”
IV
Lifting
the
Corporate
Veil
V
Sham
VI
Conclusion
I
The
Facts
Roy
A
Jodrey,
for
thirty
years
a
resident
of
Hantsport,
Nova
Scotia,
died
there
on
August
12,
1973.
By
his
will,
executed
on
August
13,
1963
he
had
given
his
executors,
the
appellants
in
the
present
case,
the
usual
directions
as
to
payment
of
debts,
funeral
and
testamentary
expenses,
estate
taxes
and
succession
duties.
Then,
after
making
charitable
and
other
bequests,
he
had
directed
that,
on
the
death
of
his
wife,
the
rest
and
residue
be
divided
equally
among
his
grandchildren.
Following
execution
of
the
will,
and
during
the
lifetime
of
Mr
Jodrey,
the
federal
government,
on
January
1,
1972,
vacated
the
estate
tax
field.
The
Province
of
Nova
Scotia,
in
common
with
a
number
of
other
provinces,
moved
with
alacrity
to
fill
the
void,
and
passed
An
Act
Respecting
Succession
Duties,
SNS
1972,
c
17,
deemed
to
have
been
in
force
in
January
1,
1972.
The
Act
imposed
succession
duties
on
all
property
of
a
deceased
Situated
within
the
province
at
the
time
of
his
death,
as
well
as
on
property
situated
outside
the
province,
passing
to
resident
“successors”.
It
became
apparent
that,
unless
something
were
done,
Mr
Jodrey’s
twelve
grandchildren,
all
of
whom
were
resident
in
Nova
Scotia,
would
be
liable,
as
“successors”,
to
succession
duties.
Accordingly,
a
rather
elaborate
scheme
was
devised,
and
implemented,
by
which
it
was
hoped
to
escape
the
imposition
of
duty
in
Nova
Scotia
on
the
estate
then
valued
at
some
$3,500,000.
The
scheme
involved
three
main
moves:
1.
The
incorporations—On
September
13,
1972
Mr
Jodrey
caused
to
be
incorporated
in
Alberta,
then
the
only
province
free
of
succession
duties,
three
companies:
(a)
JBH
Investments
Ltd—the
parent
company
which
issued
to
each
of
Mr
Jodrey’s
twelve
grandchildren,
100
common
shares
at
a
price
of
$1
per
share,
paid
by
the
grandchildren.
(b)
JGC
Investments
Ltd—the
subsidiary
company
which
issued
100
common
shares,
all
of
which
were
beneficially
owned
by
the
parent
company.
(c)
White
Rock
Investments
Ltd—which
issued
two
common
shares,
each
beneficially
owned
by
Mr
Jodrey.
Each
of
the
companies
became
a
registered
Alberta
corporation.
None
carried
on
business
in
Nova
Scotia.
The
head
office,
share
transfer
register
and
certificates
for
issued
shares
of
each
was
located
in
Alberta.
The
officers
and
directors
of
each
were
residents
of
Alberta.
2.
The
White
Rock
Transaction
On
September
22,
1972
Mr
Jodrey
entered
into
an
agreement
whereby
he
agreed
to
sell
and
White
Rock
Investments
agreed
to
purchase,
4,600
shares
of
RA
Jodrey
Investments
Limited,
a
Nova
Scotia
corporation
owned
and
controlled
by
Mr
Jodrey,
for
a
consideration
of
$3,735,200.
White
Rock
gave
Mr
Jodrey
a
promissory
note
in
that
amount,
payable
without
interest
upon
presentation
at
the
registered
office
of
White
Rock
in
the
Province
of
Alberta.
On
July
3,
1973
White
Rock
paid
$105,800
on
account
of
the
note,
leaving
a
balance
owing
at
the
date
of
Mr
Jodrey’s
death,
of
$3,629,400.
The
promissory
note
was
situate
in
Alberta
at
that
date.
3.
The
codicil
By
a
codicil
to
his
will,
executed
October
5,
1972,
Mr
Jodrey
revoked
the
bequest
to
his
grandchildren
of
the
residue
of
his
estate,
and
substituted
therefor:
the
rest
and
residue
of
my
estate
I
give
and
bequeath
to
JGC
Investments
Limited,
an
Alberta
company,
including
without
limitation
a
note
of
White
Rock
Investments
Limited.
The
steps
taken
were
not
dissimilar
to
those
which
the
author
of
a
paper
delivered
at
the
Twenty-Third
Tax
Conference,
1971,
of
the
Canadian
Tax
Foundation
(Report
of
Proceedings,
p
36)
suggested
might
be
taken
by
a
father
wishing
legally
to
avoid
succession
duties.
The
author,
under
the
rubric
of
“transmissions”,
wrote:
It
may
be
possible
under
present
law
for
a
father
legally
to
avoid
succession
duties,
even
if
his
children
are
domiciled
or
resident
in
the
father’s
province
of
domicile.
If,
for
example,
a
father
domiciled
in
Ontario
transferred
all
his
assets,
including
those
which
are
situated
in
Ontario,
to
an
Alberta
holding
company,
in
return
for
shares
of
the
Alberta
company,
and
if
his
children
then
also
incorporated
a
second
Alberta
holding
company
and
by
his
will
the
father
left
his
shares
in
the
first
company
to
the
second
company,
it
would
seem
that
Ontario
would
not
be
in
a
position
to
levy
any
duty.
In
Re
Chodikoff
Estate
(1971),
1
OR
321,
the
Ontario
Court
of
Appeal
held
that
a
disposition
made
by
way
of
bargain
sale
by
a
father
to
his
children’s
holding
company
was
a
disposition
to
the
holding
company,
and
not
to
his
children,
and
that
it
was
therefore
taxable
at
the
rates
of
duty
applicable
to
strangers,
rather
than
those
applicable
to
preferred
beneficiaries.
Applying
this
reasoning
to
our
hypothetical
case,
it
would
seem
that
a
bequest
of
the
shares
of
the
first
Alberta
company
to
the
second
Alberta
company
could
not
be
considered
a
transmission
to
the
testator’s
children,
who
are
resident
in
Ontario,
merely
because
they
were
the
shareholders
of
the
second
Alberta
company.
The
purpose
of
the
two-tiered,
parent-subsidiary
relationship
in
the
case
at
bar
was
to
place
the
residue
of
the
estate
outside
the
taxing
provisions
of
the
newly
enacted
Nova
Scotia
statute,
paragraph
1(ae)
of
which
reads:
(ae)
“successor”
in
relation
to
any
property
of
the
deceased
includes
any
person
who,
at
any
time
before
or
on
or
after
the
death
of
the
deceased
became
or
becomes
beneficially
entitled
to
any
property
of
the
deceased
(i)
by
virtue
of,
or
conditionally
or
contingently
on,
the
death
of
the
deceased,
or
The
Minister
of
Finance
relied
upon
paragraph
2(5)(b)
in
seeking
to
tax
the
grandchildren:
(5)
Where
a
corporation
which
is
not
resident
in
the
Province,
other
than
a
corporation
without
share
capital,
by
reason
of
the
death
of
a
deceased
acquires
or
becomes
beneficially
entitled
to
property
of
the
deceased,
(a)
the
corporation
shall
be
deemed
not
to
be
the
successor
of
the
property
except
to
the
extent
that
the
value
of
the
shares
of
the
shareholders
of
the
corporation
is
not
increased
in
value
by
the
corporation
acquiring
or
becoming
beneficially
entitled
to
the
property;
and
(b)
each
of
the
shareholders
of
the
corporation
shall
be
deemed
to
be
a
successor
of
property
of
the
deceased
to
the
extent
of
the
amount
by
which
the
value
of
his
shares
in
the
corporation
is
increased
by
the
corporation
acquiring
or
becoming
beneficially
entitled
to
the
property.
The
charging
provisions
read:
8.
(1)
Subject
as
hereafter
otherwise
provided,
duty
shall
be
paid
on
all
property
of
a
deceased
that
is
situated,
at
the
time
of
the
death
of
the
deceased,
within
the
Province.
