Supreme Court of Canada
Minister of National Revenue v. Cox et al., [1971] S.C.R. 817
Date: 1971-04-05
The Minister of National Revenue Appellant;
and
Mary Ada Cox and Montreal Trust Company, Executors of the Will of Harris Cox Respondents.
1971: February 22; 1971: April 5.
Present: Abbott, Judson, Hall, Spence and Laskin JJ.
ON APPEAL FROM THE EXCHEQUER COURT OF CANADA
Taxation—Estate tax—Gift inter vivos—Life insurance policy—Purchase by wife for cash surrender value—Money provided by deceased less than three years before death—Subject‑matter of gift, the policy or the money—Estate Tax Act, 1958 (Can.), c. 29, ss. 3(1)(c), (m).
Less than three years before his death, the deceased assigned to his wife a $50,000 life insurance policy. He delivered to his wife the assignment, the policy and his cheque for $6,076.50 payable to her. In return, she gave him a cheque drawn on her account for $4,550, being the cash surrender value of the policy. When the cheques were drawn and cashed, the deceased’s account showed a balance of $1,697.22 and the wife’s, a balance of $453.40. It was admitted that the purpose of the transfer was to avoid the inclusion, in the aggregate net value of the property passing on the death, of the face amount of the policy. The Minister included this face value in the computation of the aggregate net value of the property passing on death within s. 3(1) (c) of the Estate Tax Act. The Exchequer Court held that the subject‑matter of the gift was the cheque for $6,076.50. The Minister appealed to this Court.
Held: The appeal should be allowed.
The simultaneous exchange of cheques where neither would be honoured due to insufficient funds were it not for the offsetting entry of the other, can only be viewed as a single transaction. In substance, the deceased transferred the policy plus the exact amount of the next year’s premium, the sum of $1,526.50. He received no consideration for this transfer, thereby constituting a gift of the policy within the provisions of the Act, the face value of which was properly included in computing the aggregate net value of property passing on death.
[Page 818]
APPEAL from a judgment of Cattanach J. of the Exchequer Court of Canada, in an estate tax matter. Appeal allowed.
G.W. Ainslie, Q.C., and H. Buckman, for the appellant.
M.A. Putnam, for the respondents.
The judgment of the Court was delivered by
JUDSON J.—The respondents are the executors of the last will and testament of Harris Cox, deceased. The sole issue on appeal is whether there is to be included in the property passing on the death of Harris Cox, the face value of a policy of life assurance or $6,076.50 as the subject-matter of a gift made by the deceased within three years prior to his death. In an assessment by the Minister under s. 24 of the Estate Tax Act, the face value of the policy, $50,000, was included in the computation of the aggregate net value of the property passing on death within s. 3(1)(c). On an appeal by the executors, the subject-matter of the gift was held to be $6,076.50 and not the face value of the policy. The Minister now appeals from that decision. In my view the appeal must be allowed, and the original assessment by the Minister affirmed.
On November 15, 1957, the deceased entered into a contract of assurance which was to pay $50,000 on his death. Yearly premiums were to be $1,526.50.
On October 22, 1962, the deceased assigned this policy to his wife. The cash surrender value of the policy then was $4,550. On October 24, 1962, the deceased delivered to his wife the assignment, the policy and his cheque for $6,076.50 payable to her. In return, his wife gave to him a cheque drawn on her account for $4,550.00. When these cheques were drawn and cashed, the deceased’s account showed a balance of $1,697.22, while only $453.40 stood to his wife’s credit in her account.
The deceased died on September 19, 1965. The executors of his estate, in computing the
[Page 819]
aggregate net value of property passing on death, included $6,076.50 as being the subject‑matter of the gift made by the deceased to his wife on October 24, 1962. By this view, the wife’s cheque for $4,550 was payment for the then cash surrender value of the policy in consideration for its assignment to her. The Minister included in his assessment the value of the policy as being the subject-matter of the gift made on October 24, 1962, pursuant to s. 3(1) (c) of the Estate Tax Act.
At trial, it was held that there were two real transactions involved, a gift of money by Mr. Cox to his wife and a purchase of the policy by Mrs. Cox from her husband. Accordingly, the subject-matter of the gift was the sum of $6,076.50.
In the agreed statement of facts, it was admitted that the purpose of the transfer on October 24, 1962, was to avoid the inclusion in the aggregate net value of the property passing on the death of the deceased the face amount of the policy pursuant to s. 3(1) (m) of the Estate Tax Act. The relevant provisions are:
3. (1) There shall be included in computing the aggregate net value of the property passing on the death of a person the value of all property, wherever situated, passing on the death of such person, including, without restricting the generality of the foregoing,
* * *
(c) property disposed of by the deceased under a disposition operating or purporting to operate as an immediate gift inter vivos, whether by transfer, delivery, declaration of trust or otherwise, made within three years prior to his death;
* * *
(m) any amount payable under a policy of insurance effected on the life of the deceased (whether or not to a preferred beneficiary within the meaning of any statute or law relating to insurance applicable to such policy), where such policy was immediately prior to the death of the deceased,
(i) owned, either alone or jointly or in common with any other person,
(A) by the deceased,…
[Page 820]
I am in complete agreement with the Minister’s contention that the exchange of cheques was merely the machinery used to effect a gift of the policy by the deceased to his wife. The simultaneous exchange of cheques where neither would be honoured due to insufficient funds were it not for the offsetting entry of the other cheque, can only be viewed as a single transaction. In substance, the deceased transferred to his wife the policy of life assurance plus the exact amount of the next year’s premium, the sum of $1,526.50, being the difference between $6,076.50 and $4,550.
The deceased received no consideration for this transfer, thereby constituting a gift of the policy within the provisions of the Estate Tax Act, the face value of which was properly included in computing the aggregate net value of property passing on death.
I would allow the appeal with costs.
Appeal allowed with costs.
Solicitor for the appellant: D.S. Maxwell, Ottawa.
Solicitors for the respondents: MacKimmie, Matthews, Wood, Phillips & Smith, Calgary.
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