Date: 20000204
CORAM: STONE J.A.
LÉTOURNEAU J.A.
MALONE J.A.
Docket: A-535-98
BETWEEN:
Appellant
AND:
HER MAJESTY THE QUEEN
Respondent
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Docket: A-536-98
BETWEEN:
Appellant
AND:
HER MAJESTY THE QUEEN
Respondent
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Docket: A-537-98
BETWEEN:
Appellant
AND:
HER MAJESTY THE QUEEN
Respondent
Heard at Toronto, Ontario, Monday, January 10, 2000
Judgment delivered at Ottawa, Ontario, Friday, February 4, 2000
REASONS FOR JUDGMENT BY: LÉTOURNEAU J.A.
CONCURRED IN BY: STONE J.A.
MALONE J.A.
Date: 20000204
CORAM: STONE J.A.
LÉTOURNEAU J.A.
MALONE J.A.
Docket: A-535-98
BETWEEN:
Appellant
AND:
HER MAJESTY THE QUEEN
Respondent
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Docket: A-536-98
BETWEEN:
Appellant
AND:
HER MAJESTY THE QUEEN
Respondent
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Docket: A-537-98
BETWEEN:
Appellant
AND:
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
LÉTOURNEAU J.A.
[1] Justin, Todd and Matthew Biderman are appellants in file numbers A-535-98, A-536-98 and A-537-98. Their appeals raise two issues:
| a) Did Michael B. Biderman, who is the father of the appellants, validly disclaim his inheritance to the family home given to him by his wife in her will? |
| b) If so, are the appellants nonetheless jointly and severally liable, pursuant to paragraph 160(1)(c) of the Income Tax Act (Act), to pay taxes owed by their father because property in the form of a right to inherit the family home, which had allegedly been vested in their father, was transferred to them for a value less than the fair market value by a person who was not dealing at arm's length with them? |
[2] Paragraphs 160(1)(c) and (e) read:
| SECTION 160: Tax liability re property transferred not at arm's length. |
(1) Where a person has, on or after May 1, 1951, transferred property, either directly or indirectly, by means of a trust or by any other means whatever, to
[...]
| (c) a person with whom the person was not dealing at arm's length, |
the following rules apply:
[...]
| (e) the transferee and transferor are jointly and severally liable to pay under this Act an amount equal to the lesser of |
| (i) the amount, if any, by which the fair market value of the property at the time it was transferred exceeds the fair market value at that time of the consideration given for the property, and |
| (ii) the total of all amounts each of which is an amount that the transferor is liable to pay under this Act in or in respect of the taxation year in which the property was transferred or any preceding taxation year, |
but nothing in this subsection shall be deemed to limit the liability of the transferor under any other provision of this Act.
| ARTICLE 160: Transfert de biens entre personnes ayant un lien de dépendance. |
(1) Lorsqu'une personne a, depuis le 1er mai 1951, transféré des biens, directement ou indirectement, au moyen d'une fiducie ou de toute autre façon à l'une des personnes suivantes:
[...]
| c) une personne avec laquelle elle avait un lien de dépendance, |
les règles suivantes s'appliquent:
[...]
| e) le bénéficiaire et l'auteur du transfert sont solidairement responsables du paiement en vertu de la présente loi d'un montant égal au moins élevé des montants suivants: |
| (i) l'excédent éventuel de la juste valeur marchande des biens au moment du transfert sur la juste valeur marchande à ce moment de la contrepartie donnée pour le bien, |
| (ii) le total des montants dont chacun représente un montant que l'auteur du transfert doit payer en vertu de la présente loi au cours de l'année d'imposition dans laquelle les biens ont été transférés ou d'une année d'imposition antérieure ou pour une de ces années; |
aucune disposition du présent paragraphe n'est toutefois réputée limiter la responsabilité de l'auteur du transfert en vertu de quelque autre disposition de la présente loi.
Facts and Procedure
[3] Dale Rochelle Biderman died on October 6, 1991, leaving a husband and three children under the age of 18 (the appellants). In her will dated April 9, 1976, she left all her assets to her husband and failing him in trust for her children. The assets of the estate at the time of her death consisted of the family home located at 1370 Hasting Drive, London, Ontario and 500 common shares which have little or no value and are not in issue in this litigation.
