Alworth v. Minister of Finance, [1978] 1 SCR 447

Supreme Court of Canada

Alworth v. Minister of Finance, [1978] 1 S.C.R. 447

Date: 1977-05-17

Royal D. Alworth, Jr. Appellant;

and

The Minister of Finance Respondent.

Royal D. Alworth, Jr., Arthur B. Miller and Francis C. Sullivan, as Trustees of the Jane A. Lintner Timber Trust Appellants;

and

The Minister of Finance Respondent.

The Canada Trust Company, in trust as Administrator with the will annexed of the estate of Marshall Henry Alworth II situate within British Columbia Appellant;

and

The Minister of Finance Respondent.

The Canada Trust Company, in trust as Administrator with the will annexed of the estate of Stephen Robinson Kirby situate within British Columbia Appellant;

and

The Minister of Finance Respondent.

Michael F. Lintner Appellant;

and

The Minister of Finance Respondent.

1977: March 28, 29; 1977: May 17.

Present: Laskin C.J. and Martland, Judson, Ritchie, Spence, Pigeon, Dickson and Beetz JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR BRITISH COLUMBIA

Taxation—Persons not resident within Province deriving income from logging operations therein—Liability to pay logging tax—Position of trustees for certain taxpayers—British North America Act, s. 92(2)—Logging Tax Act, R.S.B.C. 1960, c. 225, ss. 3, 7, 16, 17.

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Notices of assessment under the Logging Tax Act, R.S.B.C. 1960, c. 225, were appealed by the appellant taxpayers to the Minister of Finance but the assessments were affirmed. Subsequent appeals to the Supreme Court of British Columbia were allowed and the assessments were set aside. Appeals by the Minister were then brought to the Court of Appeal and these appeals having been allowed, the taxpayers appealed to this Court.

The main contention of the appellants was based on the words “within the Province” in s. 92(2) of The British North America Act, and they argued that the Logging Tax Act imposes an in personam tax and hence, it does not and cannot, constitutionally, catch persons such as the appellants (save Canada Trust Co.) who were never resident or found within the Province, although deriving income from logging operations therein in respect of which the tax was imposed.

Held: The appeals should be dismissed.

That it is open to a Province to impose a tax on income within the Province of non‑residents is now unquestionable: see International Harvester Co. v. Provincial Tax Commission, [1949] A.C. 36. Moreover, a Province is not put to a choice of imposing a direct tax on persons or on property (or income) but may constitutionally tax on both bases.

Essentially, what was involved in the present case was an appreciation of the incidence of the tax, based, as that appreciation must be, on the subject-matter of the statute and the source of the income in respect of which the tax is levied. It is too mechanical to find that an in personam tax is imposed here merely because the charging section stipulates that a “taxpayer” must pay it. The obligation to pay, a common one in tax legislation, does not necessarily determine the incidence of the tax. The definition of taxpayer is not limited to persons who reside in the Province but points rather to a class of persons identified with the operations in respect of which tax is imposed, regardless of their place of residence. It is the income derived from those operations, which themselves are limited to the Province, that carries the burden of the tax. Whether the tax be characterized as an income tax or a tax respecting certain economic activity in the Province the result is the same, namely, that it is taxation within the Province. It would be to substitute form for substance and, indeed, empty the charging section of substance (by inviting easy evasion) to hold that a personal tax is imposed by the Act.

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A second issue in this case involved the assessability to tax of (1) foreign trustees under an inter vivos trust of an interest in land in British Columbia on which logging operations were carried on; and (2) Canada Trust Company, which had obtained in British Columbia letters of administration with the will annexed, as attorney for the foreign executors of the estates of certain persons, having at their deaths interests in such land. The tax gatherer is not necessarily governed, in assessing an estate or a trust for tax, by the legal position of executors or trustees vis-à-vis beneficiaries of the estate or of the trust. It may choose, by its tax legislation, to disregard the discharge of executors by a foreign court or the dissolution of a trust by such a court, and may serve its own revenue interests so far as collection convenience is concerned, provided, of course, that the tax enacted is one that could lawfully be imposed and that the tax legislation provides a basis upon which it can be claimed from those assessed.

Section 7 of the Logging Tax Act brought the foreign trustees and Canada Trust Company within its terms so as to come under the obligation to make a return. “Person” is defined in the Act to include a trustee, and the term is not limited to British Columbia trustees. Sections 16 and 17 add to the obligation of the foreign trustees and of Canada Trust Company. There would be no justification in excluding from the scope of those sections, and especially from the scope of s. 16, trustees or administrators whose only duty may be to turn over to their respective beneficiaries property in which the trustees or administrators have the legal title. The concluding words of s. 16, requiring payment of any tax “before making any distribution of such property”, point sufficiently to their inclusion.

