Montreal Trust Company et al. v. The Minister of National Revenue, [1958] SCR 146

Supreme Court of Canada

Montreal Trust Company et al. v. The Minister of National Revenue, [1958] S.C.R. 146

Date: 1958-01-28

Montreal Trust Company, Robert Orem Torrance, and Murray Lawrence Dowdell (Executors of the Will of the late Samuel Orem Torrance) Appellants;

and

The Minister of National Revenue Respondent.

1957: November 5, 6; 1958: January 28.

Present: Taschereau, Rand, Locke, Cartwright and Fauteux JJ.

ON APPEAL FROM THE EXCHEQUER COURT OF CANADA.

Succession duties—Duty on duty—Charitable bequest conditional upon payment of all duties on dutiable bequests—Whether this constitutes an additional dutiable succession to legatees benefiting therefrom— Dominion Succession Duty Act , 1940-41, c. 14, ss. 2 (k), (m), (n), 6(1) (a), 7(1) (d), 12  (R.S.C. 1952, c. 89, ss. 2 (k), (m), (n), 6(1) (a), 7(1) (d), 13 .

A testator set up, out of the residue of his estate, a "Charities Fund", to be divided equally between two charitable institutions (exempt from succession duties under s. 7(1) (d) of the Dominion Succession Duty Act ). There were dutiable gifts to other beneficiaries, and the gifts to the charities were made "absolutely conditional" upon the payment by them, in equal shares, of all duties payable on the estate, and if they refused or failed to pay the gifts to them were to lapse and the trustees were to use the Charities Fund to pay the duties. The charities agreed to pay the duties to the extent that the fund would suffice.

Held: The right of the beneficiaries to have duties paid by the charities constituted "property" and a "succession" within the meaning of the Act, and duty was accordingly payable on the duties paid on the shares of those beneficiaries.

APPEAL from a judgment of Thurlow J. in the Exchequer Court of Canada1, affirming a succession duty assessment. Appeal dismissed.

John de M. Marier, Q.C., and Norman 0. Seagram, Q.C., for the appellants.

D. H. W. Henry, Q.C., and A. L. DeWolf, for the respondent.

The judgment of Taschereau and Locke JJ. was delivered by

Locke J.:—The facts are stated in other reasons to be delivered in this matter. The question to be determined is as to the nature and extent of the rights of the legatees, other than the charities, under the will of the late S. 0. Torrance.

[Page 147]

As pointed out by the learned trial judge2, the nature of these rights is to be determined as of the date of the death of the testator. The bequest to the charities was not absolute but conditional upon their agreeing, within six months of the death, to pay and upon each of them paying one-half of all succession duties and inheritance and death taxes payable in respect of the estate and, in default of their so agreeing, such legacies were to lapse and such duties and taxes were to be paid out of that portion of the corpus of the estate designated by the will as the Charities Fund.

Within the six-month period, both charities agreed in writing to pay such duties and taxes to the extent that the Charities Fund would suffice for that purpose, and it was not argued before us that these acceptances were not a sufficient compliance with the terms of the bequests.

The charities have not paid the duties and the trustees remain in possession of the fund.

The word "property", where it appears in the Dominion Succession Duty Act , 1940-41, 4 & 5 Geo. VI, c. 14, s. 2(k), is to be interpreted as including :

property, real or personal, movable or immovable, of every description, and every estate and interest therein or income therefrom capable of being devised or bequeathed by will or of passing on the death, and any right or benefit mentioned in section three of this Act;

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 my opinion, this right of each of the legatees falls within the definition of property in s. 2 (k) and the succession to that right is subject to duty.

[Page 148]

I am further of the opinion that both the Charities Fund and the covenants of the charities which run in favour of the trustees are impressed with a trust in favour of the other legatees for payment of the succession duty, to the extent of the fund and its accumulations. I think the principle applied in In Re Kirk ; Kirk v. Kirk3, is applicable to the present matter.

I would dismiss this appeal with costs.

Rand J.:—This appeal raises the question under the Dominion Succession Duty Act , now R.S.C. 1952, c. 89 , whether in the circumstances payment of succession duty by, or out of property passing to, another than the successor is itself an additional succession to which duty attaches.

A certain fraction of the testator's estate, described as "the Charities Fund", was set aside which trustees were directed to invest and which, subject to the acceptance and performance by two charitable organizations of two conditions, was to be divided equally between them. The payment to one, including accrued income, was to be in a lump sum, and the other, with income, in three equal annual instalments, commencing not later than one year after his death.