[4] Five days prior to his wife's death, Mr. Biderman who was indebted to Revenue Canada since 1988 (the amount owed as of July 14, 1995 was $74,723.97) signed a handwritten document dated October 1, 1991, in which he disclaimed his inheritance under the will and renounced his right to act as executor, trustee or administrator of his wife's will or estate. However, he did act as the executor of his wife's estate. In addition, he continued to live in the family home with the appellants after the death of his wife and still lives there today.
[5] On September 30, 1994, i.e., three years after his initial or informal disclaimer, Mr. Biderman executed what I would call a formal disclaimer of his interests as a beneficiary of his wife's estate. Then the family home, which had at the time a value of $180,000, was transferred by Mr. Biderman, in his capacity as executor of the estate, to Earl Biderman as trustee for the appellants. This transfer made within three years from the date of the death of Mrs. Biderman avoided the vesting of the real property in favour of Mr. Biderman pursuant to subsection 9(1) of the Estates Administration Act of Ontario (R.S.O. 1990, c. E-22).
Vesting of real estate not disposed of within 3 years
9. (1) Real property not disposed of, conveyed to, divided or distributed among the persons beneficially entitled thereto under section 17 by the personal representative within three years after the death of the deceased is, subject to the Land Titles Act in the case of land registered under that Act and subject to subsections 53(3) and (5) of the Registry Act, and subject as hereinafter provided, at the expiration of that period, whether probate or letters of administration have or have not been taken, thenceforth vested in the persons beneficially entitled thereto under the will or upon the intestacy or their assigns without any conveyance by the personal representative, unless such personal representative, if any, has signed and registered, in the proper land registry office, a caution in Form 1, and, if a caution is so registered, the real property mentioned therein does not so vest for three years from the time of the registration of the caution or of the last caution if more than one was registered.
Dévolution des biens immeubles qui ne sont pas aliénés dans les trois ans
9. (1) Les biens immeubles que le représentant successoral n'a ni aliénés, ni cédés, ni distribués aux personnes y ayant droit à titre bénéficiaire en vertu de l'article 17, dans les trois années qui suivent la mort du défunt, que des lettres d'homologation ou d'administration aient ou non été obtenues sont, sans cession par le représentant successoral, dévolus, à l'expiration de cette période, à ces personnes en vertu du testament ou du fait de la succession ab intestat, ou à leurs ayants droit. Cette dévolution a lieu sous réserve de la Loi sur l'enregistrement des droits immobiliers, si le bien-fonds est enregistré sous le régime de cette loi et des paragraphes 53(3) et (5) de la Loi sur l'enregistrement des actes. Si le représentant successoral, le cas échéant, signe et enregistre au bureau d'enregistrement immobilier compétent un avertissement rédigé selon la formule 1, les biens immeubles qui y sont mentionnés ne sont dévolus que trois ans après l'enregistrement de l'avertissement ou, si plus d'un avertissement a été enregistré, trois ans après l'enregistrement du dernier.
The estate assets, as a result of Mr. Biderman surrendering his interest in the estate, went to the appellants.
[6] The Minister of National Revenue (Minister) assessed each of the appellants pursuant to paragraph 160(1)(c) of the Act on the basis that Mr. Biderman had an interest in the estate assets when he signed the formal disclaimer and that he directly or indirectly transferred property to the appellants with whom he was not dealing at arm's length.
The decision of the Tax Court of Canada
[7] The appellants unsuccessfully challenged the Minister's assessment before the Tax Court of Canada. The learned Tax Court Judge found that the family home was property which had been transferred by Mr. Biderman to the appellant within the meaning of paragraph 160(1)(c) of the Act. He used two different avenues for arriving at this conclusion.
[8] First, he was of the view that even if Mr. Biderman had executed a valid disclaimer, he nonetheless had a right derived from the will which corresponded to the net value of the family home. By disclaiming that right a transfer of property occurred within the meaning of section 160. Therefore, what was transferred was not the estate assets, but rather Mr. Biderman's right to or interest in them. To support his analysis, the Tax Court Judge cited the decisions in Estate of David Fasken v. Minister of National Revenue1 and The Queen v. Kieboom2 which interpreted broadly the words "transfer" and "property". According to these decisions, while a transfer can occur even when one is merely divesting oneself of certain rights, property can refer to every possible interest which a person can have in assets.
[9] Secondly, the Tax Court Judge found that Mr. Biderman had not truly disclaimed under the will because he benefitted from the assets for almost three years by having a home for himself and his children and because he used the assets to negotiate a deal with Revenue Canada with respect to his debt.
