Aubé (Succession De) v. R., [1999] 2 CTC 2378, 99 DTC 8

Tardif T.C.J.:

This is an appeal in which the issue concerns the appellant’s deduction under subsection 104(6) of the Income Tax Act (“the Act’), which was disallowed, as well as interest on arrears for the additional tax charged to the appellant, interest on an excess refund and the late filing penalty imposed on the appellant.

This case relates to the succession of Roland Aubé, who died on October 7, 1991.

The deceased’s last will was signed on April 21, 1988, and bore number 6608 of the minutes of notary Richard Déry. The will named Germaine Aube’ as testamentary executor, as stated in articles 11 and 12 thereof, which read as follows:

[TRANSLATION]

Article 11. To execute my will, I appoint my cousin GERMAINE AUBE, the wife of Jean-Paul Linteau, on whom 1 confer seizin of all my movable and immovable property. I extend her powers beyond the year and a day provided for by law until my last wishes have been completely fulfilled. F free her from the obligation of making an inventory and from giving security.

If she declines to act as executor, dies or cannot act as executor for any reason whatsoever, whether before or during her administration, I appoint my grandniece LISE LINTEAU to replace her, with the same powers.

Article 12. In addition to the powers conferred on her by law, my testamentary executor shall be entitled:

(a) to sell, exchange or otherwise alienate all of the movable and immovable property included in my estate on the terms and for a price in money or any other consideration she considers appropriate, and to receive such price or consideration and give a receipt therefor;

(b) to borrow any sum of money and, for that purpose, to pledge or hypothecate my movable or immovable property, as appropriate;

(c) to agree to a transaction, compromise or settlement, or to arbitration, in respect of any claim by or against my estate, inter alia by giving or receiving any immovable in payment of any debt owed by or to my estate, and to grant discharges or releases;

(d) to make any investments she considers appropriate, without being subject to articles 9810 et seq. of the Civil Code;

(e) to effect any partition of my property herself and, for this purpose, to appraise the property, form shares thereof and allocate them to the persons concerned using whatever methods she considers appropriate, without any authorization or judicial formalities, even if one of my lega- tees is a minor, an incapable person or an absentee, in which case such legatee shall be represented by my testamentary executor;

(f) to permanently decide any question that may arise during her administration, realization of property, liquidation, partition, etc., her decisions to be final and binding on all of my legatees, with no possible appeal;

(g) to draw from the capital of my estate any sum of money of which any of my legatees may be in urgent need and, inter alia, to use any sum of money required for the upbringing, education, board or clothing of my minor legatees, if any.

To fulfil her mandate as testamentary executor, Germaine Aubé retained Paul-Henri Gamache, an accountant, who was the only witness heard in support of the appeal.

Referring to a report made up of 50 documents, Mr. Gamache told the Court how matters progressed between the time he was retained and the time a transaction was entered into on August 26, 1993.

His testimony made it clear that the opening of the succession had caused some tension between the residuary legatee and the particular legatees.

Following the settlement of the succession, the respondent issued an assessment, the basis for which was stated as follows:

[TRANSLATION]

(a) Roland Aubé died on October 7, 1991:

(b) the last will that was neither changed nor revoked by Roland Aubé is the will dated April 21, 1988, which is included in number 6608 of the minutes of notary Richard Déry;

(c) the fiscal year of the “Estate of Roland Aubé” trust started on October 8, 1991, and ended on October 7, 1992, for the 1992 taxation year;

(d) for the 1992 taxation year, the “Estate of Roland Aubé” received, inter alia, the following income:

Net interest income		$17,823
Net rental income		$	342
Annuity -	Industrial Alliance
	Payment of face amount	$ 6,267
	Interest on claim	$	100
Total		$24,532

(e) a dispute arose in settling the “Estate of Roland Aubé”;

(f) the dispute referred to in the preceding paragraph was settled during the 1993 taxation year, as can be seen from the agreement signed by the parties to the “Estate of Roland Aubé” on August 26, 1993;

(g) the income tax return of the “Estate of Roland Aubé” trust was filed on September 9, 1993;

(h) the “Estate of Roland Aubé” trust filed a supplementary T3 form for $24,532 on behalf of Marie-Paule Giroux Aubé in 1993;

(i) as a result, the $24,532 was payable in 1993 and not 1992:

