Estate of Solomon Weitzman v. Her Majesty the Queen, [1978] CTC 77, 78 DTC 6059

The Chief Justice (concurred in by Le Dain, J and Hyde, DJ):—This is an appeal from a judgment of the Trial Division allowing an appeal from a decision of the Tax Review Board, which Board allowed an appeal by the appellant from its assessment under Part I of the Income Tax Act for the 1969 taxation year.

During the 1969 taxation year, the appellant estate received a lump sum of $312,125.61 under a pension plan as a death benefit payable on the death of the deceased, to which, it is common ground, paragraph 11(1)(v) of the Income Tax Act applies. That provision, as enacted by section 1 of chapter 43 of the Statutes of 1960 and amended by subsection 3(6) of chapter 49 of the Statutes of 1960-61, reads, in part:

11. (1) Notwithstanding paragraphs (a), (b) and (h) of subsection (1) of section 12, the following amounts may be deducted in computing the income of a taxpayer for a taxation year:

(v) that proportion of any . . . death benefit . . . received by the taxpayer in the year, upon or after the death of a predecessor, in payment of or on account of property to which the taxpayer is the successor the value of Which was required to be included in computing the aggregate net value of the property passing on the death of the predecessor for the purpose of Part I of the Estate Tax Act . . . that

(i) the aggregate of

(A) such part of any tax payable under the Estate Tax Act in respect of the death of the predecessor as is determined under that Act to be the part thereof applicable to the property in payment of or on account of which the benefit was so received, and

(B) such part of any succession duties payable under a law of a province in respect of the death of the predecessor as may reasonably be regarded as attributable to the property in payment of or on account of which the benefit was so received,

is -of

(ii) the value of the property in payment of or on account of which the benefit was so received, computed as provided for the purpose of subsection (4) of section 58 of the Estate Tax Act;* [1]

As I read paragraph 11(1)(v), the amount deductible from income for a taxation year by virtue thereof may be represented by the following computation:

It is common ground that the payment on account of “property” referred to in the introductory words of paragraph (v) and the value of the “property” referred to in subparagraph (ii) thereof are, in the circumstances of this case, the amount of the death benefit in ques- tiont and that, in this particular case, therefore, the amounts envisaged by those two parts of the paragraph are equal* [3] so that the deductible amount under paragraph (v) is the amount referred to in subparagraph

(i) thereof. It is that amount concerning which a question is raised by this appeal.

The tax payable in respect of the deceased’s estate under the Estate Tax Act was $174,474.72. The question concerning which the parties differ is what part of that tax is determined under that Act to be the part thereof “applicable to’’ the death benefit of $312,125.61 .t [4]

The relevant provision of the Estate Tax Act is subsection 58(4) thereof, as enacted by subsection 12(5) of chapter 33 of the Statutes of 1968-69, which reads, in part:

58. (4) A reference in this Act to the part of any tax . . . that is applicable to any property passing on the death of a deceased shall be construed as a reference to the part of that tax that is proportionate to the value of that property . . . and, for the purposes of this Act except Part Il, in determining the part of any tax . . . that is applicable to any of the property passing on the death of a deceased, where the property so passing includes

(a) any property in respect of which a deduction may, in computing the aggregate taxable value of the property passing on the death of the deceased, be made under any of paragraphs (a) to (h) of subsection (1) of section 7 except paragraph (c) thereof, or

(b) any property described in subparagraph (i) of paragraph (c) of subsection (1) of section 7, to the extent of such part of its value as is equal to the amount deductible under that paragraph in computing the aggregate taxable value of the property passing on the death of the deceased,

no part of that tax shall be considered as applicable to the property so included.* [5]

As I understand it, the primary rule laid down by this provision, in so far as the facts of this case are concerned, is that a reference to the part of any tax that is applicable to “any property passing on the death’’ (in this case the death benefit) is to be construed as a reference ‘to that part of the tax that is proportionate to the value of the property”. From this, as it seems to me, what is required is to determine the part of the total estate tax applicable to property passing on the death ($174,474.72) that the va/ue of the death benefit ($312,125.61) is of the value of all the property passing on the death to which tax was applicable. The secondary rule to be found in subsection 58(4), as I understand it, is that for the purpose of the primary rule, no part of the estate tax is to be regarded as applicable to property passing on the death the value of which is deductible in computing “aggregate taxable value”.! [6]

In considering the problem raised by this appeal, it is to be noted that the Estate Tax Act does not impose tax on, or make tax applicable to, property, as such. What it does is impose an estate tax upon the “aggregate taxable value of . . . property passing on the death” (subsection 2(1)) which, by definition, is

(a) the.“aggregate net value” computed in accordance with Division B. of Part I of the Act,

minus

(b) the deductions permitted by Division C.

