Minister of National Revenue v. The Royal Trust Co., [1931] SCR 485

Supreme Court of Canada

Minister of National Revenue v. The Royal Trust Co., [1931] S.C.R. 485

Date: 1931-06-12

The Minister of National Revenue Appellant;

and

The Royal Trust Company, Trustee under a Deed of Donation in Trust from John Day Jackson. Respondent.

1931: May 5; 1931: June 12.

Present: Anglin CJ.C, and Newcombe, Rinfret, Lamont and Cannon JJ.

ON APPEAL FROM THE EXCHEQUER COURT OF CANADA

Revenue—Income tax (Dom.)—Income War Tax Act, 1917, c. 28 (as amended)—Income “accumulating in trust for the benefit of unascertained persons, or of persons with contingent interests” (s. 3 (6), as enacted 1920, c. 49, s. 4)—Probable beneficiaries residing out of Canada—Effect, as authority, on this Court, of judgment of this Court affirming on equal division the judgment below.

J., resident in the United States, by deed executed in the province of Quebec, gave to respondent, a company incorporated under the law? of Quebec and carrying on business in Canada, in trust, as a donation inter vivos and irrevocable, certain Canadian securities, to be held, together with all accumulations and additions thereto, upon trust for the benefit of J.’s surviving children until five years after J.’s death, “when the entire trust estate is to be equally divided amongst his surviving children, and in the event of any or all of his said children predeceasing [J.] or being unable to take, the division shall be made to the survivor or survivors, and the issue of such predeceased child or children, as representing their parent, per stirpes.” The Crown claimed from respondent an income tax under the Dominion Income War Tax Act, 1917, c. 28 (as amended), on the income received by respondent, as trustee under the said deed, for the year 1927. J. and his wife were alive, and had eight children living, all minors and residing with J. in the United States. The trust fund was invested in Canadian stocks and bonds, held by respondent in Montreal, Canada, where the income was accumulating and being invested in Canadian stocks and bonds.

Held (reversing judgment of Audette J. in the Exchequer Court, [1930] Ex. C.R. 172): The income was “accumulating in trust for the benefit of unascertained persons, or of persons with contingent interests,” and taxable in respondent’s hands, under s. 3 (6) of said Act (as enacted 1920, c. 49, s. 4). Such income accumulating in trust is distinctly a subject of taxation under s. 3 (6), regardless of the residence, if ascertainable, of probable beneficiaries, whose interest is contingent during the taxation period.

The above holding accords with the decision of this Court in McLeod v. Minister of Customs and Excise, [1926] Can. S.C.R. 457, which, having affirmed the judgment below on an equal division of opinion may not be binding as an authority on this Court (Stanstead Election case, 20 Can. SCR. 12), but is entitled to great respect.

[Page 486]

APPEAL by the Minister of National Revenue from the judgment of the Exchequer Court of Canada (Audette J.)[1] allowing the present respondent’s appeal from the decision of the Minister of National Revenue confirming the assessment levied on income for the year ending 31st December, 1927, received by the present respondent as trustee under a certain deed of donation.

John Day Jackson, a resident of New Haven, in the State of Connecticut, one of the United States of America, executed a deed of donation in trust, before a notary public in Montreal, Province of Quebec, dated 19th February, 1918, in favour of The Royal Trust Company (the present respondent) as Trustee, whereby, in consideration of the love and affection he bore towards his children, he gave as a donation inter vivos and irrevocable, unto the Trustee in. trust for the purposes therein mentioned, the Canadian securities described in the schedule to the deed. In the deed it was, among other things, provided, and the Trustee covenanted, that the Trustee should hold the securities upon trust as follows:

(a) For the benefit of the surviving children of the Donor until five years after the death of the Donor, the property described and set forth in Schedule “A” hereto, together with all accumulations and additions thereto, when the entire Trust Estate is to be equally divided amongst his surviving children, and in the event of any or all of his said children predeceasing the Donor or being-unable to take, the division shall be made to the survivor or survivors, and the issue of such predeceased child or children, as representing their parent, per stirpes;

(b) Upon the termination of the said Trust, the said Trust Estate shall be converted into cash and distributed as set forth in the preceding paragraph hereof, with all due diligence.

The following facts were admitted:

“1. John Day Jackson and his wife are both alive at this time.

“2. The age of Mrs. Jackson is 42; Mr. Jackson 61.

“3. There are eight children by the marriage presently living, all minors.

“4. The capital of the trust fund set forth in Schedule A is invested in Canadian stocks and bonds, which are held by the trustee in the city of Montreal, where the income therefrom is accumulating and being invested in Canadian.

[Page 487]

stocks and bonds by the trustee, the income from the investments likewise accumulating and subject to the same trusts.

“5. The trustee is a Canadian company incorporated under the Laws of the Province of Quebec, and carrying on business in Canada with power to act as a trustee.”

