Canada Trust Company and Olga Ellett, Executors and Trustees of the Estate of Francis Ely Ellett, Deceased v. Attorney-General of British Columbia, [1978] CTC 462

Berger, J:—This case entails a consideration of the reach of provincial taxing power under the Succession Duty Act, RSBC 1960, c 372.

Subsection 92(2) of the British North America Act gives the province legislative power in relation to:

Direct taxation within the province in order to the raising of a revenue for Provincial purposes.

Thus the province has the power to impose direct taxes on persons within the province and on property within the province. This jurisdiction encompasses estate taxes and succession duties, both of which have been described as direct taxes: City of Halifax v Fairbanks, [1928] AC 117; [1927] 4 DLR 945; (1927), 3 WWR 493. Estate tax is a tax against the estate itself, which the executors must pay; succession duty is a tax against the benefits, which the beneficiaries must pay: Erie Beach Co Ltd v A-G of Ontario (1929), 63 OLR 469, per Mulock, CJO, at p 478; affirmed [1930] AC 161.

The province has the power under subsection 92(2) to impose estate tax on real property and personal property situate within the province. The case at bar deals with a tax on succession to personal property situate outside the province. The succession to personal property is determined by the law of the domicile of the deceased (an application of the rule that moveables follow the person: mobilia sequuntur personam). The courts have held that the province may therefore impose a tax on succession to personal property situate outside the province if the deceased was domiciled within the province. Subsection 9(1) of the Succession Duty Act provides for such a tax:

Where the deceased person was at the time of his death domiciled in the province, and where the property of the deceased comprises any personal property situate without the province in respect of which any beneficial interest passes under the law of the province to a person who is domiciled or resident in the Province, that person shall, except as provided in Section 5, pay duty in respect of the transmission to him of that beneficial interest. . . .

In 1972 the province went further. In that year the Succession Duty Act was amended by the enactment of section 6A (1972 SBC, c 59, s 14). Section 6A, subsection (1) provides:

Where property of a deceased was situated outside the province at the time of the death of the deceased, and the beneficiary of any of the property of the deceased was a resident at the time of the death of the deceased, duty under this Act shall be paid by the beneficiary in respect of that property of which he is the beneficiary.

Thus the province sought to impose a tax on succession to property situate outside the province even in a case where the deceased was domiciled outside the province. The tax applies if a beneficiary resides within the province.

In the case at bar section 6A has been applied to personal property Situate in Alberta. The deceased died domiciled in Alberta. All of the assets of the estate are in Alberta. The deceased’s widow is domiciled in Alberta. She has a life estate under the will. The remaindermen are all residents of British Columbia. The tax falls on them. So it is the fact that the beneficiaries are resident in British Columbia that constitutes the ostensible reason for the application of British Columbia taxing power. There is nothing else in the case to attract British Columbia taxing power.

Letters probate were issued to the Canada Trust Company by the Surrogate Court of Alberta, Judicial District of Edmonton. The gross value of the estate of the deceased at the time of his death was $236,221.84. It consisted (except for $2,962.17) of: bonds situate in Alberta; of money deposits in banks and trust companies in Alberta; and of cash and cheques situate in Alberta and stocks all transferable outside British Columbia, except for 100 shares of Pine Point Mines Ltd (although the shares in Pine Point Mines Ltd are also transferable in Alberta). So the estate consisted entirely of personal property. British Columbia’s Minister of Finance, relying on section 6A of the Succession Duty Act, assessed the estate for succession duty in the sum of $30,646.70 plus interest in the sum of $2,120.05. Now Canada Trust Company, as executor, brings this action for a declaration that section 6A is ultra vires the province. They have paid the succession duty under protest; now they want it back. The province has since repealed the Succession Duty Act, (see the Succession Duty Repeal Act, SBC 1977, c 20), but even though the province has vacated the field, the limits of its constitutional power have to be examined in this case. Notice has been given to the Attorney-General of Canada under the Constitutional Questions Determination Act, RSBC 1960, c 72.

Some of the early succession duty statutes enacted by the provinces imposed a tax on succession, others on transmission. Succession is understood to mean the right to the estate of another by the law of descent. Succession is encompassed by transmission, which is said to be the giving of formal effect to the change of ownership which occurs with the passing of the deceased by converting the equitable title of the successor into a legal title: see Attorney-General v Baby, [1927] 1 DLR 1105; 60 OLR 1, Mulock, CJO at p 4. There is no distinction between them for purposes of the case at bar.

When personal property is situate with the province, the province has the power to levy estate tax against such property. The province has such power to tax personal property situate within the province, even if the deceased was domiciled in another province: Erie Beach Co Ltd v A-G of Ontario, supra. In that case it was held that the province of Ontario had the power to impose estate duty on shares situate in Ontario. The deceased died domiciled in the United States. It was argued that levying a tax on the shares was ultra vires the Province, in that it was inconsistent with the application of the principle mobilia sequuntur personam. Mulock, CJO said, at 478:

The British North America Act, s 92, entitles the Legislature of each province to make laws in relation to direct taxation within the province for the raising of a revenue for provincial purposes, and also in relation to property and civil rights. ‘Property’ includes choses in action. The situs of the shares in question is in Ontario, not by virtue of any provincial legislation, but of the common law; and, like all other property in Ontario, they are subject to the paramount right of the province to tax, which right excludes the application to its prejudice of the principle mobilia sequuntur personam.

In the case at bar we are concerned not with a tax levied on personal property within the province, but a tax levied on a beneficiary with respect to personal property outside the province. What is the extent of provincial taxing power in such a case? The fact that the beneficiary is resident within a province has not, in the past, been regarded, by itself, as a sufficient basis for the imposition of succession duty.

