Thelma Arlene Greenwood and Elgin Evan Coutts, Executors and Trustees of the Estate of Sidney fireenwood, Deceased v. Her Majesty The Queen, 90 DTC 6690, [1991] 1 CTC 47 (FCTD)

Reed, J.:—The issue in this case is very narrow: were the shares of Haney- Greenwood Limited transferred, on Mr. Greenwood's death, to a spousal trust for his wife's benefit and indefeasibly vested therein. If the answer is yes, subsection 70(6) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72,

c. 63) (the "Act"), applies and there is a deemed rollover of the shares at their adjusted cost base. If the answer is no, subsection 70(5) applies and the shares will be deemed to have been disposed of by the taxpayer, Mr. Greenwood, on his death, at their fair market value.

There is no dispute that a spousal trust was created by Mr. Greenwood's will executed December 22, 1978. The question in issue is whether an agreement signed the same day prevents the shares from vesting indefeasibly in the spousal trust created under the will. The agreement is a purchase and sale agreement between Mr. Greenwood (the vendor) and his three sons (the purchasers). The relevant provisions are as follows:

1. Purchase and Sale of Shares

Subject to the terms and conditions hereof, upon the death of the Vendor (the "Time of Death”), each of the Purchasers shall purchase and the estate of the Vendor shall sell, assign and transfer to the Purchasers the Shares which the Vendor may now or at any time hereafter beneficially own (the "Purchased Shares”) in the following proportions:

To James Sidney Greenwood, 1/3 of the Purchased Shares;

To Kenneth Neil Greenwood, 1/3 of the Purchased Shares; and

To Douglas Stephen Greenwood, 1/3 of the Purchased Shares.

2. Purchase Price

Subject to paragraph 3 the Purchase Price of the Purchased Shares (the "Purchased Price”) shall be Eight Hundred Thousand Dollars ($800,000.00) payable in equal proportions by each of the Purchasers. The Purchasers shall be jointly and severally liable for the payment of the Purchase Price.

5. Closing

This transaction shall be completed on or before the thirtieth (30th) full day next following the date of the appointment of the Executors of the last Will and Testament of the Vendor "Date of Closing").

9. (e) Survival of Benefits and Obligations: Subject to paragraph 9(d) and to the extent necessary to carry out and give effect to the provisions herein contained, this Agreement shall extend to, and enure to the benefit of and be binding upon the parties hereto and their respective successors, heirs, assigns and legal representatives.

The agreement provided that the purchase price, except for a small amount which existed as a charge on the shares and was owed to a Mr. Haney, would be secured immediately by the sons, through a promissory note, the principal of which would be payable on the death of their mother. The interest on that note was to be paid to the mother, during her lifetime, on a monthly basis, through the trust. The debt owed to Mr. Haney was assumed by the sons directly.

I have little doubt that this agreement prevents there being an indefeasible vesting of the shares. Indefeasible vesting requires that the person in whom the property is vested have the right to determine whether or not the property will be retained by him or her or disposed of to another. There was no such discretion or control in the trustees with respect to the shares in question. Mr. Greenwood's representatives, the executors under the will, were compelled, on his death, by operation of paragraphs 1 and 9(e) of the purchase and sale agreement of December 22, 1978, to sell the shares to the sons.

A conclusion that there was no indefeasible vesting, in this case, is consonant with that reached by the Tax Court in Parkes Estate v. M.N.R., [1986] 1 C.T.C. 2262; 86 D.T.C. 1214. While that decision is clearly not binding on me its reasoning is persuasive. In addition, the facts in this case are not similar to those before Mr. Justice Joyal in Van Son Estate v. Canada, [1990] 1 C.T.C. 182; 90 D.T.C. 6183. In that case there was no enforceable obligation on the estate to sell although there was an agreement which purported to impose on the deceased's partner an obligation to purchase. In the light of this lack of mutuality of obligation Mr. Justice Joyal found that the shares in question indefeasibly vested in the widow. I do not think it is necessary for me to consider, in detail, any of the other jurisprudence relating to indefeasible vesting which was cited to me. In my view, the two cases already referred to, as well as the general principles on which they rely, dispose of the issue.