Kerr v. Superintendent of Income Tax, [1942] S.C.R. 435, considered; Provincial Treasurer of Alberta v. Kerr, [1933] A.C. 710, distinguished.

APPEALS from a judgment of the Court of Appeal for British Columbia[1], allowing appeals from a judgment of Fulton J. Appeals dismissed.

A.B. Ferris, Q.C., and P.J. Furlong, for the appellants.

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H.L. Henderson, L.R. Fast and S.M. Johnston, for the respondent.

The judgment of the Court was delivered by

THE CHIEF JUSTICE—The main issue in these appeals concerns the characterization of the tax imposed by the Logging Tax Act, R.S.B.C. 1960, c. 225, as amended. The problem of characterization arises from the constitutional limitation on provincial taxing power, reflected in s. 92(2) of the British North America Act, It restricts the Provinces to “direct taxation within the Province in order to the raising of a Revenue for Provincial Purposes”. No issue arises here on the direct character of the tax imposed by the Act. The contention of the appellants is based on the words “within the Province”, and they argue that the Logging Tax Act imposes an in personam tax and, hence, it does not and cannot, constitutionally, catch persons who were never resident or found within the Province, although deriving income from logging operations therein in respect of which the tax is imposed.

The charging provision of the Act is s. 3 which is as follows:

Every taxpayer shall for each taxation-year pay a tax of fifteen per centum calculated on his income derived from logging operations in British Columbia.

The Act defines “taxpayer”, “logging operations” and “income derived from logging operations”, the latter definition specifying that it is net profit to which the tax is directed. “Taxpayer” is defined as meaning “any person who engages in or has income derived from logging operations in British Columbia and includes his heirs, executors, administrators, trustees and agents”. There are certain exemptions from tax and other provisions touching the computation of tax with which it is unnecessary to deal because they do not affect the main issue in the present case.

The submission of the appellants is simply that s. 3 imposes the tax on persons who engage in or derive income from logging operations in the Prov-

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ince, that their net profit from such operations provides a measure for the tax but that it can only be exacted from persons who are in or are found in the Province at the material time. Since none of the appellants (save Canada Trust Co.) were in or were found in the Province when the tax assessments for the years 1961 to 1970 were made against them or in any of the respective taxation years, it is contended that those appellants are not taxable nor liable to pay tax in respect of logging operations in the Province from which they derived income.

Counsel for the appellants founded himself on the distinction drawn in the case law between a tax on persons and a tax on income, as for example, Kerr v. Superintendent of Income Tax[2], where the issue was whether an Alberta resident was taxable in respect of income derived from sources outside the Province. The conclusion there reached that the Alberta Legislature had power to bring extra-provincial income of an Alberta resident into the calculation of her tax liability was based on a distinction between the object of a tax and the measure of the tax. In short, it was open to a Province to impose a tax on persons in the Province and to measure it by extra-provincial attributes without the tax losing its character as taxation within the Province. Kerwin J. (as he then was) pointed out in that case that the Court was not called upon to consider whether the taxing statute there also imposed a tax on income within the Province of non-residents. That it is open to a Province so to do is now unquestionable: see International Harvester Co. v. Provincial Tax Commission[3].

Moreover, a Province is not put to a choice of imposing a direct tax on persons or on property (or income) but may constitutionally tax on both bases. Too much ought not to be made, therefore, of the observation of Lord Thankerton in Provincial Treasurer of Alberta v. Kerr[4], at p. 718 that:

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Generally speaking, taxation is imposed on persons, the nature and amount of the liability being determined either by individual units, as in the case of a poll tax, or in respect of the taxpayers’ interests in property or in respect of transactions or actings of the taxpayers. It is at least unusual to find a tax imposed on property and not on persons—in any event, the duties here in question are not of that nature.

Although that case in one of its aspects concerned, as does the present one, the question whether a provincial statute had imposed its taxation within the Province or had unconstitutionally reached outside, it related to succession duty legislation and does not call for further consideration here.