“Aggregate net value” is arrived at by a computation in which the “value” of property passing on the death (or so regarded) is “included” (sections 3 and 4) and certain amounts—eg, debts and funeral expenses—are “deducted” (sections 5 and 6).

The deductions from “aggregate net value” to obtain ‘‘aggregate taxable value” are enumerated in subsection 7(1). In some cases these are the “value” of certain property passing on death (eg, value of property passing to the spouse—paragraph 7(1)(a)). In other cases, they are the value of gifts made by the deceased by will or are arbitrary amounts (subparagraph 7(1)(c)(ii)).

Both the appellant and respondent proceeded, prior to argument of this appeal, on the basis that, for the purpose of the subsection 58(4) calculation, the value of the “property” to which the total estate tax is applicable (ie, the denominator of the fraction in the calculation) is the “aggregate taxable value’. Beginning from that position of agreement, the respective positions were:

(a) the respondent took the position that, wherever adjustments had to be made in the aggregate of the values of “property” passing on death to get “aggregate taxable value”, comparable adjustments had to be made in the value of the property for which the applicable estate tax was to be determined before such value was used as the numerator of the fraction in the computation; and

(b) the appellant’s position was that the total value of such property (unadjusted) should be used as the numerator of the fraction in the computation.* [7]

In other words, the appellant’s position was that the proportion of the total estate tax deductible is total value of property passing on death minus (debts, funeral expenses, etc -f- all section 7 deductions)! [8]

I	$312,125.61

and the respondent’s position was that the proportion of the total estate tax deductible was

$312,125.61 minus (a proportion of debts, funeral expenses, etc, and amounts [other than value of property passing on death] deductible under section 7) total value of property passing on death minus (debts, funeral expenses, etc, + all section 7 deductions):]: [9]

According to the respondent’s calculation, the paragraph 11(1)(v) allowance in respect of the death benefit was $35,624.46. The appellant’s claim was for $66,991.05. The Trial Division in effect restored the allowance of $35,624.46.

Since argument, the parties have, at the Court’s request, filed further memoranda and I have given the best consideration that I can to their respective submissions in reaching my conclusion on this very complicated matter.s [10]

The position, as I see it, is as follows:

(1) on the facts of this case, the paragraph 11 (1 )(v) benefit is such part of the estate tax levied in respect of the estate ($174,474.72) as is determined under the Act to be “applicable” to the death benefit ($312,125.61) (clause 11 (1)(v)(i)(A));

(2) the part of the estate tax so “applicable” is that part of such tax ‘‘that is proportionate to the value of that property”* [11] (ie, that is “proportionate” to the amount of the death benefit) (first part of subsection 58(4));

(3) prima facie, paragraph (2) means the part of the estate tax that the value of the property (ie, the amount of the death benefit) is of the value of all the property passing on death (ie, the aggregate of the values of all “property” passing on death);

(4) however, the second part of subsection 58(4) requires that, where the property passing on death includes property the value of which is deductible in computing aggregate taxable value under subsection 7(1), no part of the tax shall be considered as applicable to ‘‘the property so included” and, therefore, the rule as suggested by paragraph (3) must be revised to say that, for the purposes of computing the subsection 11(1) deduction in this case, the total estate tax is to be regarded as applicable to the value of the property passing on death (ie, $1,627,797.30) minus the value of property the value of which is deductible under subsection 7(1) (ie, $49,500 + $48,911.75) or a net amount of $1,529,385.55;

(5) the paragraph 11 (1)(v) deduction in this case is, therefore,

The above mathematical conclusion is based on figures in the respondent’s supplementary memorandum which are not challenged by the appellant’s supplementary memorandum filed in reply thereto.! [12]

As I have concluded that the appellant was entitled to a smaller deduction than was allowed by the judgment of the Trial Division, I am of opinion that the appeal should be dismissed with costs.