Counsel for the plaintiff argued that I should consider the "property" (i.e., the shares) which was transferred to the trust as a bundle or rights. In this regard, it was argued that I should apply the decision in Beament Estate v. M.N.R., [1970] S.C.R. 680; [1970] C.T.C. 193; 70 D.T.C. 6130 (S.C.C.) and in so doing characterize the property interest which was conferred on the estate as an indefeasible vesting of shares which carried with them the conditions found in the agreement of purchase and sale. The Beament case does not relate to whether or not a vesting of property occurred or as to what type of interest might be said to have vested. It is a valuation case and therefore, in my view, is not relevant to the issue raised in this case. I think counsel for the defendant is correct when she argues that the plaintiff's argument relating to a“ "bundle of rights" confuses a determination as to whether property has vested with a determination of the type of property interest which has vested. There is no doubt that, in this case, the shares vested but the bundle of rights which vested (the shares) carried with them an obligation which meant that they could not be said to have vested indefeasibly.

Counsel for the plaintiff also argued that I should find the notice of assessment to be invalid and a nullity because it was issued in the name of The Estate of the Late Mr. Sidney Greenwood" instead of "The Late Mr. Sidney Greenwood". The assessment was received by Mr. Coutts, the executor of Mr. Greenwood's estate. He was not confused by the notice of assessment. He understood it to relate to Mr. Greenwood's terminal year return (for January 1, 1979 to July 10, 1979) and not to the Estate's tax return (from July 10, 1979 to December 31, 1979). Mr. Coutts had a notice of objection prepared with respect to Mr. Greenwood's tax return, based on the rollover provisions argument dealt with above. That notice of objection made no mention of the fact that the assessment was being objected to because it had been addressed to “The Estate of the Late Mr. Sidney Greenwood". The notice of confirmation sent by the Minister in response to the notice of objection correctly identified the taxpayer being assessed as the late Mr. Sidney Greenwood (not his estate). His estate of course filed its independent tax return for the taxation year commencing after the date of death July 10, 1979.

Counsel argues that naming the correct taxpayer in a notice of assessment is fundamental; that it is a defect which cannot be cured but renders the assessment a nullity. Reference was made in this regard to Fawcett & Grant Ltd. v. M.N.R. (1965), 38 Tax A.B.C. 249; 65 D.T.C. 313 (T.C.C.); Guaranty Properties Ltd. v. Canada, [1987] 1 C.T.C. 242; 87 D.T.C. 5125 (F.C.T.D.) reversed but as a result of a different finding of fact [1990] 2 C.T.C. 94; 90 D.T.C. 6363 (F.C.A.); Multi-Malls Inc. v. M.N.R., [1986] 2 C.T.C. 2306; 86 D.T.C. 1724 (T.C.C.) and Walters v. The Queen, [1986] 2 C.T.C. 2327; 86 D.T.C. 1740 (T.C.C.)].

I do not think the first two cases (Fawcett and Grant, supra, and Guaranty Properties, supra) are applicable. They deal with situations in which the person assessed was a non-existent company. In the present case, while the taxpayer is deceased, his representative, Mr. Coutts is standing in his place for the purpose of filing tax returns and responding to tax assessments. He received the assessment in question, understood its portent and the fact that it related to Mr. Greenwood's tax return, and responded to it on that basis. In my view, the error which occurred is one which does not invalidate the assessment; see sections 152(8) and 166 of the Income Tax Act.

With respect to the Multi Malls case that decision is not relevant to the present circumstances because it involves a notice of assessment sent to the wrong address. It addresses the issue of whether an extension of time should be allowed for the filing of a notice of objection in such circumstances. The Walters case is not relevant because it concerns a section 231 certificate which involves immediate execution against the taxpayer's property. There are no curative provisions such as sections 152(8) and 166, which apply in the case of section 231 certificates.

For the reasons given the plaintiff's claim must be dismissed.

Appeal dismissed.