Marguerite F Doriga Trust v. Minister of National Revenue, [1981] CTC 2155, 81 DTC 85

Roland St-Onge [TRANSLATION]:—The appeal by the Marguerite F Doriga Trust was brought before me on November 12, 1980 in the city of Montreal, Quebec.

The issue is to determine whether the Trust must pay income tax at the rate of 15% in 1975 and 25% in 1976 on sums paid by the Trust to Dame Marguerite Doriga as trust income.

The facts set out in paragraph 6 of the reply to the notice of appeal are admitted and read as follows:

In assessing the appellant for the 1975 and 1976 taxation years, the respondent relied, inter alia, on the following presumptions of fact:

(a) by notarial deed dated August 1, 1962, Dame Marguerite F Doriga ‘gave, as a trust donation to Les Fiduciares de la Cité du District de Montréal Ltée’, a number of securities,

‘securities which the Trust admits it has received and taken in trust for the following purposes:

— to pay to the said Marguerite F Doriga, for the rest of her life, the income form the above-mentioned securities’;

(b) during the years under dispute, the appellant resided in Canada;

(c) during the entire period under dispute, Dame Marguerite F Doriga resided in Spain;

(d) in accordance with the trust deed referred to in subparagraph (a) of this paragraph, during the 1975 and 1976 taxation years the appellant paid Mrs Doriga $11,744.14 and $14,512.07 respectively;

(e) the appellant neglected to withhold and submit to the Receiver General, in the name of Dame Marguerite F Doriga, the amounts of $898.08 and $2,980.85 as income tax payable by the said beneficiary.

The respondent claims that during the 1975-1976 taxation years, the appellant should have withheld, from the amounts of $11,744.14 and $14,512.07 paid by it to Dame Doriga, amounts of $898.08 and $2,980.85, respectively, as income tax payable by the said beneficiary.

Counsel for the appellant argued as follows: the securities referred to in the trust deed are classified among those mentioned in paragraph 212(1)(b) of the Income Tax Act. The issue is whether the income derived from the Said securities is subject to taxation or is exempt from tax.

Dame Doriga was the beneficiary of a trust in a purely personal capacity, since one cannot make a gift to oneself under a trust in the province of Quebec. Accordingly, since Dame Doriga could not be a trustee, neither could she therefore be a beneficiary of the trust.

The cases he referred to included the following: Guarantee Trust Company of New York v The King, [1947] SCR 183; Charles Glass Greenshields v The Queen, [1958] SCR 216.

The second counsel for the appellant referred the Board to subsection 104(1) of the Income Tax Act, arguing that there was no definition of a trust and that it was neither a natural nor an artificial person.

Reference must be made, therefore to civil law, and according to that law Dame Doriga cannot be a beneficiary of a trust.

According to counsel for the respondent, the issue is whether the amounts paid by the Trust to Dame Doriga, a non-resident, were paid as interest or as income of a trust. In order for the amounts paid to be considered as interest, Dame Doriga would have had to remain the owner of the securities and the amounts would have had to be paid directly by the debtors.

According to the trust deed, Dame Doriga transferred the property without retaining the administration of it. Trustees have all the rights of an owner; they can re-use the capital to acquire other securities. They can sell, exchange, receive any reimbursement of capital, give a release and so on.

Dame Doriga has no real right over the securities transferred, and this is a trust within the meaning of the Civil Code. She has not reserved a usufruct in the trust deed and is not a usufructuary, since she does not administer the property.

Under the common law, the donor can be the beneficiary of a trust, which means that, in the English provinces of Canada, a taxpayer would be subject to tax under these circumstances.

He concluded by summarizing his arguments with the following points:

(1) the appellant is subject to tax because it did not receive interest from a debtor, but income from a trust;

(2) the common law in the English provinces allows such a trust;

(3) the Quebec Taxation Act taxes trusts, and is more important that Quebec trust legislation:

(4) the Income Tax Act must be applied uniformly throughout the country.

He referred the Board to the following decisions:

List of authorities

A — DWN N Walters, Law of Trust in Canada, pp 4-6;

B — Canadian Income Taxation of Trust. Fiscal Definition of Trust, pp 7-12;

C — Quinn v Leathen, [1901] AC 495;

D — J N O’Meara and others v Bennett and others, [1922] AC 80;

E — Dame Eleonore Curran v Meyer Davis, [1933] SCR 283;

F — Laverdure v DuTremblay, [1937] AC 666;

G — Guarantee Trust of New York v The King, [1947] SCR 183;

H — No 199 v MNR, 11 Tax ABC 353; [1954] DTC 488;

I — Charles Glass Greenshields v The Queen, [1958] SCR 216;

J — Redford v National Trust Company and Dame Maclnness, [1968] QB 689;

K — Income Tax Act, 1972, ss 483 to 523;

L — Higher et al v Crown Trust Company, 5 NR 561;

M — Joseph Morris v MRQ, [1975] CP 250:

N — The Queen v Littler, [1978] CTC 235; 78 DTC 6179.

There is no doubt that the Marguerite F Doriga Trust has a legal existence, even though Dame Marguerite F Doriga could not be a beneficiary of the Trust within the meaning of the Civil Code. The amounts received clearly do not come from the debtors, but from the Trust, which is the absolute owner of the property and has full administration of it.

With these two premises stated, reference should be made to subsection 212(11) of the Income Tax Act, which reads as follows:

Where an amount has been paid . . . by a trust or estate to a beneficiary or other person beneficially interested therein .. . .

Dame Doriga is not a beneficiary within the meaning of the Civil Code, but she is a beneficiary in fact and under the common law. Accordingly, she can be considered another person beneficially interested therein, since she is a beneficiary in fact and under the common law, and the federal Income Tax Act applies.

Subsection 212(11) also states the following:

. . . it [the amount] shall, regardless of the source from which the trust or estate derived it, be deemed, . . . to have been paid . . . as income of the trust or estate.

Therefore, the amounts received are income of the Trust for two reasons, as follows:

(1) because of subsection 212(11);

(2) because the Trust was the absolute owner of the property transferred and because Dame Doriga had no real right over the said property; moreover, since the common law in the English provinces allows such a trust and the federal Income Tax Act must be applied uniformly throughout the country, the Board must hold that the income derived from the securities held by the Trust are not exempt from income tax and are taxable.

I refer to Minister of Finance v Cécile R Smith, [1927] CTC 251; 1 DTC 92 and I quote as follows:

. . . Moreover, it is natural that the intention was to tax on the same principle throughout the whole of Canada, rather than to make the incidence of taxation depend on the varying and divergent laws of the particular provinces.

For all these reasons, the appeal is dismissed.

Appeal dismissed.