Essentially, what is involved in the present case is an appreciation of the incidence of the tax, based, as that appreciation must be, on the subject-matter of the statute and the source of the income in respect of which the tax is levied. I regard it as too mechanical to find that an in personam tax is imposed here merely because the charging section stipulates that a “taxpayer” must pay it. The obligation to pay, a common one in tax legislation, does not necessarily determine the incidence of the tax. The definition of taxpayer is not limited to persons who reside in the Province but points rather to a class of persons identified with the operations in respect of which tax is imposed, regardless of their place of residence. It is the income derived from those operations, which themselves are limited to the Province, that, in my view, carries the burden of the tax. Whether the tax be characterized as an income tax or a tax respecting certain economic activity in the Province the result is the same, namely, that it is taxation within the Province. It would be to substitute form for substance and, indeed, empty the charging section of substance (by inviting easy evasion) to hold that a personal tax is imposed by the Act.

My conclusion, in rejection of the contention of the appellants, accords with that reached by Seaton J.A. speaking for the British Columbia Court of Appeal; and, indeed, his analysis of the Logging Tax Act and his consideration of the relevant case law relieves me of the necessity of

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enlarging my reasons in those respects. Issue was taken by counsel for the appellants with Seaton J.A.’s assertion that “it is impossible to say that there is in this Act one charging section”, but I take that to mean in the light of other parts of his reasons, that the charging provisions of s. 3 had to be considered in association with other provisions of the Act which defined various terms used in s. 3. There can hardly be any doubt of the correctness of this approach.

Although failing on the main issue, the appellants nonetheless advance certain arguments against the assessability to tax of (1) foreign trustees under an inter vivos trust of an interest in land in British Columbia on which logging operations were carried on; and (2) Canada Trust Company, which had obtained in British Columbia letters of administration with the will annexed, as attorney for the foreign executors of the estates of certain persons, having at their deaths interests in such land. Both the foreign trustees and Canada Trust Company were shown on the land register in British Columbia as holding title to interests in the particular land during the years for which they were assessed to tax and as still holding title when the notices of assessments, being variously for the years 1961 to 1970, were issued under date of March 25, 1974.

At that time the trusteeship of the foreign trustees (who had held for the benefit of two beneficiaries) had been terminated by orders of a Minnesota District Court on March 14, 1967, and June 9, 1970, respectively, the validity of which is not questioned. Similarly, long before that time, the foreign executors of one of the estates for whom Canada Trust Company had acted as attorney had obtained a judicial discharge in the foreign jurisdiction, and it was contended, accordingly, that Canada Trust Company’s authority to deal with the property ended and it could not lawfully deal with it (having become a bare trustee) unless it obtained a grant of administration de bonis non. In respect of the estate as to which Canada Trust Company was attorney for the foreign executors, the latter had long before released Canada Trust

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Company from any obligation to deal with the money receivable from logging operations and that money (so it was contended) was paid after 1956 by the logging company directly to the foreign executors. In short, the contention was that here too Canada Trust Company was a bare trustee with no authority to deal with the land to which it held title, save as directed by the foreign executors.

The tax assessments against the foreign trustees, spanning the years 1962 to 1969 inclusive and a prior period from March 27, 1961, to December 31, 1961, are shown in para. 35 of a statement of agreed facts; and in the same paragraph are the assessments against the Canada Trust Company in respect of the two estates for which it was appointed as administrator with the will annexed, namely, the Estate of Marshall Henry Alworth II and the Estate of Stephen Robinson Kirby. The assessments in each case were for the period March 27, 1961, to December 31, 1961, and for the entire years 1962 to 1970 inclusive. Paragraph 34 of the statement of agreed facts is as follows:

34. Payments were made by MacMillan Bloedel Industries Limited to the Appellants or others during the period from 27th March 1961 to 31st December 1970 under the terms of the Robert Dollar Agreement and were as set out in the respective Notices of Assessment issued against the Appellants and affirmed by the Minister of Finance as “Taxable Income per Section 10”.

Relevant to the assessments and to the effect of para. 34 above-quoted are ss. 7, 16 and 17 of the Logging Tax Act which are as follows:

7. Every trustee in bankruptcy, assignee, liquidator, receiver, administrator, and other person administering, managing, winding up, controlling, or otherwise dealing with the property or business of a taxpayer who has failed to make a return under this Act shall make the required return.

…

16. Every person who is required by section 7 to make a return of income shall, to the extent of the property or business that he is administering, managing, winding up,

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or otherwise controlling or dealing with, pay any tax and interest and penalties assessed and levied with respect to such income before making any distribution of such property or business.