APPENDIX A

Discussion of Relevant Estate Tax Provisions

I. Introduction

The problem in this case is to determine what part of the total tax payable under the Estate Tax Act in respect of the death of Mr Weitzman is, under the provisions of that Act, the part thereof applicable to the payment in the 1969 taxation year on account of a ‘death benefit” (ie, the “property” on 'account of which the payment was received). See clause 11 (1)(v)(i)(A) of the Income Tax Act.

To ascertain, in accordance with the Estate Tax Act, the part of the total estate tax payable by reason of the death of a person that is to be regarded as “applicable” to a particular property or “benefit” passing on the death, it would seem to me to be helpful

(a) to consider the calculation as it was under the Estate Tax Act as it was first enacted by chapter 29 of the Statutes of 1958, and

(b) having come to a conclusion as to what the calculation would have been under that original Act, to consider what changes, if any, are required by the amendments to section 7 and subsection 58(4) of the Estate Tax Act that were made by chapter 33 of the Statutes of 1968-69.

II. General background

As a preliminary step, it is important to refer to certain parts of the Estate Tax Act which, for present purposes, may, in my view, be sufficiently summarized as follows:

1. Subsection 2(1) imposes an estate tax on the “aggregate taxable value” of all property passing on the death of every person domiciled in Canada; and subsection 2(2) defines “aggregate taxable value” of the property passing on death to be

(a) the “aggregate net value” of the property computed in accordance with Division B,

minus

(b) the deductions permitted by Division C.

2. Division B, which provides for computation of “aggregate net value”, consists of sections 3 to 6 inclusive, which may be summarized, for present purposes, as follows:

(a) section 3 provided that there shall be included, in computing the “aggregate net value” of the property passing on death, the value of all property passing on the death, and, for greater certainty, it is made clear that the “property passing on death” includes certain classes of property that might or might not fall within the literal meaning of the words “passing on death” of which classes the one with which we are concerned is to be found in paragraph (k) of subsection 3(1), which paragraph reads:

(k) any superannuation, pension or death benefit payable or granted

(i) out of or under any fund or plan established for the payment of

Superannuation, pension or death benefits to recipients, or

(ii) out of the revenue of Her Majesty in right of Canada or a province or under or subject to any Act of the Parliament of Canada or of the legislature of a province,

on or after the death of the deceased in respect of such death;

(b) section 5 provides that there may be deducted in computing “aggregate net value’’ certain amounts such as “debts’’, “encumbrances’’ and “funeral expenses’’.

3. Division C provides for the deductions that may be made from “aggregate net value’’ to get “aggregate taxable value’’. It consists of section 7 to which more specific reference will be made in considering the Act at the two stages to which I have already referred.

4. Subsection 58(4), which is found in Part IV under the heading “Interpretation and Application’’, lays down a rule for determining what is meant by a reference in the Act to the part of any tax that is “applicable to any property passing on the death of a deceased’’.* [13] This provision also requires more specific reference in considering the Act at the two different stages.

III. Calculation of tax “applicable” under original Estate Tax Act of 1958.

As already indicated, the rule to be applied to determine the part of the Estate Tax Act tax payable in respect of the death that is “applicable’’ to any specific property passing on the death is found in subsection 58(4) of the Estate Tax Act. In chapter 29 of 1958, that provision read as follows:

58. (4) A reference in this Act to the part of any tax payable or tax . otherwise payable that is applicable to any property passing on the death

of a deceased shall be construed as a reference to the part of that tax that is proportionate to the value of that property computed as of the date of the death of the deceased or as of such other date as is specified in this Act but as though that property were distributed immediately after that date, and, for the purposes of this Act except Part. Il, in determining the part of any tax payable or tax otherwise payable that is applicable to any of the property passing on the death of a deceased, where the property so passing includes any property in respect of which a deduction may be made under any of paragraphs (d) to (h) of subsection (1) of section 7, no part of that tax shall be considered as applicable to the property so included.

As I read that provision, it contains two rules, viz:

(a) a reference to the part of any tax that is applicable to any property passing on the death of a deceased shall be construed as a reference to that part of that tax that is “proportionate” to the value of the property—in other words, as I understand this rule, assuming

(i) A equals value of the particular property (ie, the property in respect of which it is required to find the tax “applicable”),

(ii) B equals value of all property passing on the death of the deceased, and

(iii) C equals total estate tax payable by reason of the death,

the tax “applicable” to the particular property would be

(b) in determining the part of the tax that is “applicable” to any particular property passing on death,* [14] where the “property so passing” includes any property “in respect of which a deduction may be made under any of paragraphs (d) to (h) of subsection (1) of section 7, no part of that tax shall be considered as applicable to the property so included—in other words, there must be deducted from A or B, in the calculation in subparagraph (a) supra, the value of any property in respect of which a deduction may be made under the specified paragraphs of subsection 7(1) if the value of any such property has been included in the computation thereof.