The bequests were made "absolutely conditional" upon both charities

agreeing within the period of six (6) months immediately following my death to pay, and upon each of them paying, respectively, to the complete exoneration of my Trustees and my estate, one-half of all succession duties and inheritance and death taxes, whether imposed by or pursuant to the law of this or any province, state, country, or jurisdiction whatsoever, that may be payable in connection with … any gift or benefit given by … this Will or any Codicil thereto, …

The will continued:

In the event of the refusal or failure of either or both of the aforementioned charitable organizations to accept and to perform the conditions hereinbefore set out in this paragraph (6)(c) imposed on them, then the bequests in their favour hereinbefore contained and set forth shall lapse and determine absolutely, and my Trustees shall hold and stand possessed of the said Charities Fund upon trust, firstly, to pay out of the said fund all succession duties and inheritance and death taxes …; and I hereby authorize my Trustees to pay any such duty or tax prior to the due date thereof or to commute the duty or tax on any interest in expectancy; and secondly, to add any balance of the Charities Fund remaining in their hands after making such payments of duties and taxes to the Annuitants Fund as a part thereof …

[Page 149]

The charities elected to perform the conditions, and in the assessment of duties the Minister, taking the view that the benefit to the legatees of the tax exoneration was itself a succession, held it in turn subject to tax.

Section 2 (m) defines "succession":

… 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, …

and the issue is whether, in respect of the tax benefit, the legatees can be said to have become "beneficially entitled to any property" of the estate.

The direction to pay taxes means all taxes, and its extent here is illustrated by the conception of successive recoupments by the legatee until all increments have been paid. This is analytically simplified by visualizing the legatee as making an initial payment, the product of the rate applied to the amount of the legacy, as then recouping himself from the fund in the sum so paid, as then paying tax on that recoupment, and so on until the tax disappears.

Mr. Marier 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-General4. 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.

Incidentally to this contention Mr. Marier challenged the relevancy of the authorities in England to the effect that tax directed to be paid out of another fund than the succession constitutes a new taxable legacy. As he argued, what those cases held was that the benefits were legacies within the meaning of the Legacy Duty Act, 1796. The language there was:

Every gift by any will … which … shall be payable or shall have effect or be satisfied out of the personal or movable estate or effects of such person … shall be deemed a legacy.

He contrasts that with the requirement of the Act here which is argued to be narrower ; the benefit under the direction in the case before us may be, he concedes, a legacy, but

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it is not a succession, the difference being that between a purely voluntary benefit and one of an enforceable property interest.

The case before Wynn-Parry J. was a simple one of an agreement between a retiring partner and his continuing co-partners settling the disposal of his interest. Included in the arrangement was a covenant by the co-partners, from his death, to pay life annuities to his three daughters, a contract, as it is generally described, for the benefit of a third person. It seems to have been assumed that the right to the obligation of the contract had been transmitted to the legal representative of the father; but what relief was available or for whose benefit was not inquired into; as I read the reasons, if the annuities had been paid to the legal representative they could not have been recovered from him by the daughters. Consistently with the rule observed in England, there being no trust or statute, the third person, the annuitant, was held to have no interest enforceable at law or in equity; there was, consequently, no succession. The position of the annuitant was that5

upon the receipt by each of the plaintiffs of any payment in respect of her annuity, the payment and the 'money so paid will pass to her, but she has no right to compel any payment. At common law, so far as the plaintiffs are concerned, the deed is res inter alios acta, and they have no right thereunder.

In other words, once money was paid under the covenant the recipient would be protected in keeping it, but nothing more.

On that view of "beneficially entitled", what is the situation here? Specified property was set apart as a trust fund to be held by the trustees until the conditions of its devolution on the charities were performed. The duty of the trustees, on the agreement of the charities to pay the taxes, is to continue the fund invested until the payments have been made, and thereupon to distribute the corpus with the accrued interest. In case of failure to agree or to pay, the trustees were, out of the fund, to pay the succession duties, and to add any balance remaining to another segregated fraction of the estate called the Annuitants Fund which had its own directions.

[Page 151]

The charities were thus to pay the taxes originally out of their own moneys before their right to the fund became absolute. Their "agreement" to pay is not to be taken as raising a legal obligation to do so ; the agreement and the performance were simply conditions precedent to vesting the right to the bequests; if the agreement is taken to establish an obligation, the conclusion at which I have arrived will, a fortiori, be supported.

I construe the clauses to the effect that although the taxes may be paid by the charities they are, ab initio, charged upon the fund in the hands of the trustees. This is specifically so if the conditions are not fulfilled: and that the legatees are intended to be the beneficiaries of that charge there can be no doubt. Being so, they have an equitable interest in the fund which is protected by a right against the trustees to have the fund so applied, and the test, in that event, is satisfied.

Assuming an obligation on the charities resulting from their agreement to pay, running to the trustees, it is, in my opinion, equally clear that that obligation would be held in trust for the benefit of the legatees, and a similar equitable right against the trustees would arise.