(2)
Subject
as
hereafter
otherwise
provided,
where
property
of
a
deceased
was
situated
outside
the
Province
at
the
time
of
the
death
of
a
deceased
and
the
successor
to
any
of
the
property
of
the
deceased
was
a
resident
at
the
time
of
the
death
of
the
deceased,
duty
shall
be
paid
by
the
successor
in
respect
of
that
property
to
which
he
is
the
successor.
9.
Each
successor
to
any
property
of
a
deceased
on
which
duty
is
payable
under
subsection
(1)
of
Section
8
and
each
successor
liable
to
pay
duty
under
subsection
(2)
of
Section
B
shall
pay
the
duty
to
the
Minister
for
the
raising
of
a
revenue
for
provincial
purposes.
Subsection
8(2)
is
concerned
with
property
situate
outside
the
Province,
and
successors
resident
within
the
Province.
The
legatee,
an
Alberta
company,
was
not
resident
within
the
Province
of
Nova
Scotia
and
therefore
the
bequest
was
outside
subsection
8(2),
unless
paragraph
2(5)(b)
of
the
Act
could
be
called
in
aid.
That
section
addresses
the
situation
where
a
corporation,
such
as
JGC
Investments
Ltd,
not
resident
in
Nova
Scotia,
becomes
beneficially
entitled
to
property
by
reason
of
the
death
of
the
deceased.
Paragraph
2(5)(b)
is
clearly
intended
to
reach
resident-shareholders
of
non-resident
legatee
companies.
If
Mr
Jodrey
had
left
the
residue
of
his
estate
to
an
Alberta
company
in
which
his
grandchildren
held
shares,
I
do
not
think
there
is
any
doubt
(subject
to
any
constitutional
challenge)
that
the
grandchildren
would
have
been
subject
to
tax.
The
scheme
I
have
outlined,
however,
introduced
a
second
Alberta
company.
The
sole
shareholder
of
the
legatee
corporation,
JGC
Investments
Ltd,
is
its
parent,
JBH
Investments
Ltd.
That
corporation
is
not
resident
in
Nova
Scotia.
Therefore,
it
is
argued,
that
company
and
its
shareholders,
the
grandchildren,
fall
outside
the
scope
of
the
Act.
The
draftsman
of
the
Act
envisaged
the
possibility
of
a
non-resident
corporate
legatee
with
resident
shareholders,
and
made
provision
for
that
eventuality.
He
overlooked
the
possibility
of
a
legatee
subsidiary
company
having
a
non-resident
parent,
controlled
by
resident
shareholdes.
That
lapse,
it
is
said,
relieves
the
grandchildren
of
tax
in
respect
of
the
residue
received
by
the
subsidiary
of
the
parent
company
in
which
they
are
sole
shareholders.
Is
all
this
the
legitimate
arranging
of
one’s
affairs
so
as
to
fall
outside
the
language
of
the
taxing
statute
or
is
it
improper
tax
evasion?
If
the
latter,
on
what
legal
basis
is
it
to
be
so
regarded?
The
views
of
the
individual
judge
as
to
the
propriety
or
impropriety
of
the
conduct
of
the
testator,
and
the
desirability
or
undesirability
of
the
result
sought
to
be
attained
by
the
testator,
do
not
furnish
any
guide
to
decision.
By
notice
of
assessment
dated
August
8,
1975
addressed
to
the
Executors
of
the
estate,
the
total
value
of
the
estate
was
increased
by
$3,784,273,
of
which
$2,999,000
was
attributable
to
“promissiory
note
with
situs
in
Alberta”;
the
applicable
rate
of
duty
was
established
to
be
48.5%;
the
duty
was
assessed
in
the
amount
of
$1,534,421.96
and
interest
thereon
at
the
rate
of
8%
per
annum.
It
is
common
ground
that
by
the
notice
of
assessment,
duty
was
assessed
against
the
twelve
grandchildren
on
the
basis
they
are
successors
to
the
residue
of
the
estate.
The
Executors
filed
a
notice
of
objection.
The
Minister
of
Finance
confirmed
the
assessment
“as
having
been
made
in
accordance
with
the
provisions
of
the
Act
and
in
particular
on
the
ground
that
the
twelve
grandchildren
of
the
deceased,
all
residents
in
Nova
Scotia
at
the
time
of
death,
are
true
and
proper
successors
to
the
residue
of
the
estate
pursuant
to
paragraph
(b)
of
subsection
(5)
of
section
2
of
the
Act”.
The
Minister
has
accepted
throughout
that
the
grandchildren
were
not
“successors”
under
paragraph
1(ae)
of
the
Act
but
“deemed”
to
be
successors
under
paragraph
2(5)(b),
as
shareholders
of
a
corporation
beneficially
entitled.
Mr
Justice
Hart
in
the
Court
below
noted
this
in
his
reasons
for
judgment
in
the
MacKeen
matter.
Unsuccessful
appeals
in
both
estates
were
taken
from
the
Minister’s
decision
to
the
Trial
Division
and,
later,
the
Appeal
Division
of
the
Supreme
Court
of
Nova
Scotia.
Argument
proceeded
before
both
courts
on
an
agreed
statement
of
facts
and
a
book
of
agreed
exhibits.
The
agreed
statement
of
facts
sets
out
the
two
questions
for
decision
at
trial,
and
now
before
this
Court:
(a)
whether
or
not
the
twelve
grandchildren
of
the
deceased
are
or
are
not
successors
to
the
residue
of
the
estate
of
the
deceased
within
the
meaning
of
section
2(5)
of
the
Act;
and
(b)
if
it
is
found
that
the
twelve
grandchildren
of
the
deceased
are
successors
to
the
residue
of
the
estate
of
the
deceased
within
the
meaning
of
section
2(5)
of
the
Act,
whether
or
not
section
2(5)
is
ultra
vires
the
powers
of
the
legislature
of
Nova
scotia.
Identical
issues
were
before
the
Nova
Scotia
Courts
in
appeals
respecting
the
Estate
of
John
Crerar
MacKeen
and
the
reasons
set
out
in
the
MacKeen
case
were
adopted
by
the
Court
of
Appeal
in
its
reasons
for
decision
in
the
case
at
bar.
In
this
Court
the
Provinces
of
Quebec
and
British
Columbia
intervened
in
support
of
an
affirmative
answer
to
the
following
constitutional
question:
Are
sub-sections
8(2)
and
2(5)
of
the
Succession
Duties
Act
of
the
Province
of
Nova
Scotia,
SNS
1972,
c
17,
intra
vires
of
the
Legislature
of
that
Province
to
enact?
II
Interpretation
of
Fiscal
Legislation
in
all
courts
the
appellants
advanced
a
number
of
propositions
regarding
principles
of
statutory
construction
of
fiscal
legislation,
that
require
comment.
It
is
said
taxing
statutes
are
to
be
strictly
construed.
The
court,
it
is
contended,
can
only
look
to
the
express
words
of
the
statute
and
cannot
explore
and
give
effect
to
the
intention
or
purpose
of
the
Act.
A
passage
from
the
judgment
of
Lord
Halsbury
in
Tennant
v
Smith,
[1892]
AC
150,
at
154
is
cited.
Then
it
is
said
there
is
no
equity
in
the
Crown’s
favour
in
a
taxing
statute.
Reliance
is
placed
on
a
passage
from
Attorney-General
v
The
Earl
of
Selborne,
[1902]
1
KB
388,
in
which
Collins,
MR
adopted
this
principle,
at
396:
If
the
person
sought
to
be
taxed
comes
within
the
letter
of
the
law
he
must
be
taxed,
however
great
the
hardship
may
appear
to
the
judicial
mind
to
be.
On
the
other
hand,
if
the
Crown,
seeking
to
recover
the
tax,
cannot
bring
the
subject
within
the
letter
of
the
law,
the
subject
is
free,
however
apparently
within
the
spirit
of
the
law
the
case
might
otherwise
appear
to
be.
The
appellants
make
reference
to
the
“form
versus
substance”
controversy.
The
court,
it
is
said,
must
examine
the
“legal
effect”
of
the
transaction
and
disregard,
or
at
least
greatly
subordinate,
the
true
substance
of
the
matter.