It was admitted in the pleadings that the said John Day Jackson is an American citizen and resides at New Haven, Connecticut, U.S.A.; that his said eight children, all minors, live with him and reside at New Haven aforesaid; that since the receipt by the trustee of the securities mentioned in the deed of donation, the trustee had received the income therefrom and retained the same in accordance with the provisions of the said deed; that from time to time since the execution of the deed, the question of tax payable under the Income War Tax Act on the income received from the trust property had been under discussion with the officers of the Department of National Revenue; that in recent years income tax had been paid under protest and pending a decision of the income tax authorities as to liability; that an assessment covering the 1927 period had been received by the trustee, and a tax levied in the sum of $147.39, which had been paid by the trustee without prejudice to its rights in the appeal; that the trustee, in accordance with the provisions of the Income War Tax Act, gave notice of appeal; that the Minister affirmed the assessment; and that the trustee filed a notice of dissatisfaction with the Minister’s decision.

Audette J., in the Exchequer Court[2], decided in favour of the trustee, the present respondent; its appeal from the Minister’s decision was allowed, and the assessment set aside. Leave to the Minister to appeal to the Supreme Court of Canada was granted by a judge thereof.

The appellant relied on ss. 2, 3 and 4 of the Dominion Income War Tax Act, 1917, c. 28 (as amended), reading in part as follows:

2 (d). “Person” means any individual or person and any syndicate, trust, association or other body and any body corporate, and the heirs, executors, administrators, curators and assigns or other legal representatives of such person * * *

3 (6). [As enacted by s. 4 of c. 49, 1920]. The income, for any taxation period, of a beneficiary of any estate or trust of whatsoever nature

[Page 488]

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.

4 (1). There shall be assessed, levied and paid, upon the income during the preceding year of every person residing or ordinarily resident in Canada * * * the following taxes:—* * *.

and contended that the respondent, in whose hands the income was accumulating in trust for the benefit of unascertained persons or persons with contingent interests, was liable to the tax as a “person” within the meaning of the Act, resident in Canada; that residence of the beneficiaries of a trust for unascertained persons cannot be a factor in determining whether the accumulated income for such unascertained persons in or is not taxable as against the trustee; that s. 3 (6) is a complete taxing measure within itself; that the present case was on all fours with McLeod v. Minister of Customs and Excise[3], on which the appellant relied.

The respondent contended that the John Day Jackson Trust was not a “person” within the definition in the Act; that the taxing section of the Act only applies to residents of Canada, and that the income of the trust, being the income of the beneficiaries of the trust and such beneficiaries not being residents of Canada, was not taxable; that the beneficiaries of the trust were not unascertained persons or persons with contingent interests within the meaning of s. 3 (6); they were the children of the donor and were capable of being ascertained at any time and were ascertainable for the 1927 taxation period; the class was definite and ascertained, and this definite ascertainment of the class was sufficient to enable the gift to vest; nor was there any contingency which could take the income away from the children or their descendants; that McLeod v. Minister of Customs and Excise3 was distinguishable on the facts, and was not contrary to respondent’s contentions in the present case.

C. F. Elliott K.C. and W. S. Fisher for the appellant.

W. N. Tilley K.C. and S. G. Dixon K.C. for the respondent.

[Page 489]

The judgment of the court was delivered by

Anglin C.J.C.—In our opinion this appeal must be allowed.

The Income War Tax Act provides expressly for the taxation of accumulating income held in trust for the benefit of unascertained persons, or of persons having contingent interests. The income is made

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.

(Subsection 6 of Section 3 of the Income War Tax Act, 1917, as enacted by section 4 of chapter 49 of the Statutes of 1920; see also section 10 of the Act of 1920).

Whether the word “trust” means a person or body holding the property, or distributing the trust estate, or means the property itself, or means the trust upon which such property is held, is quite immaterial in view of what is said above.

Those who are at the present time probable beneficiaries of the trust, or some of them, it is true, reside in the United States. But that fact does not prevent this case coming within subsection 6 of section 3 above referred to, nor render exempt from taxation in the hands of trustees income accumulated on a trust for unascertained beneficiaries or beneficiaries having contingent interests. On the contrary, in our opinion, such income accumulating in trust is distinctly a subject of taxation under the subsection referred to, regardless of the residence, if ascertainable, of probable beneficiaries, whose interest is contingent during the taxation period.

This view accords with that which prevailed in the case of McLeod v. Minister of Customs and Excise[4]. It may be that that decision is not binding upon this court because there the judgment below was affirmed on an even division of opinion amongst the judges who constituted the Supreme Court. (See Stanstead Election case, Rider v. Snow (2)[5]). It is, nevertheless, entitled to great respect.

We are, accordingly, of the opinion that this appeal should be allowed and that judgment should be entered for

[Page 490]

the appellant, with costs here and in the Exchequer Court, upholding the income tax assessment in question.

Appeal allowed with costs.

Solicitor for the appellant: C. Fraser Elliott.

Solicitors for the respondent: McGibbon, Mitchell & Stairs.