(j) in addition, the “Estate of Roland Aubé” trust should have filed its income tax return for the 1992 fiscal year 90 days after the end of its fiscal year ending on October 7, 1992;

(K) the income tax return for the “Estate of Roland Aubé” trust was filed late, on September 9, 1993;

(l) the Minister determined that the balance due from the appellant for the taxation year at issue was $3,669.99;

(m) because of the balance due, the Minister charged the appellant interest on arrears for the 1992 taxation year;

(n) because of the appellant’s lateness in filing its income tax return for the 1992 taxation year, the Minister also imposed a late filing penalty on it;

(0) on December 23, 1993, the appellant was refunded $633.97 for the 1992 taxation year, but it was not entitled to a refund;

(p) it accordingly received an overpayment of $7.25 as interest on the refund.

The main issue is whether the Minister of National Revenue (“the Minister”) is justified in disallowing the $24,532 deducted by the appellant under subsection 104(6) of the Act for the 1992 taxation year.

The accountant, Paul-Henri Gamache, said that in January 1992 he had already identified and completed the inventory of the assets of the succession. He said that he helped make the formal inventory, which was officially completed on October 12, 1992 (see Exhibit A-5).

The accountant also said that the value of the residuary legacy was known on October 7, 1992.

The appellant argued that the residuary legatee knew very early on that she was entitled to a share in the assets of the succession. Micheline Goulet, who holds a power of attorney from the residuary heir, also testified that she knew in the days following the death that Marie-Paule Giroux-Aubé was fully entitled to a share in the assets of the succession.

The appellant’s arguments on this key issue are worded specifically as follows:

[TRANSLATION]

3.(d) Marie-Paule Giroux-Aubé was entitled to demand the residue of the succession in 1992, which she did.

(e) Marie-Paule Giroux-Aubé, as the residuary heir, even accepted the taxation consequences of the succession, if taxation were to occur, pursuant to an agreement reached in 1993.

(g) Marie-Paule Giroux was entitled to enforce payment of the residue in 1992, in accordance with subsection 104(24).

(i) In 1992, and more specifically during the spring of 1992, Ms. Giroux’s representative, Marc Renaud, was authorized to take possession of a gun collection.

(j) Ms. Giroux’s lawyers also enforced payment of the residue of the succession in the year following the death, and it was even confirmed by the said lawyers in September 1992 that they were willing to accept $200,000 as a settlement.

5.(a) The residuary legatee, Marie-Paule Giroux, entered into an agreement

accepting the report of October 7, 1992, by the testamentary executor, the appellant in this case. In that report, Marie-Paule Giroux-Aubé was assigned the interest income and rental income, as can be seen from the said report prepared by the chartered accountants Houle et associés.

(b) In that agreement, Marie-Paule Giroux Linteau, the residuary legatee, also accepted payment of the residue of the succession in capital and interest and, as beneficiary of the said sums of money, should have been taxed on the said interest, as can be seen from a transaction between Marie-Paule Giroux Linteau and Germaine Aubé Linteau that was agreed to and signed by the parties on August 26, 1993.

Counsel for the estate argued that only the quantum of the residuary mass was problematic or uncertain. The appellant argued that the accountant retained by the testamentary executor had completed his administration and the work he had been instructed to do by February 1992.

As of that date, the inventory had been completed and the assets of the succession Clearly identified; they basically consisted of a deposit certificate and two immovables, namely the residence and a lodge.

According to the appellant, this was enough to identify the parameters and content of the share due to the residuary legatee. The appellant also argued that once the residuary legatee’s assets were identified, she had or ought to have had seizin of them and therefore responsibility for the assets that were ultimately to be transferred to her.

The Department argued that the date on which the succession was liquidated corresponded to the date of the agreement entered into on August 26, 1993. It was a settlement that had been difficult and had taken a long time to negotiate. The transaction dated August 26, 1993, was worded as follows:

[TRANSLATION]

Transaction Entered Into

BETWEEN MARIE-PAULE GIROUX, widow of Roland Aubé and residuary universal legatee, AND GERMAINE AUBE LINTEAU, testamentary executor.

