Minister of National Revenue v. Holden, [1932] SCR 655

Supreme Court of Canada

Minister of National Revenue v. Holden, [1932] S.C.R. 655

Date: 1932-06-15.

The Minister of National Revenue Appellant

and

John B. Holden, Sole Surviving Executor and Trustee of the Estate of Duncan McMartin, Deceased Respondent.

1932: February 9; 1932: June 15.

Present:—Duff, Rinfret, Lamont, Smith and Cannon JJ.

ON APPEAL FROM THE EXCHEQUER COURT OF CANADA

Income tax—Income War Tax Act, 1917 (Dom.), c. 28 (as amended)—Right to assess—S. 3 (6), as enacted by 10-11 Geo. V, c. 49, s. 4 (R.S.C., 1927, c. 97, s. 11)—“Income accumulating in trust for the benefit of unascertained persons, or of persons with contingent interests”—Residence out of Canada—Construction of will—Contingent or vested legacies.

M. died in 1914, domiciled in Canada. His will, after sundry bequests, gave the residue of his estate to his executors and trustees upon trusts to sell and convert, to pay legacies, to invest, to pay an annuity, and “(e) to divide the balance of the income * * * into three equal parts and to pay or apply one of such parts, or so much thereof as my executors and trustees in their discretion deem advisable, in or towards the support, maintenance and education of each of my children until they respectively attain the age of 25 years, or until the period fixed for the distribution of the capital of my estate which ever event shall last happen, provided that any portion of any child’s share not required for his or her support, maintenance and education shall be re-invested * * * and form part of the residue of my estate given and bequeathed to such child; (ƒ) After the death or remarriage of my wife, whichever event shall first happen, to divide the residue of my estate equally between such of my three children as shall attain the age of 25 years, as and when they respectively attain that age, provided that if any of the said children shall have died before the period of distribution arrives, leaving a child or children, such children shall take the share in my estate which his or her parent would have taken had he or she survived the period of distribution * * *.” M.’s widow and three children survived him. His widow remarried in 1925. The eldest child attained the age of 25 years in November, 1928. The children, at all material times, resided in the United States, except that one resided in Canada in and from 1926. The respondent (a resident of Canada), the sole surviving executor and trustee of the will, was assessed for the years 1917

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to 1928, inclusive, under the Income War Tax Act, 1917 (Dom.), as amended, for income tax upon the undistributed income, not used in the maintenance, etc., of the children under the above quoted clause (e) in the will, from the residuary estate. Respondent claimed that he or M.’s estate was not assessable or taxable in respect thereof. Held: The income assessed was “income accumulating in trust for the benefit of unascertained persons, or of persons with contingent interests,” within s. 3 (6) of said Act, as enacted by 10-11 Geo. V, c. 49, s. 4 (now R.S.C., 1927, c. 97, s. 11), and was taxable in the hands of respondent.

Judgment of the Exchequer Court (Audette J.), [1931] Ex. C.R. 215, reversed.

APPEAL from the judgment of Audette J., in the Exchequer Court of Canada[1], allowing the appeal of the present respondent (save as to the interest of Allen A. McMartin for certain years) from the decision of the Minister of National Revenue affirming the income tax assessments herein, notices of which assessments were issued on March 1, 1930, for each of the years 1917 to 1928, inclusive.

The following statement of facts was agreed upon by the parties for the purposes of the trial of the action in the Exchequer Court:

“1. The appellant [appellant in the Exchequer Court—the present respondent] is the sole surviving Executor and Trustee of the Last Will and Testament of Duncan McMartin bearing date the 24th day of April, 1914.

“2. That the said Duncan McMartin died on the 2nd day of May, 1914, at the City of Toronto, in the Province of Ontario, but was domiciled in the City of Montreal, Province of Quebec.

“3. After sundry bequests which are not involved in this appeal, the said deceased gave directions by his said Last Will and Testament for the sale and conversion of his residuary estate, the investment of the balance of the proceeds of such sale and conversion and as to the disposition to be made of the income derived from such investments, or the income or profits from the unrealized portions of the said Estate, which directions are to be found in Paragraph 9 of the said last Will and Testament which is as follows:—

9. I give, devise and bequeath all the rest, residue and remainder of my estate both real and personal to my executors and trustees hereinafter named upon the following trusts, namely: (a) to sell and convert the same into money (except my shares in Canadian Mining & Finance Company Limited) as soon after my death as they in their absolute discretion deem it advisable.