The
appellants
look
to
well-known
passages
found
in
C/R
v
The
Duke
of
Westminster,
[1936]
AC
1,
at
20,
25
and
31.
Finally,
the
appellants
advance
the
proposition,
not
open
to
challenge,
that
a
taxpayer
may
so
order
his
affairs
as
to
attract
the
least
amount
of
tax,
however
“unappreciative”
the
taxing
authorities
as
to
his
“ingenuity”,
Duke
of
Westminster,
supra,
at
19.
If
the
submissions
made
on
behalf
of
the
appellants,
as
to
the
proper
principles
to
be
applied
in
constructing
fiscal
legislation,
simply
mean
that
it
is
impermissible
to
bring
to
the
task
of
construing
a
fiscal
statute
a
bias
in
favour
of
the
Crown,
then
I
am
in
entire
accord.
A
Court
of
justice
must
act
as
a
neutral
umpire,
impartially
and
objectively,
between
the
taxpayer
and
the
taxing
authority.
Neither
occupies
a
preferred
position.
If,
on
the
other
hand,
the
submissions
of
the
appellants
mean
that
there
are
special
principles
of
construction
governing
the
interpretation
of
fiscal
legislation,
or
that
a
court
must
uncritically
and
supinely
accept
the
form
of
the
transaction,
blind
as
to
what
is
actually
happening,
then,
with
respect,
I
disagree.
Fiscal
legislation
does
not
stand
in
a
category
by
itself.
Persons
whose
conduct
a
statute
seeks
to
regulate
should
know
in
advance
what
it
is
that
the
statute
prescribes.
A
court
should
ask—what
would
the
words
of
the
statute
be
reasonably
understood
to
mean
by
those
governed
by
the
statute?
Unnatural
or
artificial
constructions
are
to
be
avoided.
The
correct
approach,
applicable
to
statutory
construction
generally,
is
to
construe
the
legislation
with
reasonable
regard
to
its
object
and
purpose
and
to
give
it
such
interpretation
as
best
ensures
the
attainment
of
such
object
and
purpose.
The
primary
object
of
a
succession
duty
statute,
such
as
the
legislation
under
consideration,
is
to
capture
such
amounts
for
the
fiscal
coffers
as
the
words
of
the
statutory
net
can
reach.
No
legislative
intention
can
be
assumed
other
than
to
collect
such
tax
as
the
statute
imposes,
no
more
and
no
less.
Although
a
Court
is
entitled,
in
the
case
of
fiscal
legislation
as
with
other
enactments,
to
look
to
the
purpose
of
the
Act
as
a
whole,
as
well
as
the
particular
purpose
of
a
given
section,
it
must
still
respect
the
actual
words
which
express
the
legislative
intention.
In
Corporation
of
the
City
of
Toronto
v
John
Russell,
[1908]
AC
493,
Lord
Atkinson,
delivering
judgment
for
the
Privy
Council
stated
at
501:
Their
Lordships
are
moreover
of
opinion
that,
since
the
main
and
obvious
purpose
and
object
of
the
Legislature
in
passing
the
Act
3
Edw
7,
c
86,
was
to
validate
sales
made
for
arrears
of
taxes
.
.
.
the
statute
should
where
its
words
permit,
be
construed
so
as
to
effect
that
purpose
and
attain
that
object.
(emphasis
added)
The
following
passage
is
found
in
the
judgment
of
Brightman,
J
in
the
Chancery
Division
in
Sansom
et
al
v
Peay,
[1976]
3
All
ER
375,
at
379,
concerning
subsection
29(9)
of
the
Finance
Act:
In
my
view
subsection
29(9)
is
capable
of
bearing
either
the
strict
construction
for
which
counsel
for
the
Crown
has
argued
or
the
broader
construction
advocated
by
counsel
for
the
trustees.
Subsection
(9)
is
an
exempting
subsection,
and
it
is
not
of
course
my
duty,
even
in
the
case
if
(Sic)
a
taxing
statute,
to
try
to
ensure
that
the
exemption
applies.
But
I
think
I
am
permitted
to
take
into
consideration
one
factor
which
must
have
been
present
to
the
mind
of
Parliament
when
enacting
section
29.
The
general
scheme
of
section
29
is
to
exempt
from
liability
to
capital
gains
tax
the
proceeds
of
sale
of
a
person’s
home.
That
was
the
broad
conception.
.
.
.
It
would
not
therefore
be
surprising
if
Parliament
formed
the
conclusion
that,
in
such
circumstances,
it
would
be
right
to
exempt
the
profit
on
the
sale
of
the
first
home
from
the
incidence
of
capital
gains
tax
so
that
there
was
enough
money
to
buy
the
new
home.
Nevertheless,
it
would
not
be
permissible
for
me
to
construe
subsection
(9)
in
a
manner
which
I
thought
was
fair
or
reasonable
unless
the
wording
permits
that
construction.
Nor
do
I
intend
to
travel
outside
the
facts
of
the
particular
case
before
me.
(emphasis
added)
III
Beneficially
Entitled
I
turn
now
to
the
question
whether
the
transaction
in
the
case
at
bar
falls
within
the
meaning
of
the
words
of
subsection
2(5)
so
as
to
deem
the
twelve
grandchildren
“successors”.
I
repeat
paragraph
2(5)(b):
Where
a
corporation
which
is
not
resident
in
the
Province,
other
than
a
corporation
without
share
capital,
by
reason
of
the
death
of
a
deceased
acquires
or
becomes
beneficially
entitled
to
property
of
the
deceased,
(a)
...
(b)
each
of
the
shareholders
of
the
corporation
shall
be
deemed
to
be
a
successor
of
property
of
the
deceased
to
the
extent
of
the
amount
by
which
the
value
of
his
shares
in
the
corporation
is
increased
by
the
corporation
acquiring
or
becoming
beneficially
entitled
to
the
property.
If
the
“corporation
which
is
not
resident
in
the
Province”
and
which
“acquires
or
becomes
beneficially
entitled
to
property
of
the
deceased”
is
identified
as
the
subsidiary
company,
the
direct
object
of
the
bequest,
then
it
is
clear,
upon
a
plain
reading,
that
the
section
does
not
reach
the
grandchildren
as
they
are
not
shareholders
of
the
legatee
corporation.
If
the
Minister
is
to
sustain
the
assessment
on
the
basis
of
paragraph
2(5)(b),
he
must
establish
that
the
parent
company
became
“beneficially
entitled”
to
property
of
the
deceased.
If
one
resorts
to
legal
dictionaries
in
search
of
the
meaning
to
be
attributed
such
words
and
phrases
as
“entitled”,
“beneficial”,
“beneficially
entitled”,
“beneficial
interest”,
and
the
like,
it
soon
becomes
apparent
their
meanings
are
almost
invariably
drawn
from
cases
concerned
with
the
construction
of
wills
or
succession
duty
statutes.
The
phrases
naturally
take
their
colour
from
the
word
“beneficiary”
who
is,
after
all,
the
target
of
the
tax.
Whether
we
like
it
or
not,
this
takes
us
into
the
formidable
body
of
jurisprudence
built
up
by
the
courts
of
chancery.
The
Nova
Scotia
Act
deals
with
subject
matter
formerly
administered
by
the
courts
of
equity
and
it
uses
phrases
long
familiar
to
those
courts.
At
least
in
the
pure
wills
or
trust
Situations,
“beneficially
entitled”
refers
to
an
interest
that
would
be
recognized
by,
and
enforceable
in,
a
court
of
equity.
See
Waters,
“Law
of
Trusts
in
Canada”
(1974)
at
833-35.
The
leading
modern
British
authority
in
Uniackev
Attorney-General
(In
Re
Miller’s
Agreement),
[1947]
Ch
D
615,
in
which
Wynn-Parry,
J
had
to
determine
whether
the
plaintiffs
were
“beneficially
entitled”
to
certain
annuity
payments
which
partners
of
the
retiring
(and
since
deceased)
partner
covenanted
to
pay
the
plaintiffs,
family
of
the
former
partner.