To appreciate the significance of the 1958 subsection 58(4), it is necessary to look at the 1958 section 7 in so far as is relevant. As it seems to me, it is sufficient to consider the following portions:

7. (1) For the purpose of computing the aggregate taxable value of the property passing on the death of a person, there may be deducted from the aggregate net value of that property computed in accordance with Division B such of the following amounts as are applicable:

(a) $60,000 in the case of

(i) a deceased male person survived by a spouse, or

(b) $40,000 in the case of a deceased person in the case of whom no deduction may be made under paragraph (a);

(c) an amount equal to

(i) $10,000 in the case of a deceased person in the case of whom a deduction may be made under paragraph (a), or

(ii) $15,000 in the case of a deceased person not survived by a spouse,

for each surviving child who, at the time of the death of such person, was under twenty-one years of age or was twenty-one years of age or over and wholly dependent upon such person or the spouse of such person, or both, as the case may be, for support by reason of being infirm;

(d) the value of any gift made by the deceased whether during his lifetime or by his will, where such gift can be established to have been absolute, to

(i) any organization in Canada that, at the time of the making of the gift, was a charitable organization operated exclusively as such and not for the benefit, gain or profit of any proprietor, member or shareholder thereof, or

(ii) Her Majesty in right of Canada or a province, a Canadian municipality or a municipal or other public body in Canada performing a function of government,

minus

(e) the value of any gift made by the deceased during his lifetime where such gift can be established to have been absolute, to have taken effect during his lifetime, to have been part of his ordinary and normal expenditure and to have been reasonable having regard to the amount of his income and the circumstances under which the gift was made;

(f) the value of

(i) any pension under or subject to the Pension Act, the Civilian War Pensions and Allowances Act, the War Veterans’ Allowance Act or section 64, 78 or 112 of the Royal Canadian Mounted Police Act, or

(ii) any compensation under regulations made under section 5 of the Aeronautics Act,

payable or granted on or after the death of the deceased in respect of such death:

(g) the value of any pension payable or granted on or after the death of the deceased in respect of such death, on account of disability or death arising out of war service, if such pension was payable or granted by a country that was an ally of Her Majesty at the time of the war service and if that country grants substantially similar relief in respect of pensions payable or granted by Canada; and

(h) the value of any property vested in Her Majesty in right of Canada or a province by escheat or as bona vacantia on the death of the deceased.

(2) Notwithstanding subsection (1), no deduction may be made under any of paragraphs (d) to (h) of subsection (1) in respect of any gift therein referred to or in respect of any pension, compensation or other property therein referred to, except to the extent that the value of the property comprised in such gift or the value of such pension, compensation or other property has been included in computing the aggregate net value of the property passing on the death of the deceased. [The italics are mine.]

An analysis of subsections 7(1) and (2) would seem to show that two classes of deduction are dealt with, Viz'e

(a) certain arbitrary amounts by reference to relationship, etc, and

(b) value of certain classes of property deductible only in cases where the value was included in computing “aggregate net value’’.

The second class could be said to have the effect of making such property exempt. The first class can only be considered as a reduction in the aggregate amount on which tax is computed.

As I understand it, when section 7 is read with subsection 58(4), for the purpose of the subsection 58(4) calculation of tax ‘‘applicable’’, where value of property is deductible under section 7 in arriving at “net taxable value”, which can only* be “to the extent that the value of the property . .' . has been included in computing the aggregate net value of the property passing on the death”, that property is to be treated as property to which no tax was “applicable”. On the other hand, while it is not expressly said, in my view, for the purpose of the A and B factors in the calculation set out in paragraph (a) supra, all other property passing on death remains in the calculation of property to which tax was “applicable” without any reduction by reason of debts, funeral expenses, etc, or by reason of any deduction under paragraph 7(1)(a), (b) or (c).