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(b) To pay out of the proceeds of such sale and conversion the legacies given by this my Will including the said legacy to my wife of one hundred and fifty thousand dollars ($150,000) should same become payable.

(c) To invest and keep invested the balance of the proceeds of such sale and conversion in such investments as trustees are by the Laws of the Province of Ontario permitted to invest trust funds.

(d) To pay out of the income derived from such investments or the income or profits from the unrealized portions of my estate, the said annuity of twenty-five thousand dollars ($25,000) a year to my wife.

(e) To divide the balance of the income from such investments or the income or profits derived from the unrealized portions of my estate, into three equal parts and to pay or apply one of such parts, or so much thereof as my executors and trustees in their discretion deem advisable, in or towards the support, maintenance and education of each of my children until they respectively attain the age of twenty-five years, or until the period fixed for the distribution of the capital of my estate which ever event shall last happen, provided that any portion of any child’s share not required for his or her support, maintenance and education shall be re-invested by my said Executors and Trustees and form part of the residue of my estate given and bequeathed to such child.

(ƒ) After the death or remarriage of my wife, whichever event shall first happen, to divide the residue of my estate equally between such of my three children as shall attain the age of twenty-five years, as and when they respectively attain that age, provided that if any of the said children shall have died before the period of distribution arrives, leaving a child or children, such children shall take the share in my estate which his or her parent would have taken had he or she survived the period of distribution, if more than one in equal shares.

“4. On the 1st day of January, 1917, there were then living, Iva McMartin, Widow of the said Duncan McMartin, deceased, and Allen A. McMartin, Melba McMartin and Duncan McMartin, children of the said deceased, all of whom resided in the City of New York and had so resided for some time prior to the 1st day of January, 1917. The said deceased left no other child, or any child or children of any deceased child, him surviving.

“5. That Iva McMartin, Widow of the said Duncan McMartin, deceased, remarried on or about the 4th day of March, 1925, and received on or about that date the sum to which she became entitled on such re-marriage and thereafter ceased to have any further interest in the residuary estate or in the income or profits therefrom.

“6. The said Allen McMartin continued to reside in the City of New York or elsewhere in the United States of America until January, 1926, at which date he took up his residence in the City of Montreal, Province of Quebec, and has since resided there. The said Melba McMartin and Duncan McMartin have continued to reside in the City of

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New York or elsewhere in the United States of America and are still residing there.

“7. That the said Allen A. McMartin attained the age of twenty-five years on the 4th day of November, 1928, and that the said Melba McMartin (now Melba McMartin Orr) attained the age of twenty-five years on the 3rd day of March, 1930, and the said Duncan McMartin attained the age of twenty-one years on the 17th day of February, 1930.

“8. That the said Allen A. McMartin was married on or about the 29th day of August, 1923, and there is no issue of such marriage; the said Melba McMartin was married to Leander Lee on the 20th day of September, 1922, and Melba Lee born May 23, 1923, is the only issue of such marriage; the said Melba McMartin and Leander Lee were divorced and the said Melba McMartin was again married to T. W. Orr on the 28th day of October, 1929, and there is no issue of such marriage; the said Duncan McMartin was married on or about the 1st day of July, 1931, and there is no issue of such marriage.

“9. By Notice of Assessment dated the 1st day of March, 1930, the appellant [appellant in the Exchequer Court—the present respondent] was assessed for Income Tax upon the undistributed income, not used in the maintenance of the children under clause (e) in paragraph 9 of the will, from said residuary estate as follows:—

* * *

* * *.”

The respondent resides in Canada.

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Sec. 3, subsec. 6, of the Income War Tax Act, 1917, as enacted by 10-11 Geo. V, c. 49, s. 4, (and which was, by 10-11 Geo. V, c. 49, s. 16 (1), to be deemed to have come into force at the commencement of the 1917 taxation periods), was practically identical with R.S.C., 1927, c. 97 (the Income War Tax Act), s. 11, and read as follows:

The income, for any taxation period, of a beneficiary of any estate or trust of whatsoever nature shall be deemed to include all income accruing to the credit of the taxpayer whether received by him or not during such taxation period. Income accumulating in trust for the benefit of unascertained persons, or of persons with contingent interests shall be taxable in the hands of the trustees or other like persons acting in a fiduciary capacity, as if such income were the income of an unmarried person.