Agreements:

WHEREAS Roland Aubé, by will dated April 21, 1988, named Marie-Paule Giroux, his wife, the residuary universal legatee;

WHEREAS the said instrument appointed Germaine Aubé Linteau executor of the said succession;

WHEREAS the said will made certain particular legacies to Germaine Aube’ Linteau, Jean-Paul Linteau, Pierrette Aubé, Francoise Aubé, Lise Linteau and Sylvie Giroux;

WHEREAS Roland Aubé died at the age of 78 on or about October 7, 1991, at Québec;

WHEREAS the last will that was neither changed nor revoked by Roland Aubé is the will dated April 21, 1988, which is included in number 6608 of the minutes of notary Richard Déry;

WHEREAS it is in the interests of justice that the particular legacies be honoured;

WHEREAS the testamentary executor and the residuary universal legatee wish to settle the partition of the succession now;

The Parties Agree As Follows:

1. The recitals shall form an integral part of this agreement;

2. This agreement shall constitute a transaction within the meaning of articles 1918 et seq. of the Civil Code;

3. The testamentary executor confirms that she has handed over the particular legacies and arranged for the particular legatees to receive the property they have inherited;

4. The residuary universal legatee, Marie-Paule Giroux, acknowledges and accepts the inventory of the succession prepared on January 27, 1992, by Messrs. Gaudreau & Lessard, notaries at Sainte-Foy, in accordance with the inventory included in number 8825 of the minutes of notary Michel Y. Gaudreau;

5. The parties acknowledge that the residuary universal legatee was able to retake possession of the movable property and effects in the matrimonial home of which she wished to retain ownership;

6. The parties hereto also acknowledge and accept the inventory bearing number 8847 of the minutes of notary Michel Y. Gaudreau of Sainte-Foy and dated February 12, 1992, and the inventory of a fishing lodge bearing number 8993 of the minutes of notary Michel Y. Gaudreau and dated June 11, 1992;

7. The residuary universal legatee, Marie-Paule Giroux, is inheriting $190,000 as residuary heir of the estate of Roland Aubé;

8. Marie-Paule Giroux renounces her share of the residence owned by the estate of Roland Aubé that corresponds to the immovable designated as follows:

An immovable situated at street number 1405 Côte des Erables, Québec, and known as an immovable designated as being part of lot 227 and part of lot 228 of the cadastre of the parish of Charles- bourg, registration division of Québec:

9. Marie-Paule Giroux also renounces any share she may have in, or claim or right she may have to ownership of, a fishing lodge owned by the estate of Roland Aubé that has been bequeathed to Lise Linteau, the said immovable corresponding to the following designation:

A site designated as lot 15-4, range 11, township of Stoneham, corresponding to lot 15-4, range 11 of the official cadastre of the parish of St-Emond de Stoneham, registration division of Québec.

The whole with the building constructed thereon and dependencies.

The whole consisting of a fishing lodge.

10. Marie-Paule Giroux declares that she accepts the testamentary executor’s report of October 7, 1992;

11. The parties confer on each other a final, mutual, reciprocal and full discharge in respect of any claims they may have against each other;

12. Marie-Paule Giroux renounces any other property contained in the residue of the estate of Roland Aubé as of the date of payment of the said sum of $190,000 in capital, plus interest;

13. The parties agree to sign all documents required to finalize this transaction, including transfers for the immovable property bequeathed by Roland Aube’ to Lise Linteau as a particular legacy under articles 8 and 9 of the said will;

Signed at Beauport this 26th day of August 1993.

Residuary universal legatee:

MARIE-PAULE GIROUX

Pierre-Marcel Normandeau, Advocate

JOLIN, FOURNIER MORISSET

Signed at Sainte-Foy this 26th day of August 1993.

Testamentary executor:

GERMAINE AUBE LINTEAU

Michel Poulin, Advocate

POULIN & ASSOCIES

Signed at Sainte-Foy this 26th day of August 1993.

Intervener:

LISE LINTEAU

To give effect to the transaction, some of the particular legatees had to co-operate by drawing on their respective legacies to make up the agreed amount needed for the transaction.

At what point did the testamentary executor finish or complete her administration? I consider it important to go back to the will, which established her rights in terms of the duration of her administration, to determine whether the testator set out any qualifications.

Article 11 of the said will clearly states that the executor could extend her administration beyond the year and a day provided for by law until the last wishes of the deceased had been completely fulfilled. This was worded as follows:

[TRANSLATION]

Article 11. To execute my will, I appoint my cousin GERMAINE AUBE, the wife of Jean-Paul Linteau, on whom I confer seizin of all my movable and immovable property. I extend her powers beyond the year and a day provided for by law until my last wishes have been completely fulfilled. I free her from the obligation of making an inventory and from giving security.