But if no obligation binds the charities to pay, is the legatee, at that moment, "beneficially entitled" to any property within the test, that is, at that moment can it be said that any right of enforcement exists? By viewing the bequest with its conditions in isolation, as relating to the payment only as a purely voluntary detached act, it can, no doubt, be said that there is no basis for the notion of a beneficial "entitlement". But the bequests and the conditions are not in isolation; they and the contingent substitution of interest constitute one arrangement providing for the payment of the duty. The condition laid on the charities is the discharge of duties in relief of the retained fund, to discharge what, otherwise, that fund must discharge ; and the amount must be the same whether paid by the charities or out of the fund. The property is to be retained until the conditions are performed and the contingent trust so preserved; the fund is made a security guarantee from the beginning for the payment in exoneration of the legatees; and the fact that there are two formal modes of discharge, though in substance only one—by subtraction from the

[Page 152]

fund—or that the trust resort to the fund is a contingent alternative does not, as the definition of "succession" shows, affect the reality of the interest created.

The equitable interest and the right to compel payment lacking in Miller are present and the benefit from the discharge of the duties plus the means of enforcement render the legatees persons "beneficially entitled". That benefit is a succession on which duty is payable.

It is urged that the existence of different rates for different brackets of value of the succession makes it difficult, if not impossible, by any mathematical formula, to determine what the ultimate rate and the total imputed legacy will be. But that in each case the total imputed legacy and its rate can be determined by provisional assumptions of the bracket within which it may be there can be no doubt.

I would, therefore, dismiss the appeal with costs.

The judgment of Cartwright and Fauteux JJ. was delivered by

Cartwright J.:—This is an appeal from a judgment of Thurlow J.6 dismissing an appeal from an assessment of succession duties made by the respondent in respect of successions derived from the late Samuel Orem Torrance, hereinafter referred to as "the testator".

The testator died on April 26, 1952, domiciled in the Province of Ontario. By his will he appointed the appellants to be his executors and trustees and devised and bequeathed all his property to them upon trust, after the payment of his debts, funeral and testamentary expenses and certain specific and pecuniary legacies, to convert the whole residue into money and to divide it (amounting in value to $843,177.22) into 12 equal shares, of which 4, called "the Wife's Fund", were directed to be used for his widow initially and then for his children and ultimately for certain of his grandchildren; 5 shares, called "the Annuitants Fund", were, subject to the payment therefrom of certain annuities to the testator's sisters and brother, directed to be used initially for the testator's children and ultimately for certain of his grandchildren; and as to the

[Page 153]

remaining 3 shares, called "the Charities Fund" and amounting in value to $210,794.31, the testator provided by art. IV, para. 6, sub-para. (c) of his will as follows:

(c) My Trustees shall set aside the remaining three (3) of such shares as a trust fund to be known as "the Charities Fund" and shall invest and keep such fund invested and subject to the acceptance and performance by both the charitable organizations hereinafter named of the conditions hereinafter mentioned my Trustees shall divide the Charities Fund equally between the East Toronto General Hospital of Toronto and the First Avenue Baptist Church of Toronto (to be used and applied for the general purposes of the said Church); the payment to the said Hospital, including any income then accrued on its share, to be made in one lump sum and the payment to the said Church, including any income accrued on its share or portion thereof to the time or times of payment to be made in three (3) equal annual instalments, commencing not later than one year after my death.

The bequests to the said East Toronto General Hospital and the First Avenue Baptist Church hereinbefore contained and set forth are absolutely conditional upon both of the said charitable organizations agreeing within the period of six (6) months immediately following my death to pay, and upon each of them paying, respectively, to the complete exoneration of my Trustees and my estate, one-half of all succession duties and inheritance and death taxes, whether imposed by or pursuant to the law of this or any province, state, country, or jurisdiction whatsoever, that may be payable in connection with any insurance on my life or any gift or benefit given by me either in my lifetime or by survivorship or by this my Will or any Codicil thereto, and whether such duties and taxes be payable in respect of estates or interests which fall into possession at my death or at any subsequent time.

In the event of the refusal or failure of either or both of the aforementioned charitable organizations to accept and to perform the conditions hereinbefore set out in this paragraph (6) (c) imposed on them, then the bequests in their favour hereinbefore contained and set forth shall lapse and determine absolutely, and my Trustees shall hold and stand possessed of the said Charities Fund upon trust, firstly, to pay out of the said fund all succession duties and inheritance and death taxes whether imposed by or pursuant to the law of this or any province, state, country or jurisdiction whatsoever, that may be payable in connection with any insurance on my life or any gift or benefit given by me either in my lifetime or by survivorship or by this my Will or any Codicil thereto, and whether such duties and taxes be payable in respect of estates or interests which fall into possession at my death or at any subsequent time; and I hereby authorize my Trustees to pay any such duty or tax prior to the due date thereof or to commute the duty or tax on any interest in expectancy; and secondly, to add any balance of the Charities Fund remaining in their hands after making such payments of duties and taxes to the Annuitants Fund as a part thereof and thereafter to deal with the Annuitants Fund as so augmented in the same manner as the said Annuitants Fund is hereinbefore directed to be dealt with in paragraph (6)(b) of this Clause IV of my Will.