Did Mr. Biderman validly disclaim his inheritance under the will of the family home?
[10] As previously mentioned, Mr. Biderman executed two disclaimers, one prior to and the other almost three years after his wife's death.
[11] In the context of wills and estates, a disclaimer is the act by which a person refuses to accept an estate which has been conveyed or an interest which has been bequeathed to him or her. Such disclaimer can be made at any time before the beneficiary has derived benefits from the assets3. It requires no particular form and may even be evidenced by conduct4.
[12] In the present instance, the first and informal disclaimer made in 1991 by Mr. Biderman is, I believe, legally ineffective and of no avail to him. Not unlike the civil law in Quebec, the common law requires that a disclaimer in order to be effective be made after the death of the legator, that is to say when the legatee is entitled to inherit. While the Civil Code of Quebec has a specific provision expressly prohibiting a disclaimer with respect to a succession not yet opened5, the nature of a disclaimer at common law and its retroactive effect to the date of death of the deceased lead to the same result. In Bence v. Gilpin6, cited in Re McFaden7 and in McLean & Kerr v. Hrab8, Kelly C.B. wrote:
| A disclaimer to be worth anything must be an act whereby one entitled to an estate immediately and before dealing with it renounces it whereby in effect he says: "I will not be the owner of this property". |
(My emphasis)
[13] There is no entitlement to an estate until it is opened since a testamentary gift can always be revoked until death. Once made, the disclaimer is retroactive to the date of the death of the deceased9.
[14] Moreover, the subsequent conduct of Mr. Biderman is wholly inconsistent with his disclaimer. While he purported to renounce both the gift and the powers of administration, he began and continued to act subsequently to it as executor to his wife's estate. In such capacity, he probated the will on May 15, 199210. Furthermore, he signed on October 6, 1994, the Transfer/Deed of Land with respect to the family home11 as well as a Transfer of the shares and a Declaration of transmission of those shares on September 30, 199412.
[15] In addition, the Tax Court Judge found that he negotiated a settlement in 1992 with Mr. Carone, a tax auditor of Revenue Canada, on the basis that he was personally entitled to a share in his wife's estate. As a result, he proposed to pay out of the estate a lump sum of $20,000 followed by smaller monthly payments. The following excerpts from the testimony of Mr. Carone are the basis for the judge's finding13:
| The witness: I am sorry. My conversation with him [Mr. Biderman] would have been asking him with regard to whether or not he had made any further efforts towards bringing a proposal in bankruptcy. So I would have directly asked him about bankruptcy. When he came to see me he said he was no longer planning on going bankrupt and he was proposing to make a payment of $20,000.00 to us out of proceeds of his spouse's estate. Further to that he was going to make payments of $500.00 per month. |
| Q. You outlined the basis of the proposal and agreement that you entered into? |
| A. Yes. He proposed to provide us with $20,000.00 from the spouse's estate... |
| Q. So April 23rd, 1992 you had a conversation. What is your recollection of that conversation? |
| A. He said at the time we agreed to abide by his terms, he would go ahead and probate the original Will. If not, he would go by the amended Will which transferred everything to his children. We had to wait until the Will was probated in order to receive the $20,000.00... |
| Q. Would you outline for the Court then what subsequent steps you took? |
| A. Sure. Without referring to my notes, I recall that I did agree to wait until the original Will was probated to receive the $20,000.00 provided he gave to me a copy of the original Will, which we didn't have. |
| Q. Did you get that Will? |
| Q. So you waited for the payment that was to be forthcoming when the estate was administered? |
| Q. Did it ever forthcome? |
| A. No, the payment was never made. |
[16] Counsel for the appellants insisted that the initial disclaimer made by Mr. Biderman prior to the death of his wife evidenced throughout an intention on his part to refuse the estate which was sealed three years later by the formal disclaimer. While the initial disclaimer could have produced this kind of result and sustained an inference to that effect, the subsequent conduct of Mr. Biderman clearly makes this submission of the appellants untenable.
[17] The second attempt by Mr. Biderman to disclaim his inheritance came on September 30, 199414. The question to be asked with respect to such attempt is whether or not it came too late, that is to say at a time when Mr. Biderman had lost his right and the possibility to make a valid disclaimer because he had already begun to "deal" in the estate or otherwise receive the benefit of the gift. If he had done so, he had become the beneficiary under the will and, as a result, he could only surrender or release, but not disclaim, his right in the assets. In such a case, his release of the family home to the appellants would be the kind of transfer of property that falls within the ambit of section 160 of the Act.