The executor accordingly had full authority to take the time she needed to perform her duties as executor.

For that purpose, Germaine Aubé retained an accountant, Paul-Henri Gamache. That was a wise decision.

The evidence adduced about the mandate given to the accountant was not very detailed; he simply explained that he had been retained by Germaine Aubé to make an inventory so that the property involved could then be distributed to the legatees named in the will. Mr. Gamache very quickly did everything he could to fulfil his mandate.

According to the accountant, his work was, for all practical purposes, finished as of October 1992; he also said that after the particular legacies were partitioned, the only remaining assets were two immovables and some deposit certificates.

Can the accountant and the executor claim that their administration had been completed at that time? I do not think so. The parameters, scope and limits of an administration are not determined on the basis of the importance of what has to be completed or finalized as part of the administration.

I do not agree with the interpretation suggested by the accountant, who argued that he had completed his administration because what remained to be done was basically unimportant and required mere formalities.

According to the accountant, all he had to do was make sure that the investments were profitable or yielded a return; he said that he had to wait for the parties to agree before he could issue cheques based on the agreement that had been reached.

Going along with the accountant’s interpretation of the concept of administration would have absurd results, as the end of an administration would have to be defined based on the importance of what remains to be done. The duration of an administration is separate from its content, and it seems to me that a mandate to administer property basically ends with the rendering of an account, which is not necessarily subject to special procedures or specific formalities.

One thing is clear: administration of a mass of property or the assets of a succession does not end before the complete and total delivery of the property being administered, unless, of course, the mandator withdraws the mandate while it is being carried out, in which case the mandatary’s administration obviously ends.

In the case at bar, it is my view that the administration ended when the transaction was signed on August 26, 1993. This had the effect of liquidating the assets of the succession that was the subject of the administration entrusted to the testamentary executor, who, in turn, had retained the accountant.

Moreover, it was a transaction whose content was clearly defined and stated as far as the capital and interest were concerned.

In this regard, the appellant’s interpretation that the $190,000 in capital included a substantial amount for accrued interest is supported by neither the facts nor the agreement.

According to the balance of the evidence, relations between the particular legatees and the residuary legatee were difficult and strained, and each family was represented by a lawyer. At first, the parties’ positions on the value of the residue of the succession were very far apart. The discussions and negotiations finally led to a settlement, which was confirmed by the transaction dated August 26, 1993.

The evidence showed that some of the particular legatees had to make contributions in order to implement the settlement. In other words, the settlement reached in no way resulted from a mere adding up of cash amounts to which interest was added; it was a lump sum that had not been broken down and was somewhat arbitrary, and it was set for the sole purpose of reaching an agreement sealed by the transaction of August 26, 1993.

Accordingly, it is not appropriate to try after the fact to reconstruct the various components that made it possible to put together the capital that was offered and accepted.

This approach also completely rebuts the appellant’s argument that the succession had been settled for a very long time. I found it surprising that the accountant took such a position, since the reality was quite different. I understand that he often referred to legal chicanery that he may have considered bizarre and dilatory; however, his opinion that his administration was completed after February since the only remaining assets were deposit certificates and two immovables is just as bizarre and unfounded.

Page 9 of the unaudited financial statements and review engagement reports dated October 7, 1991, indicates that fees of $21,935 were paid to the accountant. I presume that part of that amount was for work after February 1992. All of the facts brought out by the testimonial evidence and the will clearly showed that certain of the assets of the succession were still being administered until the transaction of August 1993.

Until that time, the estate had custody of and was responsible for the assets dealt with in the transaction of August 1993. It therefore had to bear the tax liability arising from that administration. The agreement, the facts and the Act support this conclusion.

As regards the late filing penalty, the Court refers to the admissions made by the accountant, who said that he was aware of the applicable deadline and acknowledged that the return was filed several months late.

As regards interest, as I told the parties during the opening remarks, the case law applied by this Court has clearly indicated that only the Minister has jurisdiction over interest.

The Tax Court of Canada therefore has no jurisdiction to cancel or reduce the interest applicable to amounts due pursuant to an assessment or overpayment.

For all these reasons, the appeal is dismissed.

Appeal dismissed.