In
the
clearest
statement
of
the
law
on
this
point,
the
learned
trial
judge
said
(at
625):
The
word
“entitled”,
as
used
in
this
section,
appears
to
me
necessarily
to
carry
the
implication
that
for
a
person
to
be
entitled
to
property
under
this
section
it
must
be
capable
of
being
postulated
of
him
that
he
has
a
right
to
sue
for
and
recover
such
property.
This
“sue
for
and
recover”
rule
was
followed
in
Re
J
Bibby
&
Sons,
Ltd
Pensions
Trust
Deed,
Davies
v
IRC,
[1952]
2
All
ER
483.
There,
at
487
Harman,
J
held
a
widow
not
to
be
“beneficially
entitled”
to
an
income
from
a
pension
on
the
ground
that
she
had
not
“such
an
interest
in
property
as
would
be
protected
in
a
court
of
law
or
equity”.
There
are
Canadian
cases
which
touch
upon
the
subject.
In
Re
Steed
and
Raeburn
Estates,
[1949]
SCR
453
concerned
whether
or
not
the
property
in
question
was
situated
in
Canada.
Rand,
J
considered
the
nature
of
a
beneficiary’s
interest:
But
in
addition
to
his
capacity
of
representing
the
deceased,
the
executor
in
equity
is
looked
upon
as
quasi-trustee
for
the
beneficiaries;
and
the
beneficiary
is
entitled
to
resort
to
that
court
to
have
the
duty
of
the
executor
enforced.
The
“interest”
in
property
that
is
transmitted
results
from
that
right
and
becomes,
therefore,
an
equitable
interest,
subject
to
the
rules
which
underlie
equitable
administration.
(p
461)
Locke,
J,
in
dissent,
indicated
he
too
would
define
a
beneficiary
as
one
who
could
compel
the
trustees
properly
to
administer
the
estate.
Cossitt
v
MNR,
[1949]
4
DLR
705;
[1949]
CTC
187;
49
DTC
617,
involved,
in
part,
consideration
of
paragraph
2(m)
of
the
Dominion
Succession
Duty
Act,
1940-41
SC,
c
14,
as
amended
by
1942-43,
c
25.
The
question
faced
by
O’Conner,
J
was
whether
the
general
power
given
the
beneficiary,
to
use
all
or
any
part
of
the
capital,
was
“property’
to
which
the
beneficiary
was
“beneficially
entitled”.
O’Connor,
J
held
at
708
[190,
618]:
“Entitled”
in
paragraph
2(m),
in
my
opinion,
should
be
given
the
same
meaning
set
out
by
Wynn-Parry
J
in
Re
Miller's
Agreement,
Uniacke
v
Attorney-General,
[1947]
2
All
ER
78,
in
which
after
discussing
the
word
“entitled”
in
section
2
of
the
Succession
Duty
Act,
1853
(Imp),
c
51,
he
said
at
p
83:
“The
word
‘entitled’,
as
used
in
this
section,
appears
to
me
necessarily
to
carry
the
implication
that,
for
a
person
to
be
entitled
to
property
under
this
section,
it
must
be
capable
of
being
postulated
of
her
that
she
has
a
right
to
sue
for
and
recover
such
property.”
Until
the
appellant
exercised
the
power
in
his
own
favour,
he
would
not
have
the
right
to
sue
for
and
recover
the
capital.
Wanklyn
et
al
v
MNR,
[1953]
2
SCR
58;
[1953]
CTC
263;
53
DTC
1167,
was
a
very
similar
case.
In
addition
to
an
interest
in
the
income
from
the
capital
sum,
the
beneficiary
there
was
vested
with
a
general
power
of
appointment.
If
he
exercised
the
power
fully
he
would
become
absolute
owner
of
the
capital.
The
Minister
sought
to
tax
as
if
the
property
had
been
bequeathed
absolutely.
Cartwright,
J,
delivering
judgment
for
himself
and
Fauteux,
J,
held
at
75
[279,
1178]:
The
respondent’s
argument
depends
upon
the
proposition
that
a
person
who
is
given
a
power
over
property
thereby
becomes
beneficially
entitled
to
such
property
but
in
view
this
is
not
the
law
and
no
words
in
the
Statute
so
provide.
As
is
pointed
out
in
Halsbury,
2nd
Edition,
Vol
25,
page
515:
The
creation
of
a
power
over
property
does
not
in
any
way
vest
the
property
in
the
donee,
though
the
exercise
of
the
power
may
do
so;
and
it
is
often
difficult
to
say
whether
the
intention
was
to
give
property
or
only
a
power
over
property.
These
two
cases
are
analogous
to
the
case
at
bar.
The
parent
company
in
the
case
at
bar
is
in
a
position
at
any
time
to
wind
up
its
wholly-owned
subsidiary
and
obtain
the
legacy
bequeathed
to
the
subsidiary.
The
Minister
contends
that
this
power
places
the
parent
in
the
position
of
being
“beneficially
entitled”
to
the
residue
of
Mr
Jodrey’s
estate.
It
is
true
that
the
word
“power”
is
a
term
of
art
and
was
so
used
in
the
two
cases
to
which
I
have
referred.
The
cases
are
helpful
though
in
that
each
recognizes
a
beneficial
interest
as
an
interest
or
right
recognized
by
the
courts
of
equity.
The
fact
that
there
would
be
no
legal
impediment
to
one
acquiring
the
property
is
not
sufficient.
Beneficial
entitlement
arises
only
in
those
situations
where
equity
recognizes
the
interest.
Re
Chodikoff
(1971),
1
OR
321
is
the
closest
case,
factually,
to
the
present
case.
The
deceased
had
made
two
“‘dispositions”
of
shares
in
a
private
corporation
controlled
by
him.
In
one,
he
caused
500
treasury
shares
to
be
transferred
at
an
undervaluation
to
another
personal
corporation,
the
common
shares
of
which
were
held
in
trust
for
his
wife
and
children.
In
the
other
disposition
he
made
a
simple
transfer
of
a
quantity
of
common
shares
of
one
private
corporation
to
another.
The
Minister
sought
to
invoke
the
rate
of
taxation
imposed
on
“strangers”
on
the
ground
that
the
corporations
were
“strangers”.
The
taxpayer
responded
by
asserting
that
only
the
wife
and
children
would
ultimately
benefit
from
the
dispositions.
Consequently,
the
lower
rate
of
tax
should
have
been
used.
Fraser,
J,
at
first
instance,
agreed.
Upon
appeal,
counsel
for
the
respondent
argued
that
the
“corporate
veil”
should
be
lifted
and
the
transaction
regarded
in
substance
as
one
by
which
the
deceased
conferred
a
benefit
upon
his
wife
and
children.
That
is
essentially
the
argument
advanced
in
the
instant
case.
The
following
passage
from
the
judgment
of
Arnup,
J
is
pertinent:
...
Undoubtedly,
the
effect
of
the
transaction
was
to
increase
the
assets
of
Bemar,
but
the
making
of
the
disposition
did
not
in
itself,
it
seems
to
me,
“benefit”
the
beneficiaries
under
the
trust.
Whether
in
the
long
run
they
would
be
better
off
by
reason
of
the
disposition
depended
on
a
number
of
factors
which
might
occur
in
the
future,
including
the
winding
up
of
Bemar,
.
..
No
property
interest
accrued
to
the
trust,
either
at
law
or
in
equity,
by
reason
of
the
disposition.
The
only
effect
was
that
in
certain
events
an
asset
which
it
already
held
might
become
more
valuable.
If
the
cestuis
que
trustent
did
not
“benefit”
by
the
disposition,
who
did?
The
inevitable
answer
must
be
that
Bemar
did,
ie,
that
corporation
acquired
an
asset.
The
asset
was
not
acquired
by
its
shareholdes
or
any
class
of
them,
any
more
than
any
interest
in
the
asset
was
acquired
by
a
creditor
of
the
company,
if
such
there
were.