[18] The learned Tax Court Judge reviewed the conduct of Mr. Biderman to determine whether he had acquiesced to the will and lost his right to disclaim. In so doing, he was entitled to look at the utterances made by Mr. Biderman to third parties15. He found as facts that Mr. Biderman had benefitted from the assets for almost three years before disclaiming and, as previously mentioned, that he had represented the assets to be his in his negotiation of a settlement with Revenue Canada.
[19] The appellants have attacked the validity of these findings of fact. With respect to the benefits associated with occupancy of the house, they have submitted that their father lived in the family home after their mother's death in execution of his family obligations towards them under family law. In that capacity, he continued to assume payment of the household expenses as well as payment of the mortgage16 until the mortgage, we were told, was bought in 1994 by his mother-in-law.
[20] I must say that this submission of the appellants is attractive and might have carried some weight if it had been the only gesture made by Mr. Biderman. However, his conduct entailed much more than that. He acted as sole Executor of the will in conformity with the will although he contended that, at least in relation to the probating of the will, he acted as Executor for sheer expediency17. Throughout his negotiation with Revenue Canada in 1992, while he was acting as Executor in the estate, he, in addition to representing that he had an interest, never revealed the fact that he had signed, in October 1991, an informal disclaimer and waiver of both the gift and the powers of administration.
[21] The testimony of Mr. Biderman before the Tax Court Judge was crucial. His credibility was very much in issue18:
| His Honour: My concern is the credibility of Mr. Biderman is going to probably be an important part of the Reasons for Decision. |
[22] First, Mr. Biderman denied negotiating with Revenue Canada on the basis that the assets willed were his personally19. Then he testified that he made a settlement offer to Revenue Canada but that the offer was refused. Mr. Carone who testified for Revenue Canada asserted that, on the contrary, the offer was accepted, that an agreement was reached, that he put together a letter to confirm the agreement and that he sent a copy to Mr. Biderman20. According to the agreement, the payment was supposed to be made on April 15th, 1992, but was never made. Mr. Biderman could not recall that21.
[23] Mr. Biderman testified that he did not pay a rent for his living in the family home, but instead that he paid the mortgage in lieu of rent22. However, in cross-examination, he was forced to admit that in 1996 he claimed in his tax return an Ontario Property Sale Tax Credit in respect of a rent of $10,200.00 that he asserted he had paid in that year23.
[24] Finally, there was evidence before the Tax Court Judge that Mr. Biderman was a lawyer disbarred for his improper use of trust funds for personal advantage and that, as a lawyer, he knew that his inheritance of the family home could and would be subject to execution by Revenue Canada24.
[25] Obviously, in coming to the conclusion he did with respect to the issue of acquiescence to the will, the learned Tax Court Judge gave little weight to the testimony of Mr. Biderman. In my view, there was sufficient evidence to support his findings of fact and I cannot say that they are unreasonable or that the learned judge "made some palpable and overriding error which affected his assessment of the facts"25. He had the benefit of hearing the witnesses and assessing their credibility. In the absence of such error, it is not our role as a Court of Appeal nor is it in our power to substitute our opinion to that of the Tax Court Judge26.
[26] Thus, what I have been calling the formal disclaimer was in actual fact a surrender or release. A disclaimer occurs before the beneficiary takes the gift and a release occurs only after he or she has accepted the gift. Because the Tax Court Judge found that Mr. Biderman, through his conduct, lost his right to disclaim when he directed the estate toward the appellants, he did so by way of release. The estate had vested in him beneficially, in other words, and the appellants received the family home directly from Mr. Biderman.
[27] The tax consequences are straightforward. This was a case of a tax debtor who transferred property to non-arm's length persons for less than fair market value. In such circumstances, the appellants are jointly and severally liable with Mr. Biderman for his income taxes owed. This suffices to dispose of this appeal.
Assuming Mr. Biderman had made a valid disclaimer, are the appellants nonetheless severally and jointly liable pursuant to paragraph 160(1)(c) of the Act?
[28] In view of my conclusion that there was no valid disclaimer, it is unnecessary to answer this question. However, it was represented to us that this is the first time that the interpretation of section 160 is submitted to our Court and that the issues raised by the respondent and the appellants in this respect are of importance. After careful consideration of the parties' request, I believe the interest of justice would be better served if I address rather than ignore them. In any event, the question was fully argued and should now be addressed assuming that the answer I have given to the first question should not be correct.