In my view, the result of applying subsection 58(4) is relatively Simple when one looks at the 1958 Estate Tax Act, which was in force when paragraph 11 (1)(v) of the Income Tax Act was enacted in 1960 and amended in 1960-61. The remaining question is whether any change in principle was wrought by the Estate Tax Act amendments of 1968-69, which were applicable, at least as far as estate tax is concerned, to the estate of the deceased involved in this appeal by virtue of subsection 13(2) of the amending Act. (The principal purpose of such amendments seems to have been, in effect, to exempt, from estate tax, property passing from the deceased to a spouse.)

III. Calculation of “tax applicable” under the Estate Tax Act as amended by chapter 33 of the Statutes of 1968-69

By section 3 of chapter 33, section 7 of the Estate Tax Act was amended. For present purposes, it may be sufficient to reproduce the following portions thereof:

3. (1) Paragraphs (a) to (c) of subsection (1) of section 7 of the said Act are repealed and the following substituted therefor:

“(a) the value of any property passing on the death of the deceased to which his spouse is the successor that can, within six months after the death of the deceased or such longer period as may be reasonable in the circumstances, be established to be vested indefeasibly in his spouse for the benefit of Such spouse, except any such property comprising a gift made by the creation of a settlement or the transfer of property to a trustee in trust;

(c) in respect of each child of the deceased who survives him, the lesser of

(i) the value of any property passing on the death of the deceased to which the child is the successor that can, within six months after the death of the deceased or such longer period as may be reasonable in the circumstances, be established to be vested in the child for his benefit indefeasibly, or subject to defeasance only in the event of his death before attaining such age, not exceeding forty years, as is specified in the will or other instrument under or by virtue of which the property so passing became vested in him, except any such property comprising a gift described in paragraph (b) or (e) or consisting of a pension or compensation described in paragraph (f) or (g),

or

(ii) $10,000 plus

(A) where the child was, at the time of the death of the deceased, wholly dependent upon the deceased or his spouse, or both, for support by reason of being infirm, an amount equal to the product obtained when $1,000 is multiplied by the number of full years in the period commencing^ on the day of the death of the deceased and ending on the day on which the child will, if ever, become 71 years of age, or

(B) in any other case, the amount, if any, by which

1. the product obtained when $1,000 is multiplied by the number of full years in the period commencing on the day of the death of the deceased and ending on the day on which the child will, if ever, become 26 years of age,

exceeds

2. one-third of the amount, if any, by which the aggregate of the child’s income, computed in accordance with the Income Tax Act, for each of the three taxation years of the child (or such number of taxation years as the child had if that number is -less than three) immediately preceding the taxation year in which the deceased died, exceeds $15,000;”

(4) Subsection (2) of section 7 of the said Act is repealed and the following substituted therefor:

‘‘(2) Notwithstanding subsection (1), no deduction may be made under any one of paragraphs (a) to (h) of subsection (1) except paragraph (c) thereof in respect of any pension, compensation or other property therein referred to, except to the extent that the value of the property comprised in such gift or the value of such pension, compensation or other property

(a) has been included in computing the aggregate net value of the property passing on the death of the deceased, and

(b) has not been deducted, by virtue of any other such paragraph, in computing the aggregate taxable value of the property passing on his death.”* [15]

By subsection 12(5) of the same Act, subsection 58(4) of the principal Act was rewritten. Subsection 12(5) reads:

12. (5) Subsection (4) of section 58 of the said Act is repealed and the following substituted therefor:

‘‘(4) A reference in this Act to the part of any tax payable or tax otherwise payable that is applicable to any property passing on the death of a deceased shall be construed as a reference to the part of that tax that is proportionate to the value of that property computed as of the date of the death of the deceased or as of such other date as is specified in this Act but as though that property were distributed immediately after that date, and, for the purposes of this Act except Part II, in determining the part of any tax payable or tax otherwise payable that is applicable to any of the property passing on the death of a deceased, where the property so passing includes

(a) any property in respect of which a deduction may, in computing the aggregate taxable value of the property passing on the death of the deceased, be made under any of paragraphs (a) to (h) of subsection

(1) of section 7 except paragraph (c) thereof, or

(b) any property described in subparagraph (i) of paragraph (c) of subsection (1) of section 7, to the extent of such part of its value as is equal to the amount deductible under that paragraph in computing the aggregate taxable value of the property passing on the death of the deceased,

no part of that tax shall be considered as applicable to the property so included.”