In
my
opinion,
the
link
between
the
disposition
on
the
one
hand
and
the
persons
who
were
said
to
benefit
on
the
other
is
much
too
tenuous
and,
indeed,
is
in
law
non-existent.
A
person
does
not
become
liable
to
tax
under
the
Succession
Duty
Act,
by
reason
of
a
disposition,
merely
because
it
later
turns
out
that
as
a
result
of
a
whole
series
of
events,
including
the
disposition,
he
is
better
off
than
he
would
have
been
if
the
disposition
had
not
been
made.
Only
persons
who
receive
a
benefit
from
the
disposition
itself,
are
caught
by
the
provisions
of
the
statute.
(pp
330-331)
Chodikoff’s
case
is
important
because
the
Ontario
Court
of
Appeal
refused
to
give
effect
to
the
very
argument
employed
in
this
case.
In
all
likelihood
the
wife
and
children
would
ultimately
benefit
from
the
transactions;
in
law
the
corporations,
and
not
the
family,
were
the
beneficiaries;
the
Court
refused
to
lift
the
“corporate
veil”.
I
refer
briefly
to
the
American
authorities
to
indicate
the
uniformity
of
jurisprudence
on
the
meaning
of
“beneficially
entitled”.
A
case
often
cited
is
People
v
McCormick
(1904),
208
III
R
437.
This
case
makes
it
clear
that
the
phrase
iS
a
compendious
expression
denoting
the
types
of
interests
recognized
by
courts
of
equity.
In
Montana
Catholic
Missions
v
Missoula
County
(1905),
200
US
118,
the
Supreme
Court
of
the
United
States
expressly
included
in
its
definition
the
element
of
the
ability
to
sue
to
enforce
the
rights.
The
expression,
beneficial
use
or
beneficial
ownership
or
interest,
in
property
is
quite
frequent
in
the
law,
and
means
in
this
connection
such
a
right
to
its
enjoyment
as
exists
where
the
legal
title
is
in
one
person
and
the
right
to
such
beneficial
use
or
interest
is
in
another,
and
where
such
right
is
recognized
by
law,
and
can
be
enforced
by
the
courts,
at
the
suit
of
such
owner
or
of
some
one
in
his
behalf,
(p
127-28)
The
Trustee
Acts
of
eight
of
the
provinces
use
the
phrase
“beneficially
interested”
in
the
sense
of
a
beneficiary
or
successor
with
such
an
interest
as
would
be
recognized
and
enforced
by
the
courts,
someone
who,
by
definition,
is
competent
to
seek
relief
in
the
event,
for
example,
of
default
on
the
part
of
the
executors
and
trustees
of
the
estate.
See
the
Trustee
Act
RSNS
1967,
c
317,
section
40.
The
meaning
attached
to
the
phrase
“beneficially
entitled’
is
closely
linked
to
the
meaning
of
the
word
“beneficiary”—at
least
in
succession
duty
cases.
The
phrase,
the
authorities
indicate,
imports
the
requirement
that
he
who
is
“beneficially
entitled”
be
able
to
go
to
court
to
have
his
interest
in
the
property
protected.
The
nub
of
the
problem
in
this
case
is
that
the
draftsman
of
the
statute
selected
a
phrase
well
known
to
the
courts;
in
effect,
a
term
of
art.
There
was
awareness
of
the
complications
which
could
arise
should
a
nonresident
corporate
entity
be
interposed
between
the
trustee
and
the
resident
intended
to
be
benefited.
Hence
subsection
2(5).
The
draftsman
anticipated
that
courts
might
be
unable
to
find
a
shareholder
of
the
corporate
legatee
to
be
“beneficially
entitled”.
The
draftsman
failed,
however,
to
provide
for
the
interposition
of
a
second
non-resident
shareholder.
Counsel
for
the
Minister
of
Finance
submits
that
“the
expression
‘beneficially
entitled’
has
a
broad
connotation,
the
ordinary
or
plain
meaning
of
which
encompasses
the
present
transaction”.
In
the
absence
of
earlier
authority
and
in
a
context
other
than
one
related
to
estates
and
succession
duties,
a
court
might
be
much
inclined
to
give
effect
to
this
submission
and
construe
“beneficially
entitled”
according
to
what
could
be
regarded
as
the
popular
usage
of
the
language
employed.
But,
in
light
of
the
uniform
jurisprudence
to
the
contrary,
I
find
it
impossible
to
accede
to
counsel’s
submission.
Here,
JBH
Investments
Ltd,
the
parent
company,
has
no
standing
or
capacity
to
‘‘sue
for
and
recover”
the
estate
assets.
JGC
Investments
Ltd,
the
subsidiary,
is
the
beneficial
owner
of
the
residue
and
it
alone
can
sue
the
estate
trustees
to
obtain
legal
title
of
those
assets
comprising
the
residue.
JBH
Investments
Ltd
perhaps
has
the
power,
through
its
share
control,
to
compel
JGC
Investments
Ltd
to
take
steps
against
the
trustees
but
it
has
no
independent
claim
and
no
claim
to
beneficial
entitlement
which
it
can
assert.
It
has
no
right
to
require
either
the
executors
or
the
subsidiary
company
to
deliver
or
apply
the
bequest
to
its
benefit.
At
trial,
Mr
Justice
Hart
in
his
reasons
for
judgment
in
the
MacKeen
matter,
adopted
in
this
case,
expressed
these
views:
In
my
opinion
the
Legislature
of
Nova
Scotia
in
using
the
expression
“Where
a
corporation
.
.
.
becomes
beneficially
entitled
to
property
of
the
deceased”
it
was
using
it
in
the
broad
sense
to
cover
the
situation
where
the
corporation
is
put
in
a
position
to
ultimately
exercise
the
rights
of
ownership
over
property
of
the
deceased.
It
would
be
unnecessary
to
use
additional
words
such
as
“directly
or
indirectly”
or
“is
controlled
by”
to
effect
its
purpose.
“Becomes
beneficially
entitled
to”
is
broad
enough
to
cover
situations
in
which
the
property
is
registered
in
another
name
or
held
in
trust
or
placed
in
any
form
in
which
the
corporation
can
legally
recover
the
property
for
its
own
benefit.
Mr
Justice
Hart
cited
Montreal
Trust
Company
v
MNR
(Torrance
Estate),
[1958]
SCR
146;
[1958]
CTC
60;
58
DTC
1051
where
Rand,
J,
in
obiter,
added
a
gloss
to
the
Miller’s
Agreement
case,
supra,
at
149
[62,
1052]:
The
test
was,
that
it
must
be
“postulated
of
him
[the
successor]
that
he
has
a
right
to
sue
for
and
recover
such
property”.
If
the
word
“recover”
extends
to
the
application
of
money
to
one’s
benefit,
and
“sue
for”
to
an
ultimate
and
alternative
resort
as
the
effective
cause
of
payment,
I
am
disposed
to
accept
it.
The
remarks
of
Mr
Justice
Rand
were
made
in
the
context
of
the
peculiar
facts
of
the
Torrance
Estate
case
and
in
my
view
do
not
assist
in
understanding
the
phrase
“beneficially
entitled”.
Mr
Justice
Hart
cited
at
length
from
Rodwell
Securities
Ltd
v
IRC,
[1968]
1
All
ER
257
which,
as
I
read
the
case,
roundly
rejected
the
argument
that
“beneficial
ownership”
was
not
a
term
of
art
but
fell
to
be
construed
liberally
so
as
to
include
any
person
having
complete
control
over
the
disposition
of
property.
Pennycuick,
J
in
the
Rodwell
case
rightly
noted
that
the
section
with
which
he
was
dealing
did
not
contain
the
words
“directly
or
indirectly”.
In
this
respect,
that
case
parallels
the
case
at
bar.
Pennycuick,
J,
in
a
passage
which
bears
upon
the
present
inquiry
said:
The
rest
of
counsel’s
contentions
really
amounted
in
one
set
of
terms
or
another
to
the
proposition
that
the
expression
“beneficial
owner”
requires,
and
must
be
given
a
wide
and
liberal
construction.
I
can
answer
that
only
by
saying
that
it
seems
to
me
that
one
must
construe
the
expression
according
to
its
legal
meaning.