The following extract from the decision of the Minister of National Revenue gives the ground of his decision:

And whereas under the provisions of the Will of the said Duncan McMartin the income not actually distributed to the named beneficiaries therein is being accumulated by the executors and trustees in trust for the benefit of unascertained persons or persons with contingent interests and it is provided by subsection 2 of Section 11 of the Income War Tax Act that income accumulating in such manner shall be taxable in the hands of the trustee or other like person acting in a fiduciary capacity as if such income were the income of an unmarried person, which provision of the Act was originally enacted by Section 4 of Chapter 49 of the Statutes of 10-11 George V and made applicable to the 1917 and subsequent periods by subsection 1 of Section 16 of the said Chapter 49.

The Honourable the Minister of National Revenue, having duly considered the facts as set forth in the Notices of appeal and matters thereto relating, hereby affirms the said assessments appealed against on the ground that the Executor of the estate has been properly assessed upon the income accumulating in his hands in trust for the benefit of unascertained persons or persons with contingent interests, irrespective of whether such unascertained persons or persons with contingent interests are or may be in the future resident in Canada or outside of Canada.

Audette J.[2] held that, under the Act (See s. 4 of the original Act, as amended; its present form is found in R.S.C., 1927, c. 97, s. 9), the present respondent was not liable to be taxed in respect of the income of beneficiaries who were non-residents of Canada, and that the corpus of the trust, as well as the income, were the property of nonresidents; further, that the funds in question were not income accumulating in trust for the benefit of unascertained persons or of persons with contingent interests; and that, under the Act, the funds in question were not taxable in the hands of the present respondent. He allowed the present respondent’s appeal, declaring that

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the fund sought to be taxed herein is absolutely vested in well known beneficiaries without any contingent interest and that such beneficiaries being admitted not to be residents in Canada are not liable to be taxed; with however this qualification that as Allen McMartin resided in New York until January, 1926, when from that date he took up his residence in the City of Montreal, Canada, he will from such date be liable to the present taxation, * * *

The Minister appealed to the Supreme Court of Canada. The Executor cross-appealed from that part of the judgment which directed that the interest of Allen A. McMartin was to be assessed from the date on which he became a resident of Canada.

By the judgment of this Court, now reported, the Minister’s appeal was allowed and the assessments confirmed, with costs throughout.

J. McG. Stewart K.C., C. F. Elliott K.C. and W.S. Fisher for the appellant.

N. W. Rowell K.C. and P. C. Finlay for the respondent.

The judgment of Duff, Rinfret, Lamont and Smith JJ. was delivered by

Duff J.—It is quite plain, I think, that a child does not take, under paragraph 9, subparagraph (ƒ), unless it attains the age of twenty-five years. It is true that the gift over is limited to the case where the child dies before the “period of distribution.” But that cannot affect the plain language which makes the gift of the share contingent upon attaining the age of twenty-five years.

This, it seems to me, in itself leads to one necessary conclusion with regard to all points in controversy. Until a child has attained twenty-five years, the destination of the share is uncertain, and the beneficiary is unascertained and unascertainable. That is sufficient to dispose of the main point. It is also sufficient to dispose of the subsidiary point, because up to that time the accumulated income accumulates as an integer; and the result is that the appeal should be allowed, the judgment of the Court below reversed and the assessments confirmed, with costs throughout.

Cannon J.—The following facts were agreed upon by the appellant and the respondent for the purposes of this action:

[Here is set out the above quoted statement of facts agreed upon by the parties.]

The question of residence or non-residence in Canada does not and cannot arise when the ultimate beneficiary in

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the accumulating trust fund is not definitely known and determined during the taxation period. The probable beneficiaries could not be definitely ascertained before the contingency, i.e., their survival until they reached twenty-five years of age, actually took place.

We therefore have to deal exclusively with the 1920 amendment (ch. 49, sec. 4) which covers the present case, and, in my view, is a complete taxing provision devised to tax in the hands of a trustee resident in Canada income accumulating in trust for the benefit of unascertained persons, or of persons with contingent interests, without, for obvious reasons, distinguishing between residents and nonresidents. I feel bound by our decision in the Royal Trust case[3] and would allow the appeal with costs.

Appeal allowed with costs.

Solicitor for the appellant: W. S. Fisher.

Solicitor for the respondent: James Y. Murdoch.