While I have not satisfied myself that I have considered all the nuances, as it seems to me, the changes in substantive law wrought by the amendments to section 7, made necessary a rewriting of the rule in subsection 58(4), but the rule itself remains unchanged in principle.

APPENDIX B

If I understand the new submissions made on behalf of the appellant, most of them are based on “illogical’’ results that flow from a strict application of the words of the two statutes involved, eg, “the greater the portion of the total estate that is exempt of estate taxes under section 7, the more the recipient of the pension funds will be deprived of the deduction of the estate taxes paid on the value of the pension fund.”* [16]

If my knowledge of the events giving rise to paragraph 11 (1)(v) is relatively accurate, that provision cannot be regarded as an integral part of a carefully worked out logical scheme of estate taxes and income taxes. It is, rather, the result of sentimental and political pressures born of the apparent injustice of requiring a widow to pay both

(a) estate tax on the present value of a pension payable under a pension plan of which the deceased husband was a member, and

(b) income tax on each pension payment as received.

The original 1960 enactment of paragraph 11(1)(v) would seem to have responded to such pressures directly by reducing the income base for income tax payments on pension benefits by a proportionate part of the estate tax, ie,

It might have been thought at that time that such provision created a discrimination between a widow or other person receiving- pension benefits of an income character on the death of pension plan member and a widow or other person receiving a capital amount that was thereupon used to buy an annuity. On such a view, paragraph 11 (1)(v) was, and is, inherently “illogical”. However, such illogicality was not nearly as apparent as the removal of the “long festering” apparent doubling up of the estate tax and income tax as they operated against widows dependent on pensions.

By the 1968-69 amendments to the Estate Tax Act, the widow’s liability to pay any estate tax on the death of her spouse was substantially, if not completely, removed. Considered by themselves, such changes would seem to have created a logical understandable change in the estate tax scheme. They did, however, when considered in conjunction with the aspects of paragraph 11(1)(v) that go beyond relief to widows and other immediate dependants, accentuate the “illogical” (in the sense of discriminatory) consequences of that latter provision.

Having regard to that legislative history, as I understand it, I do not think that the “illogical” results of proportioning estate tax according to “value” of the respective properties “passing on death”, which is required by the legislation as I understand it, should be used to read into the legislation words that are not actually there.

Apart from the “illogical” results argument, there is an argument in the appellant’s additional memorandum, as I read it, based on an interpretation of subsection 58(4) that, as I understand that subsection, is not open on the words used. I refer to the following portions of the appellant’s additional memorandum:

16. Section 58(4) of the Estate Tax Act permits a deduction in connection with . . any property in respect of which a deduction may . . . be made under any of the paragraphs (a) to (h) of sub-section 1 of Section 7 . . .” and the Section clearly contemplates, and grants a right to, the executors to take a deduction under Section 7 (and to apportion the tax on the balance of the Assets of the Estate) as they see fit.

Clearly, the executors have the right to choose in respect of what property they have taken the deduction.

17. It is to be noted that the $625,000 deduction granted under Section 7(1)(b) in connection with the $25,000 per annum payments to Mrs. Weitzman has been calculated using the mortality tables set forth in the Estate Tax Regulations and in particular, Table II thereof.

18. The executors could have bought an annuity for Mrs. Weitzman with the liquid funds of the Estate, other than those derived from the pension plan, and in such circumstances, the Respondent could not argue as it has.

19. The executors equally have the right to apportion none of the $312,000 lump sum pension benefit to the lifetime annuity when, in fact:

(i) 30% of such lump sum pension benefit were withheld and paid on account of income taxes; and

(ii) the balance to pay Provincial Succession Duties and to obtain seizing of the Estate.

+ The lifetime annuity could only have come from the other assets of the Estate; not the pension fund, which was used for other purposes.

The relevant part of subsection 58(4), as I understand it, reads:

. . . in determining the part of any tax . . . that is applicable to any of the property passing on the death . . . , where the property so passing includes

(a) any property in respect of which a deduction may, in computing the aggregate taxable value of the property passing on the death . . . , be made under . . . section 7 . . . ,

no part of that tax shall be considered as applicable to the property so included.

As I read it, this provision says only that no part of the tax shall be considered as applicable to “property passing on death’’ in respect of which a deduction may be made in computing “aggregate taxable value’’ (eg, paragraph 7(1)(a)); and it has no application to a gift made by the deceased by his will, such as is contemplated by paragraph 7(1)(b), “by the creation of a settlement”.