[29] The respondent submits that, through the combined effect of section 160 of the Act and the broad definition of property found in subsection 248(1), even if Mr. Biderman had made a valid disclaimer, he would have transferred to the appellants not the family home but a right to inherit or an interest in property derived from the will, the value of which corresponded to the net value of the family home.
[30] The appellants responded to this submission by invoking paragraph 248(8)(b) of the Act which, they alleged, deems the transfer which occurred to be one arising as a consequence of the death of Mrs. Biderman. Consequently, the said transfer is not one effected by Mr. Biderman within the meaning of subsection 160(1). In other words, according to the submission, the result is that Mrs. Biderman was the transferor to the appellants instead of her husband. For a better understanding of the respective contentions, I reproduce the relevant portions of the texts invoked by the parties:
| Section 160: Tax liability re property transferred not at arm's length. |
(1) Where a person has, ...transferred property, either directly or indirectly, by means of a trust or by any other means whatever, to
...
...
| (c) a person with whom he was not dealing at arm's length, |
...
| Article 160: Transfert de biens entre personnes ayant un lien de dépendance. |
(1) Lorsqu'une personne a, ...transféré des biens, directement ou indirectement, au moyen d'une fiducie ou de toute autre façon à l'une des personnes suivantes:
...
...
| c) une personne avec laquelle elle avait un lien de dépendance, |
...
| Section 248: [Interpretation]. |
(1) Definitions. In this Act,
"property" - "property" means property of any kind whatever whether real or personal or corporeal or incorporeal and, without restricting the generality of the foregoing, includes
| (a) a right of any kind whatever, a share or a chose in action, |
...
| Article 248: Définitions. |
(1) Les définitions qui suivent s'appliquent à la présente loi.
"biens" - "biens" Biens de toute nature, meubles ou immeubles, corporels ou incorporels, y compris, sans préjudice de la portée générale de ce qui précède:
| a) les droits de quelque nature qu'ils soient, les actions ou parts; |
...
(8) Occurrences as a consequence of death. For the purpose of this Act,
...
| (b) a transfer, distribution or acquisition of property as a consequence of a disclaimer, release or surrender by a person who was a beneficiary under the will or other testamentary instrument or on the intestacy of a taxpayer or the taxpayer's spouse shall be considered to be a transfer, distribution or acquisition of the property as a consequence of the death of the taxpayer or the taxpayer's spouse, as the case may be; and |
...
(8) Conséquences d'un décès. Pour l'application de la présente loi:
...
| b) un transfert, une attribution ou une acquisition de biens par suite d'une renonciation ou d'un abandon par une personne qui était bénéficiaire en vertu du testament ou autre acte testamentaire d'un contribuable ou de son conjoint, ou qui était héritier ab intestat de l'un ou l'autre, est considéré comme un transfert, une attribution ou une acquisition de biens par suite du décès du contribuable ou de son conjoint, selon le cas; |
...
(My emphasis)
[31] I propose to dispose first of the appellants' submission based on their interpretation and understanding of paragraph 248(8)(b).
[32] It is true as the appellants pointed out that subsection 248(8)(b) is found in a section entitled "definitions" and, furthermore, that those definitions apply to the entire Act as the introductory words of the subsection read: "For the purpose of the Act". On its face, the provision would seem to have the effect desired by the appellants. There is no doubt, for the purpose of this argument, that the legal act performed by Mr. Biderman in favour of the appellants was either a disclaimer or was a release or a surrender.
[33] In response to the appellants' submission, the respondent argued that the provision was enacted in 1985 as there was concern that section 70 rollovers would not apply where consideration was paid by a beneficiary in satisfaction of terms of a testamentary trust since, in these circumstances, that transfer could result from the payment made rather than being made in the consequence of death.
[34] The respondent's contention is supported and confirmed by a technical note issued in 1985 by the Department of Finance cited in the case of Husel Estate v. The Queen27:
| Sgt. 1985 TN - New subsection 248(8) provides an expanded definition for the purposes of the Act of transfers of property "as a consequence of the death" of a taxpayer. This is relevant for the various special provisions for transfers of property as provided in section 70 and for the definition of "testamentary trust" in paragraph 108(1)(i). |
(My emphasis)
I agree with Kempo T.C.C.J. in the above case that technical notes are merely expressions of opinions or intents by their authors and are not binding on the Courts.