I
do
not
think
that
there
is
anything
in
the
context
of
the
section
which
requires
one
to
do
otherwise.
(p
261)
Mr
Justice
Hart
interpreted
the
expression
“beneficial
owner”
as
meaning
“the
real
or
true
owner
of
the
property
.
.
.
the
one
who
can
ultimately
exercise
the
rights
of
ownership
in
the
property”.
No
authority
is
given
for
this
proposition.
The
legal
basis
is
not
clear.
Chief
Justice
MacKeigan
agreed
with
Mr
Justice
Hart
and
reinforced
his
conclusion
that
the
parent
company
was
beneficially
entitled
to
the
estate
interest
acquired
by
its
subsidiary
by
combining
the
operation
of
paragraph
1(ae)
and
subsection
2(5).
He
said:
Let
me
again
explain.
By
subsection
2(5)
each
MacKeen
parent
company
is,
as
the
sole
beneficial
shareholder
of
its
subsidiary,
undoubtedly
deemed
to
be
the
successor
in
respect
of
the
property
bequeathed
to
that
subsidiary.
A
“successor”
by
paragraph
1(ae)
is
declared
to
be
a
person
who
“becomes
beneficially
entitled”
to
property
of
the
deceased
on
his
death.
The
parent
company,
haveing
been
deemed
a
successor
by
subsection
2(5),
must
then
by
paragraph
1(ae)
be
deemed
to
be
a
person
beneficially
entitled
to
the
property
in
question.
Turning
again
to
subsection
2(5)
and
applying
it
again,
the
parent
company
is
a
non-resident
corporation.
It
is
a
“successor”
via
its
subsidiary.
By
the
combined
effect
of
subsection
2(5)
and
paragraph
1(ae),
as
above,
it
must
therefore
be
itself
deemed
to
have
become
beneficially
entitled
to
the
property.
Accordingly
/ts
shareholder
“shall
be
deemed
to
be
a
successor”
of
the
property.
With
great
respect,
there
is
nothing
in
the
particular
statute
or
in
any
rule
of
statutory
construction
of
which
I
am
aware
that
permits
one
to
climb
up
the
corporate
hierarchical
ladder
by
applying
subsection
2(5)
time
and
again.
That
is
the
very
gap
in
the
legislation
of
which
the
testator
took
advantage.
If
the
lower
courts
are
correct
and
the
phrase
“beneficially
entitled”
points
to
the
locus
of
the
benefit
and
the
ultimate
use
and
enjoyment
of
the
property,
it
will
be
seen,
by
this
process
of
reasoning,
that
the
grandchildren
are
“beneficially
entitled”
by
virtue
of
paragraph
1(ae)
ab
initio.
This
is
not
the
position
taken
by
the
Minister
in
these
proceedings.
The
Minister
relied
upon
subsection
2(5)
in
order
to
reach
the
grandchildren.
The
grandchildren,
not
the
parent
JBH
Investments,
possess
the
ultimate
right
and
power
to
achieve
by
lawful
means
the
full
enjoyment
of
the
property.
That
results
in
a
dilemma
that
is
difficult
to
resolve.
The
difficulty
in
the
reasoning
of
the
lower
Courts
is
that
such
a
construction
of
“Beneficially
entitled’
leads
ineluctably
to
the
conclusion
that
subsection
2(5)
is
superfluous
and
adds
nothing
to
paragraph
1(ae).
In
sum,
the
legal
meaning
of
‘‘beneficialy
entitled”
is
firmly
imbedded
in
the
concrete
of
earlier
adjudication.
However
unenamoured
one
may
be
with
the
conduct
of
the
testator
in
this
case,
I
do
not
think
it
is
open
to
this
Court
to
jettison
trust
law
and
give
a
broad,
non-technical
meaning
to
the
phrase
“beneficially
entitled’’,
based
upon
(i)
the
supposed
intent
of
the
legislature
to
catch
transactions
of
this
nature
or
(ii)
the
proposition
that
one
is
beneficially
entitled
to
property
if
at
some
time
in
the
future
he
can
exercise
powers
(not
drawn
from
the
will)
by
which
he
may
ultimately
acquire
an
interest
in
the
property.
Here
the
Court
is
not
being
asked
to
introduce
words
into
the
Act
in
order
to
cure
an
ambiguity,
but
rather
to
introduce
a
new
section
to
provide
for
a
situation
not
captured
by
it.
To
do
so
would
be
tantamount
to
changing
the
rules
after
the
game
has
been
played.
IV
Lifting
the
Corporate
Veil
I
think,
however,
it
is
proper
for
the
Court
to
look
not
only
at
principles
of
trust
law,
but
to
those
of
corporate
law.
Principles
of
corporate
law
are
of
assistance
in
determining
whether,
by
virtue
of
its
ownership
of
all
of
the
outstanding
shares
of
JGC
Investments
Ltd,
JBH
Investments
Ltd
can
be
said
to
be
“beneficially
entitled’’
to
the
assets
of
JGC
Investments
Ltd.
Hart,
J
held
that
“beneficial
entitlement’’
was
used
in
its
broadest
sense;
ie
the
right
ultimately
to
establish
the
exercise
of
the
rights
of
ownership.
On
appeal,
MacKeigan,
CJNS
dealt
with
the
judgment
of
Pennycuick,
J
in
Rodwell
Securities
Ltd
v
IRC,
supra.
There,
the
question
to
be
answered
was
whether
a
wholly-owned
subsidiary
(Securities)
of
a
wholly-owned
subsidiary
(Group)
of
a
parent
company
(London)
was
beneficially
owned
by
the
parent
London.
Pennycuick,
J
held:
According
to
the
legal
meaning
of
the
words,
a
company
is
not
the
beneficial
owner
of
the
assets
of
its
own
subsidiary.
(p
260)
MacKeigan,
CJNS
regarded
that
statement
as
(a)
inapplicable
and,
(b)
not
quite
accurate.
A
completely
different
statutory
context
and
corporate
scheme
was
involved
in
that
case.
In
his
view:
It
seems
to
me
apparent
that
a
company
may,
depending
on
its
make-up
and
status,
become
the
beneficial
owner
of
the
assets
of
its
subsidiary,
and
thus
be
beneficially
entitled
to
them
within
the
meaning
of
the
latter
phrase
as
used
in
the
Succession
Duty
Act.
With
respect,
Pennycuick,
J
did
not
hold
merely
that
London
was
not
the
beneficial
owner
of
Securities.
Nor
did
he
simply
hold
that
it
was
not
the
beneficial
owner
of
the
Group
company.
His
finding
did
not
turn
on
the
interpretation
of
a
statutory
definition
of
“beneficial
owner’’.
Rather,
he
based
his
decision
on
the
general
principle
that
a
company
is
not
the
beneficial
owner
of
the
assets
of
its
own
subsidiary:
.
.
.
the
parent
company
may
very
well
have
a
controlling
interest
right
down
the
line,
but
does
not
own
any
of
the
assets
of
the
subsidiaries.
So
here,
although
the
London
company
plainly
has
a
controlling
interest
in
the
Securities
company,
it
does
not
own
beneficially
any
of
the
assets
of
the
Group
company,
including
the
shares
in
the
Securities
company,
(p
260)
In
his
view,
there
was
no
indication
in
the
statutory
provision
directing
any
construction
of
‘‘beneficial
owner’’
other
than
according
to
its
legal
meaning.
The
other
case
directly
referred
to
in
the
courts
below
is
Littlewoods
Mail
Order
Stores
Ltd
v
IRC,
[1969]
3
All
ER
855.
It
illustrates
a
contrast
in
ap-
proach.
There,
a
parent,
Littlewoods,
and
its
subsidiary,
Fork,
embarked
on
an
elaborate
scheme
by
which
Fork
acquired
a
freehold
estate
and
Littlewoods
made
payments,
in
the
form
of
rent.
Lord
Denning,
MR
was
not
prepared
to
regard
the
rent
paid
as
a
business
expense
of
Littlewoods.