[Page 154]

Following the death of the testator, the two charitable organizations in question, after applying to the Supreme Court of Ontario for directions and securing an order dated October 22, 1952, accepted the bequest made to them in the testator's will, limiting their liability in so doing, however, to an amount not exceeding their prospective share of the residue of the estate.

The testator's reference to "East Toronto General Hospital of Toronto" was erroneous; he intended the "Toronto East General and Orthopaedic Hospital".

It is conceded that the Toronto East General and Orthopaedic Hospital and First Avenue Baptist Church are charitable organizations within the meaning of s. 7(1) (d) of the Dominion Succession Duty Act , now R.S.C. 1952, c. 89 . They will be referred to hereinafter as "the Charities".

In making the assessment in the case of each legatee other than the Charities the respondent first determined the amount (which I shall call X) of the dutiable value of the succession to the legatee, then calculated the amount (which I shall call Y) of the succession duties which would have been payable by the legatee without regard to the provision for payment of duties contained in art. IV, para. 6(c) of the will quoted above, and then took X plus Y as being the dutiable value of the succession to which he applied the rates provided for in the first schedule to the Act. The sole question arising on this appeal is whether instead of X plus Y the respondent should have taken X, and its solution must depend on the application of the relevant words of the Dominion Succession Duty Act , hereinafter referred to as "the Act", to the terms of the testator's will and to the events that have happened.

Section 6(1) of the Act imposes the duties and reads, so far as relevant:

6. (1) Subject to the exemptions mentioned in section seven of this Act, there shall be assessed, levied and paid at the rates provided for in the First Schedule to this Act duties upon or in respect of the following successions, that is to say,—

(a) where the deceased was at the time of his death domiciled in a province of Canada, upon or in respect of the succession to all real or immovable property situated in Canada, and all personal property wheresoever situated;

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It will be observed that duties are levied only upon or in respect of a "succession" which term is defined in s. 2 (m) as follows :

(m) "succession" means every past or future disposition of property, by reason whereof any person has or shall become beneficially entitled to any property or the income thereof upon the death of any deceased person, either immediately or after any interval, either certainly or contingently, and either originally or by way of substitutive limitation, and every devolution by law of any beneficial interest in property, or the income thereof, upon the death of any such deceased person, to any other person in possession or expectancy, and also includes any disposition of property deemed by this Act to be included in a succession;

Clause (n) of s. 2  defines a "successor" as "the person entitled under a succession".

By s. 12 it is provided that every successor shall be liable for the duty levied upon or in respect of the succession to him.

The main argument of the appellants was that the learned trial judge failed to distinguish between (i) the mere conferring of a benefit upon a beneficiary, and (ii) causing a beneficiary to become beneficially entitled to property. It was submitted that duty is levied only in cases where a successor becomes beneficially entitled to property, and that in the events that have happened the charities alone became beneficially entitled, and were sole successors, to the Charities Fund. Applying the words of s. 2 (m) to the facts of this case, it was argued: that the Charities became beneficially entitled to the whole of the Charities Fund immediately upon the death of the testator, contingently upon the performance by them of two conditions precedent, first agreeing to pay, and secondly actually paying, all succession duties payable by reason of the testator's death; that the duties must of necessity be paid out of the Charities' own moneys since the trustees under the will could not pay over any portion of the Charities Fund until satisfied that all duties had actually been paid; that consequently the beneficiaries other than the Charities, hereinafter referred to as "the legatees", would not at any time receive any part of the Charities Fund.

If all this be conceded, there still remains the question whether by reason of the will the legatees became beneficially entitled to any property upon the death of the testator. For the reasons given by the learned trial judge7

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I agree with his conclusion that on the true construction of the will the Charities Fund was impressed with a trust in favour of the legatees which bound the trustees of the will to hold the fund as security to insure payment of the duties, that a Court of equity would enforce the performance of this trust at the suit of the legatees, that the legatees became beneficially entitled to an interest in the Charities Fund which interest, by virtue of the definition in s. 2 (k), was property within s. 2(m) of the Act, and that the value of that interest is equal to the amount of the duties limited to the amount of the Charities Fund.

I would dismiss the appeal with costs.

Appeal dismissed with costs.

Solicitors for the appellants: Common, Howard, Cate, Ogilvy, Bishop & Cope, Montreal.

Solicitor for the respondent: A. A. McGrory, Ottawa.