[35] It is indisputable that subsection 248(8) is a useful adjunct to the rules on deemed dispositions upon death (subsection 70(5)) as well as the accompanying spousal rollovers (subsection 70(6)). It also obviates the danger of double taxation of capital gains: once upon a deemed disposition at death, and again upon the disclaimer or release of the assets.
[36] The unrestricted and ill-defined scope of application of subsection 248(8) creates confusion and lends itself to the kind of arguments raised by the appellants. It is unnecessary for us to determine whether the application of subsection 248(8) is limited only to section 70 rollovers or to attempt to define the exact and proper scope of its application as I am inclined to believe that it cannot apply in the present instance for the following reasons.
[37] Subsection 248(8), in combination with section 70, is aimed at the recognition of liability for capital gains tax and determines when and in whose hands this liability arises. Section 160 of the Act is an anti-avoidance provision with respect to transfers. Its purpose "is to prevent a taxpayer from defeating the claim of the Minister to unpaid taxes by transferring his assets to a spouse, or certain other persons, for little or no consideration"28. It only comes into play once liability for income tax of any sort, not just capital gains, has been established. It is concerned with effective collection of taxes and broadens the scope of the persons from whom Revenue Canada may collect tax. As paragraph 248(8)(b) covers all possible acts leading to, or ways of effecting, a transfer of property, it would seem to defeat the purpose of section 160 if a beneficiary, after having accepted a gift, could, by seeking shelter under paragraph 248(8)(b), surrender it and thus frustrate the Minister's collection efforts. In fact, the literal interpretation of paragraph 248(8)(b) of section 160 would appear to render it inapplicable to a devise under a will where the devise has been disclaimed, released or surrendered. This cannot be, and I am sure was not, the legislative intent. However, I refrain from expressing a final view on the point.
[38] Having said that, it appears to me that the respondent, on the other hand, seeks a broad interpretation of section 160, one which, in my view, would extend the scope of application of that anti-avoidance provision beyond Parliament's intent and the actual wording of the provision.
[39] The contention of the respondent simply put is the following. Mr. Biderman, even if he validly disclaimed the family home, transferred property to his children, directly or indirectly, within the meaning of that section by divesting himself of the right that he had to inherit that property. This is so because such right to inherit is property pursuant to the definition of property in paragraph 248(1)(a) of the Act.
[40] In support of that contention, the respondent cited numerous cases giving a broad interpretation to the notion of transfer and the words "directly or indirectly" as well as "property". She relied upon the following passages of our colleague Linden J.A. in The Queen v. Kieboom29:
| As for the word transfer, Lord Justice James in Gathercole v. Smith (1980-1981), 17 Ch. D. 1 stated at p. 7 that the noun transfer was "one of the widest terms which can be used". Lord Justice Lush stated that the word "transferable" includes "every means by which the property may be passed from one person to another". |
| President Thorson, relying on the above definitions in Estate of David Fasken v. M.N.R., 49 DTC 491, at p. 497 stated: |
| The word "transfer" is not a term of art and has not a technical meaning. It is not necessary to a transfer of property from a husband to his wife that it should be made in any particular form or that it should be made directly. All that is required is that the husband should so deal with the property as to divest himself of it and vest it in his wife, that is to say, pass the property from himself to her. The means by which he accomplishes this result, whether direct or circuitous, may properly be called a transfer. |
| Lord Langdale once stated that the word property is the "most comprehensive of all the terms which can be used inasmuch as it is indicative and descriptive of every possible interest which the party can have". (See Jones v. Skinner (1836), 5 L.J. (N.S.) ch. 87, at p. 90; see also Re Liness (1919), 46 O.L.R. 320, at p. 322; Estate of Fasken, supra, at p. 496; and Vaillancourt v. M.N.R. [91 DTC 5352], [1991] 3 F.C. 663. |
[41] In that case, our Court ruled that a taxpayer had transferred property to his wife by giving her a portion of his ownership of the equity in his company. He had by such transfer divested himself of certain rights to receive dividends on the shares issued by the company to his wife.
[42] The respondent also based its contention on this statement of Judge Rip of the Tax Court of Canada in Algoa Trust et al. v. The Queen30 as he was referring to Lord Radcliffe in St. Aubyn v. A.-G.31:
| If the word "transfer" is taken in its primary sense, a person makes a transfer of property to another person if he does the act or executes the instrument which divests him of the property and at the same time vests it in that other person. |
(My emphasis)
[43] In The Queen v. Hewett32, Mr. Hewett transferred to his wife his interest in their matrimonial home at a time when he owed tax to Revenue Canada. Our Court found the transfer of such interest to be in violation of section 160 of the Act.