He
held
(p
860):
I
think
that
we
should
look
at
the
Fork
company
and
see
it
as
it
really
is—the
wholly-owned
subsidiary
of
the
taxpayers.
It
is
the
creature,
the
puppet,
of
the
taxpayers
in
point
of
fact;
and
it
should
be
so
regarded
in
point
of
law.
The
basis
fact
here
is
that
the
taxpayers,
through
their
wholly-owned
subsidiary,
have
acquired
a
capital
asset.
In
Littlewoods
the
court
was
concerned
with
the
nature
of
the
payment,
rather
than
with
a
question
of
proprietary
rights
of
a
parent,
in
the
assets
of
a
subsidiary.
Denning,
MR
drew
back
the
corporate
veil
in
order
to
ascertain
the
nature
of
the
rent
payments
made
by
the
parent
company.
It
is
clear,
though,
that
since
the
court
viewed
a
portion
of
the
rents
paid
as
being
on
account
of
capital
acquisition,
the
further
inference
is
that
the
parent
would
own
the
property
of
the
subsidiary,
on
termination
of
the
lease.
Notwithstanding
the
views
of
Lord
Denning,
MR
as
expressed
above,
the
general
and
unquestioned
principle
of
law
is
that
a
shareholder
has
no
proprietary
interest
in
the
assets
of
a
company
in
which
he
holds
shares,
otherwise
than
upon
a
winding
up.
Bank
voor
Handel
en
Scheepvaart
v
Slatford
and
another,
[1951]
2
All
ER
779,
contains
a
useful
discussion
on
this
very
point.
Citing
Salomon
v
Salomon,
[1897]
AC
22,
and
other
cases,
Devlin,
J
affirmed
the
principle
that
the
assets
of
a
company
are
not
the
assets
of
its
shareholders.
The
cases
relied
upon:
Macaura
v
Northern
Assurance
Co,
[1925]
AC
619;
EBM
Co
Ltd
v
Dominion
Bank,
[1937]
3
All
ER
555;
Daimler
Co
Ltd
v
Continental
Tyre
and
Rubber
Co
(Great
Britain)
Ltd,
[1916]
2
AC
307.
He
accepted
as
correct
a
statement
by
the
Permanent
Court
of
International
Justice,
in
Standard
Oil
Co’s
Claim,
[1927]
BY
Int’l
L
156,
at
162:
.
.
.
the
decisions
of
principle
of
the
highest
courts
of
most
countries
continue
to
hold
that
neither
the
shareholders
nor
their
creditors
have
any
right
to
the
corporate
assets
other
than
to
receive,
during
the
existence
of
the
company,
a
share
of
the
profits,
the
distribution
of
which
has
been
decided
by
a
majority
of
the
shareholders,
and,
after
its
winding-up,
a
proportional
share
of
the
assets.
Devlin,
J
had
no
doubt
that
courts
can
violate
principles
of
company
law
in
considering
relationships
between
corporate
entities.
But
he
would
require
statutory
language
which
permits
or
enables
a
court
to
do
so:
No
doubt,
the
legislature
can
forge
a
sledgehammer
capable
of
cracking
open
the
corporate
shell,
and
it
can,
if
it
chooses,
demand
that
the
courts
ignore
all
the
conceptions
and
principles
which
are
at
the
root
of
company
law,
but
the
phrase,
“belonging
to
or
held
or
managed
on
behalf
of”
is
too
mild
a
weapon
for
that
purpose.
(p
799)
The
Macaura
case,
supra,
is
cited
by
the
appellants
herein.
There,
the
appellant
owned
a
sizeable
estate,
on
which
he
held
five
insurance
policies
against
fire
on
timber
and
wood
products.
He
assigned
the
interest
in
the
timber
to
a
company,
in
which
he
held
virtually
all
the
shares.
He
was
the
shareholder
and
creditor
of
the
company
at
the
time
there
was
a
fire.
The
House
of
Lords
held
he
had
no
insurable
interest,
as
shareholder,
in
the
assets
of
the
company.
Lord
Buckmaster
held:
Now,
no
shareholder
has
any
right
to
any
item
of
property
owned
by
the
company,
for
he
has
no
legal
or
equitable
interest
therein.
He
is
entitled
to
a
share
in
the
profits
while
the
company
continues
to
carry
on
business
and
a
share
in
the
distribution
of
the
surplus
assets
when
the
company
is
wound
up.
(p
626)
Lord
Sumner
stated,
equally
as
clearly:
He
stood
in
no
“legal
or
equitable
relation
to”
the
timber
at
all.
He
had
no
“concern
in”
the
subject
insured.
His
relation
was
to
the
company,
not
to
its
goods
.
.
.
(p
630)
Lord
Wrenbury
agreed:
.
.
.
the
corporator
even
if
he
holds
all
the
shares
is
not
the
corporation,
and
that
neither
he
nor
any
creditor
of
the
company
has
any
property
legal
or
equitable
in
the
assets
of
the
corporation.
(p
633)
In
this
Court,
in
the
case
of
Army
and
Navy
Department
Store
Ltd
v
MNR,
[1953]
2
SCR
496;
[1953]
CTC
293;
53
DTC
1185,
Cartwright,
J
stated
in
his
concurring
reasons
that,
“With
the
greatest
respect
for
those
who
hold
the
contrary
view,
I
do
not
think
that
shareholders,
either
individually
or
collectively,
have
any
ownership
direct
or
indirect
in
the
property
of
the
company
in
which
they
hold
shares.”
(p
511)
The
authors
of
Fraser
&
Stewart,
Company
Law
of
Canada
(5th
Ed)
(1962)
make
the
point
(p
20)
that
the
distinction
between
a
company
and
its
shareholders
is
equally
applicable
where
a
company
is
a
subsidiary
of
another
company,
and
that
a
company
and
its
wholly-owned
subsidiary
are
separate
and
distinct
legal
entities,
citing
Cohen,
LJ
in
Ebbw
Vale
Urban
District
Council
v
South
Wales
Traffic
Area
Licensing
Authority,
[1951]
2
KB
366
(CA),
at
370:
Under
the
ordinary
rules
of
law,
a
parent
company
and
a
subsidiary
company,
even
a
hundred
per
cent
subsidiary
company,
are
distinct
legal
entities,
and
in
the
absence
of
an
agency
contract
between
the
two
companies
one
cannot
be
said
to
be
the
agent
of
the
other.
Professor
Gower
in
Modern
Company
Law
(4th
Ed)
123
et
seq
details
exceptional
cases
in
which
the
courts
have
felt
themselves
able
to
ignore
the
corporate
entity
and
treat
the
individual
shareholders
as
entitled
to
its
property.
These
are
grouped
under
headings
such
as
agency,
trust
(but
not
in
the
sense
that
a
company
holds
its
property
on
trust
for
its
members
qua
members),
fraud
or
improper
conduct,
public
policy,
quasi-criminal
cases
and
group
enterprises.
There
is
no
hard
evidence
of
agency
nor
was
agency
argued
before
this
Court.
The
present
transaction
does
not
fit
easily
into
any
of
the
other
categories
mentioned.
See
also
Palmer’s
Company
Law
(22nd
Ed)
Vol
1
paras
18-22,
18-23.
Generally
speaking,
in
the
absence
of
fraud
or
improper
conduct
the
courts
cannot
disregard
the
separate
existence
of
a
corporate
entity;
see
Pioneer
Laundry
and
Dry
Cleaners
Ltd
v
MNR,
[1938-39]
CTC
411;
1
DTC
499-69.
There
have
been
a
number
of
helpful
articles
written
respecting
the
lifting
of
the
corporate
veil
in
Canadian
tax
law:
Lifting
the
Corporate
Veil
in
Canadian
Income
Tax
Law
by
Tamaki
(1961-62)
8
McGill,
LJ
159;
Taxation
and
the
Corporate
Veil
by
Mitchell
(1966)
14
Can
Tax
J
534;
Lifting
the
Corporate
Veil:
Legislative
and
Judicial
Incursions
for
Income
Tax
Purposes
by
Drache
(1977)
29
Tax
Conference
Report
673;
The
Corporate
Veil
in
Tax
Law
by
Durnford
(1979)
27
Can
Tax
J
282.