17. Every trustee in bankruptcy, assignee (sic), administrator, and other like person, before distributing any assets under his control, shall obtain a certificate from the Commissioner certifying that no unpaid assessment of tax, interest, and penalties properly chargeable against the person, property, or business, as the case may be, remains outstanding.

The British Columbia Court of Appeal noted in its reasons that the limiting words in s. 16 “to the extent of the property or business he is administering”, etc. were necessary to keep the tax (as being one on income) within provincial constitutional authority. I need not pass on this here, but take the words for what they say, namely, as limiting to such British Columbia assets the liability for tax of the persons mentioned in s. 16.

What the appellants urge, in respect of the assessments aforementioned is that para. 34 of the statement of agreed facts is not an admission of receipt of income from logging operations by those assessed but only of the dollar amounts set out; and that, in the case of the foreign trustees, although payments were made to them by the logging operator, MacMillan Bloedel Industries Limited, up to 1967 or 1968, thereafter they were made directly to the beneficiaries of the then dissolved trust. Again, it was said that Canada Trust Company could not be lawfully assessed in respect of the Alworth Estate because it received no money on behalf of that Estate during the taxation years for which assessments were made; and, so far as the Kirby Estate was concerned, it received no money from logging operations after October 1964, and could not be held liable for tax beyond that date.

Seaton J.A. dealt with the foregoing issues in the concluding paragraphs of his reasons, as follows:

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Several of the respondent’s arguments turn upon the fact that certain trustees have become what is referred to as bare trustees. In one case a trust has now been terminated but the trustees remain holders of the title. In another case Canada Trust holds title but is said to be a bare trustee because its powers come through an executor that has been discharged. Each of these arguments is answered by observing that the adjective “bare” does not deny trusteeship, it explains it. In each of these cases the trustees held title to the property and received income. They held the title and received the income as trustees. Nothing more is needed.

The final argument is that Canada Trust no longer holds assets as administrator and that there is no property within the meaning of s. 16 from which to pay the assessments. But the statement of facts shows that Canada Trust continues to hold the titles. What else it holds is not shown. That the nature of the trust might have changed at some stage would not give immunity to the assets. In any event this appeal relates to assessments. Their validity is not dependent on there being adequate property available to pay the tax.

These paragraphs reject the contention of counsel for the appellants that para. 34 of the statement of agreed facts goes no farther than admitting the correctness of the dollar amounts set out in para. 35. What that counsel submitted was that the words “or others” in para. 34 had to be read in the light of other paragraphs of the statement of agreed facts which indicated that neither the foreign trustees nor Canada Trust Company received income in their representative capacities for the entire periods of the assessments but, in the case of the foreign trustees, for the period to 1967 or 1968, and in the case of Canada Trust Company for the period to October 1964 in respect of the Kirby Estate and not at all in respect of the Alworth Estate. In short, “others” meant, for the particular periods outside of those aforementioned, others than the foreign trustees and Canada Trust Company.

Two observations are material here. First, the tax gatherer is not necessarily governed, in assessing an estate or a trust for tax, by the legal position of executors or trustees vis-à-vis beneficiaries of the estate or of the trust. It may choose, by

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its tax legislation, to disregard the discharge of executors by a foreign court or the dissolution of a trust by such a court, and may serve its own revenue interests so far as collection convenience is concerned, provided, of course, that the tax exacted is one that could lawfully be imposed and that the tax legislation provides a basis upon which it can be claimed from those assessed. Second, even if para. 34 of the statement of agreed facts is read as counsel for the appellants would have it, the consequences he urges from such a reading do not necessarily follow if the tax legislation prescribes a different result in law.

I return, accordingly, to ss. 7, 16 and 17 of the Logging Tax Act. I read s. 7 as bringing the foreign trustees and Canada Trust Company within its terms so as to come under the obligation to make a return. In this connection I note that “person” is defined in the Act to include a trustee, and the term is not limited to British Columbia trustees. Sections 16 and 17 add to the obligation of the foreign trustees and of Canada Trust Company. I do not think that I would be justified in excluding from the scope of those sections, and especially from the scope of s. 16, trustees or administrators whose only duty may be to turn over to their respective beneficiaries property in which the trustees or administrators have the legal title. The concluding words of s. 16, requiring payment of any tax “before making any distribution of such property”, point sufficiently to their inclusion.

I would dismiss the appeals with costs in this Court. I would not interfere with the order as to costs made by the British Columbia Court of Appeal.

Appeals dismissed with costs.

Solicitors for the appellants: Davis & Co., Vancouver.

Solicitors for the respondent: Harman & Co., Victoria.