[44] It is clear that, in all these cases, the transferor owned the property that was the subject of the transfer and that a transfer of property under subsection 160(1) requires that the transferred asset be the "property" of the transferor. As Dussault T.C.C.J. put it in Montreuil et al. v. The Queen33 with respect to the interpretation of "transfer" and "property" in subsection 160(1):
| Transferring property or a right is the equivalent of distributing it. Such distribution is always from a person who is the owner or proprietor to another who becomes the beneficiary, whether by an act between the parties or by operation of law. |
(My emphasis)
[45] However, the situation is different in the case of a valid disclaimer of a gift. The disclaimer is retroactive to the date of death of the deceased34. As stated in Sembaliuk et al. v. Sembaliuk35, the nature of a valid disclaimer is such that the gift is never accepted:
| There is no donee of a disclaimed gift in a real sense. The bequest lapses. It may go to the creditors or other claimants, it may go to other beneficiaries, or it may go to a residuary beneficiary. |
[46] Therefore, the intended beneficiary is not the owner of the gift because of the valid disclaimer and the disclaimed gift is not his to transfer or give. In other words, "a disclaimer operates by way of avoidance and not by way of disposition"36. This statement of the law by the English Court of Appeal was accepted by the Alberta Court of Appeal in the Sembaliuk case and leave of appeal to the Supreme Court of Canada was refused on February 18, 1985. A disclaimer does not involve a vesting and divesting of property. Consequently, where there is a valid disclaimer, there is, in my view, no transfer of property, direct or indirect, and paragraph 160(1)(c) cannot apply to the person who so disclaims.
[47] If we were to accept the contention of the respondent, we would arrive at an unfair if not absurd result. A tax debtor would not be able to execute a valid disclaimer before the death of his spouse. Nor would he be able to execute one after because he could never disclaim his right to inherit the property. Such right which has the net value of the property would be transferred and such transfer would be caught by subsection 160(1). The overall effect of this contention is to radically alter the common law by deeming that a person has taken an interest in an estate against his or her will while judicial precedents clearly state that "the law is not so absurd as to force a man to take an estate against his will"37. As a result, the residuary beneficiary under the will, within the limits of subsection 160(1), becomes liable to pay the taxes owed by the tax debtor who disclaimed the gift.
[48] The respondent relied upon two old English cases to support her contention that the appellants had a right up to the moment of disclaimer: Re Stratton's Deed of Disclaimer, Stratton and Others v. Inland Revenue Commissioners38 and Re Parsons, Parsons v. Attorney-General39. With respect, I do not think that those cases are of much assistance to her.
[49] The Parsons case dealt with the issue as to whether the husband was "competent to dispose" of the legacy within the meaning of paragraph 22(2)(a) of the Finance Act, 1894, during the period between the death of the testatrix and the date of the disclaimer by the husband. The Court of Appeal was required to interpret the words "competent to dispose" which, in the context of a deeming provision, were to be given, the Court said, their broad and popular meaning. Therefore, the husband was found competent to dispose by disclaimer. The Court expressly stated that their interpretation of these words had nothing to do with the law on disclaimer of legacies which holds that a person has no estate in a disclaimed legacy and that the gift is void ab initio40.
[50] In Stratton's Deed of Disclaimer, the Court of Appeal relied upon the decision in Re Parsons. Again, the Court had to interpret a specific provision (subsection 45(2) of the Finance Act, 1940) which imputed to the deceased, for estate duty purposes, a disposition in favour of the person for whose benefit the right was extinguished. In that specific context, it was found that a disposition included a disposition by waiver because it extinguished the right of the person who executed the disclaimer. The peculiarity and the specificity of the context is illustrated by this statement of Jenkins L.J., at p. 602, where he wrote:
| It might be said to be, to say the least, anomalous that a benefit conferred by transfer should be dutiable in the event of the donor's death within five years, while a precisely similar benefit conferred by disclaimer should not attract duty on the death of the disclaiming party however soon after the date of the disclaimer that event might occur. |
[51] As the Tax Appeal Board rightly noted in Plaxton v. M.N.R.41, these two cases were dealing with a section of an English statute that has no counterpart in Canadian corresponding statutes. With respect to the Stratton's Deed of Disclaimer case, the Alberta Court of Appeal in Sembaliuk, supra, noted that the English Court of Appeal was careful to use the term "extinguish" rather than a term implying any conveyance or transfer.