The
Minister
placed
emphasis
upon
locus
of
benefit
and
ultimate
control
rather
than
upon
initial
or
intermediate
locus
of
receipt.
The
Court
is
invited
to
disregard
the
corporate
arrangements,
although
the
authority
for
doing
so
is
not
specified.
The
essence
of
the
argument
and
the
decision
of
the
Appeal
Division
is
that
a
shareholder
can
beneficially
own,
and
therefore
be
beneficially
entitled
to,
the
assets
(or
rights
to
acquire
assets)
of
the
corporation
in
which
he
holds
shares.
With
respect,
shareholding
control
does
not
give
beneficial
ownership
of
corporate
assets
nor
beneficial
entitlement
thereto.
There
is
a
tendency
to
think
loosely
in
terms
of
a
parent
owning
the
assets
of
its
wholly-owned
subsidiary
but
that
is
not
so
in
law.
No
one
would
suggest
that
a
person
owning
100
shares
of
Canadian
Pacific
is
the
owner
of,
or
has
a
beneficial
interest
in,
the
assets
of
Canadian
Pacific.
No
distinction
can
be
made
in
principle
between
ownership
of
100
shares
in
a
major
corporation
and
ownership
of
all
of
the
issued
shares
in
a
small
company.
In
neither
case
does
the
shareholder
own
any
asset
other
than
shares.
And
the
situation
is
unaffected
by
the
fact
that
one
or
more
shareholders
may
have
voting
control
and
thereby
be
in
a
position
to
acquire
the
assets
or
a
portion
thereof
on
wind-up,
or
upon
a
distribution
of
assets
other
than
on
wind-up.
If
shareholders
are
beneficially
entitled
to
the
property
of
a
corporation
in
which
they
hold
shares,
then
subsection
2(5)
would
not
have
been
necessary.
It
is
fundamental
that
a
company
as
a
body
corporate
is
in
contemplation
of
law
an
entity
separate
and
distinct
from
shareholders
who
compose
it.
The
principle
of
Salomon
v
Salomon
&
Co
Ltd,
supra,
is
still
very
much
part
of
our
law
and
in
general
the
courts
have
rigidly
applied
it.
It
would
appear,
therefore,
that
not
even
by
principles
of
company
law
can
JBH
Investments
Ltd
be
regarded
as
beneficial
owner
of
the
assets
of
JGC
Investments
Ltd.
With
respect,
I
think
the
lower
courts
were
clearly
wrong
in
law
in
misapprehending
the
meaning
of
beneficial
entitlement
and
in
confusing
concepts
of
control
and
ownership.
Thus,
the
Court
of
Appeal
was
able
to
say
that
control
sufficient
to
enable
JGH
Investments
Ltd
ultimately
to
compel
transfer
of
estate
assets
to
it,
satisfied
the
subsection
2(5)
standard
of
beneficial
entitlement.
V
Sham
I
come
finally
to
the
question
of
“sham”.
Although
sham
was
not
alleged
by
the
Minister,
it
nonetheless
warrants
some
consideration.
I
think
it
must
be
kept
uppermost
in
mind
that
the
legislation
here
under
consideration
contains
no
provision
which
introduce
a
statutory
concept
of
sham,
fraud,
improper
tax
avoidance
or
illegal
transactions
for
the
purpose
of
succession
duty.
In
contrast,
see
Part
XVI
of
the
Income
Tax
Act
SC
1970-71-72,
c
63
entitled
“Tax
Evasion”.
It
is
also
plain
that
appellants
do
not
fit
the
conventional
“sham’
standard
of
a
transaction
purporting
to
create
apparent
legal
rights
and
obligations
which
are
at
variance
with
the
legal
relationships
which
in
fact
characterize
the
arrangement.
There
is
here
no
subterfuge.
The
documents
were
intended
to
be
acted
upon.
They
were
not
used
as
a
cloak
to
conceal
a
different
transaction.
They
did
not
create
between
the
parties
legal
rights
and
obligations
different
from
the
rights
and
obligations
which
the
parties
intended
to
create.
There
is
no
camouflaging
of
the
rights
or
obligations
of
either
JBH
Investments
Ltd
or
JGC
Investments
Ltd.
In
the
Nova
Scotia
Courts,
Mr
Justice
Hart,
in
his
reasons
for
judgment
said:
I
do
not
believe
the
Court
has
any
right
to
set
aside
bona
fide
transactions
obviously
designed
for
the
avoidance
of
tax
on
the
ground
that
they
are
artificial
and
designed
to
minimize
or
avoid
payment
of
tax.
The
jurisprudence
which
has
arisen
around
the
provisions
of
Part
16
..
.
does
not
apply
here
since
those
provisions
are
not
contained
in
the
Nova
Soctia
Succession
Duty
Act.
The
argument
of
the
Crown
that
the
scheme
of
distribution
adopted
by
Colonel
MacKeen
was
patently
designed
to
avoid
the
provisions
of
the
Act
and
that
the
Court
should
therefore
interpret
the
Act
so
as
to
catch
the
taxpayer
must
fail.
I
do
not
see,
on
the
record,
any
indication
that
an
appeal
was
taken
from
the
finding
of
Hart,
J
on
this
issue.
The
McCreath
case
(Minister
of
Revenue
for
Ontario
v
McCreath,
[1977]
1
SCR
2)
was
cited
in
argument
and
in
the
Courts
below.
The
question
there
was
whether
a
settlor
had
retained
an
interest
in
settled
property
so
as
to
disentitle
the
property
to
an
exemption
under
the
Succession
Duty
Act
of
Ontario.
That
was
a
different
case.
The
donor
sought
to
create
the
impression
through
the
language
of
the
gifting
instrument
that
she
had
disposed
wholly
and
irrevocably
of
the
subject
matter
of
the
gift.
The
Court
held
that
the
degree
of
control
retained
defeated
characterization
of
the
transaction
as
a
gift.
Conclusion
Applying
the
statutory
language
to
the
facts,
I
can
only
conclude
that
the
transaction
in
the
case
at
bar
does
not
fall
within
the
words
of
subsection
5(2)
in
such
manner
that
the
twelve
grandchildren
are
deemed
to
be
successors
to
the
property
of
the
deceased.
On
the
legal
meaning
of
the
words
of
subsection
2(5)
of
the
Act,
JBH
Investments
Ltd
is
the
deemed
successor
and
has
no
liability
for
tax
under
subsection
8(2)
because
it
is
not
resident
in
Nova
Scotia.
The
grandchildren
are
not
successors
and
therefore
are
not
liable
for
duty
under
subsection
8(2)
of
the
Act.
One
would
have
to
travel
beyond
the
words
of
the
Act
to
find
otherwise.
This
is
consistent
with
the
approach
of
Lord
Simon
of
Glaisdale
in
Ransom
v
Higgs
(1974),
50
TO
1
at
94:
But
for
the
Courts
to
try
to
stretch
the
law
to
meet
hard
cases
.
.
.
is
not
merely
to
make
bad
law
but
to
run
the
risk
of
subverting
the
rule
of
law
itself.
Disagreeable
as
it
may
seem
that
some
taxpayers
should
escape
what
might
appear
to
be
their
fair
share
...
it
would
be
far
more
disagreeable
to
substitute
the
rule
of
caprice
for
that
of
law.
The
answer
I
would
give
to
the
first
question
makes
it
unnecessary
to
consider
the
second
question
which
was
asked,
namely,
whether
or
not
subsection
2(5)
is
ultra
vires
the
powers
of
the
Legislature
of
Nova
Scotia.
I
would
allow
the
appeal,
set
aside
the
judgment
of
the
Appeal
Division
of
the
Supreme
Court
of
Nova
Scotia
and
the
assessment
of
the
twelve
grandchildren
of
the
deceased
Roy
A
Jodrey
under
the
Act
Respecting
Succession
Duties
of
Nova
Scotia.
The
appellants
are
entitled
to
costs
in
all
courts.
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