[52] I believe it would take a much more specific and a much clearer provision than the actual subsection 160(1) in order to effect the drastic change sought by the respondent.
[53] For these reasons, I would dismiss the appeals with costs.
"Gilles Létourneau"
J.A.
"I agree,
A.J. Stone J.A."
"I agree,
Brian Malone J.A."
__________________
1 49 D.T.C. 491 (Exch. Ct.).
2 92 D.T.C. 6382 (F.C.A.).
3 Re Jung (1979), 99 D.L.R. (3d) 65, at p. 70 (B.C. S.C.). See also Mellows, The Law of Succession, 5th ed., Butterworths, London, 1993, at p. 420; Williams on Wills, The Law of Wills, vol. 1, Butterworths, London, 1995, at p. 480.
4 Id..
5 See art. 631. See also Germain Brière, Le nouveau droit des successions , 2e ed., Wilson et Lafleur Ltée, Montréal, 1997, at p. 115.
6 (1868) L.R. & Ex. 76.
7 [1937] O.W.N. 404 (O.H.C.).
8 (1998), 75 O.T.C. 24 (Ont. Gen. Div.).
9 Re Jung (1979), 99 D.L.R. (3d) 65, at p. 70 (B.C. S.C.). See also A.H. Oosterhoff on Wills and Succession, 4th ed., Carswell, Toronto, 1995, at p. 492; Williams on Wills, The Law of Wills, vol. 1, Butterworths, London, 1995, at p. 481.
10 Appeal Book, tabs 7 and 20, at p. 134.
11 Id., tab 9.
12 Id., tabs 12 and 13.
13 Id., tab 20, at pp. 187, 191, 194 and 195.
14 Id., tab 8.
15 Cossitt v. Minister of National Revenue, [1949] Ex. C.R. 339.
16 Appeal Book, tab 20, pp. 96-100 and 141-142.
17 Id., tab 20, p. 134.
18 Id., tab 20, p. 42. See also at pp. 115-116 where the learned judge said that he believed the credibility of Mr. Biderman to be crucial.
19 Id., at p. 125.
20 Id., at pp. 191-192.
21 Id., at p. 124.
22 Id., at pp. 96-100 and 141-142.
23 Id., at pp. 142-144.
24 Id., at pp. 84, 87-88 and 107.
25[1976] 2 S.C.R. 802"> Stein v. The Ship "Kathy K", [1976] 2 S.C.R. 802, at p. 808; Lapointe v. Hôpital Le Gardeur, [1992] 1 S.C.R. 351, at pp. 358-360; R. v. Van Der Peet, [1996] 2 S.C.R. 507, at p. 566.
26 Id..
27 94 D.T.C. 1765, at p. 1771 (T.C.C.). See D.M. Sherman, Department of Finance , Technical Notes, De Boo, Don Mills, Ontario, 1989, at p. 822.
28 The Queen v. Hewett, 98 D.T.C. 6003, at p. 6004 (F.C.A.); Algoa Trust et al. v. The Queen, 93 D.T.C. 405, at p. 411 (T.C.C.).
29 92 D.T.C. 6382, at p. 6386 (F.C.A.).
30 93 D.T.C. 405, at p. 411.
31 [1952] A.C. 15 (H.L.).
32 98 D.T.C. 6003.
33 94 D.T.C. 1821, at p. 1830.
34 Re Jung, supra, note 3, 65, at p. 70 (B.C. S.C.); Mellows, supra, note 3, at p. 420. See also under footnote 9.
35 (1984), 15 D.L.R. (4th) 303, at pp. 309-310 (Alta C.A.).
36 Re Paradise Motor Co. Ltd., [1968] 2 All. E.R. 625, at p. 632 (C.A.).
37 Townson v. Tickell (1819), 3 B & Ald. 31, 106 E.R. 575, at 576-577 (K.B.); Bence v. Gilpin (1868), L.R. & Ex. 76, at p. 82.
38 [1957] 2 All. E.R. 594 (C.A.).
39 [1942] All. E.R. Annotated 496 (C.A.).
40 Id., at p. 497. See also the Editorial Note at p. 496.
41 60 D.T.C. 38, at p. 41.
Email this Content