In Alleyn v Barthe, [1922] AC 215, the Privy Council upheld the power of a province to impose a tax on transmissions of personal property situate outside the province where the deceased was domiciled within the province. It was held that a Quebec statute imposing a duty upon “all transmissions within the province, owing to the death of a person domiciled therein, of moveable property locally situate outside the province at the time of such death’’ was not ultra vires. Thus, given a deceased domiciled within the province, the province could, by levying a tax on succession, reach personal property outside the province.

In Provincial Treasurer of Alberta v Kerr, [1933] AC 710; (1933), 4 DLR 81; [1933] 3 WWR 38, the Privy Council held that a province has the power to tax a beneficiary, domiciled or resident within the province in respect of the transmission to him under the law of the province of personal property situate outside the province. The Kerr case proceeded on the footing that the beneficiary within the province could be taxed where the transmission took place under the law of the Same province. In the Kerr case, Lord Thankerton summarized the State of the law. He said at p 718 (AC):

In their Lordships’ opinion, the principle to be derived from the decisions of this Board is that the province, on the death of a person domiciled within the province, is not entitled to impose taxation in respect of personal property locally situate outside the province, but that it is entitled to impose taxation on persons domiciled or resident within the province in respect of the transmission to them under the provincial law of personal property locally situate outside the province.

Alleyn v Barthe, on the one hand, and the Kerr case on the other hand, both came to the same thing. The province can tax a beneficiary within the province, with respect to the succession te personal property situate outside the province, where the transmission takes place under the law of the taxing province. The one case involved a tax on transmission, the other a tax on a beneficiary, but jurisdiction to tax was founded in both instances on the fact that the transmission occurred under the law of the taxing province. This in turn depended on the deceased having been domiciled in the taxing province. Neither authority provides any basis for a province to tax a beneficiary with respect to personal property situate outside the province except where the deceased was domiciled in the taxing province, without abandoning transmission under the law of the taxing province as a condition of the exercise of such jurisdiction. Thus, whether section 6A of the British Columbia Succession Duty Act is regarded as imposing a tax on transmission or a tax on a beneficiary, the essential element of provincial taxing jurisdiction in Alleyn v Barthe and the Kerr case is not present.

Counsel for the Attorney-General has challenged this line of authority. He has put the case for the province in this way: He says section 6A is simply a tax on persons within the province, ie the beneficiaries; the measure of their liability being determined by the extent of the benefits conferred under the will of the deceased. Only beneficiaries resident within the province are liable; no attempt has been made to tax persons outside the province. Why should a province be prevented from imposing a tax on a beneficiary resident within the province? Such a tax, it is said, is direct taxation within the province. So what is the basis for saying that a province has no such power?

There is nothing in the law of nations which prevents a government from taxing its own subjects on the basis of their foreign possessions: Blackwood v The Queen, (1882) 8 App Cas 82 at 96. If a province possessed unlimited sovereign power, it would be entitled to tax its residents on the basis of their assets in other provinces, or other countries for that matter. But the courts, having regard to subsection 92(2) of the British North America Act, have set limits on provincial taxing power.

In R v Levitt, [1912] AC 212, the Privy Council said that, in England, though the sovereign power of taxation was unlimited, in a long series of cases it had been held that duties were “intended to be imposed only on those who become entitled by virtue of our law. . . .” Lord Robson, referring to English succession duty statutes, said at p 220:

In construing the statutes relating to those duties, our courts have laid it down that the very general terms in which they are expressed must receive some limitation. Their language is wide enough to include all property and every person everywhere, whether subjects of this kingdom or not, and no matter where they are domiciled. It has accordingly been held, through a long series of cases, that the duties are intended to be imposed only on

those who become entitled by virtue of our law. The effect of this principle

is to exempt from the payment of legacy or succession duties moveable property situate here which belonged to a testator domiciled abroad, for in dealing with the distribution of such property our Courts act not on our own law but on the law of the domicile of the testator or intestate on which the legatee or successor founds his title. Similarly in a case of moveables situate abroad which belonged to a person domiciled here our Courts will direct their distribution according to our law and not that of the locality in which they are found.

(underlining added)

The common law limited English taxing power with respect to succession to personal property situate abroad to instances where the deceased was domiciled in England and succession was determined by English law. This principle was imported into the scheme developed by the courts for demarcating legislative jurisdiction in Canada with respect to succession duties under subsection 92(2) of the British North America Act. It was, of course, simply a rule of statutory construction in England. In Canada it became a rule of constitutional interpretation—a limitation on provincial taxing power.

Thus a principle developed in private international law, to determine the law by which devolution should be governed, has been used to limit provincial taxing power, in relation to succession to personal property situate outside the province, to those instances where devolution is governed by the law of the province. A line had to be drawn somewhere for policy reasons, even if its logic was not altogether unassailable. There had to be some practical means of dividing up taxing power as between the provinces.

Counsel for the Attorney-General says that this reasoning is unsound. He relies on an argument developed by Professor Bora Laskin (as he then was) in a paper read to the Canadian Tax Foundation in 1960: Laskin. Ontario Succession Duties: Constitutional Implications, 1960 Tax Foundation, vol 16, p 171. Professor Laskin suggested that the province had the legislative power to impose a tax on a beneficiary with respect to personal property situate outside the province even if the transmission took piace outside the taxing province. Such a tax, he said, should be regarded as a tax on a beneficiary, and thus it should not matter whether the transmission took place inside or outside the province. He said, referring to the passage cited above from the judgment of Lord Thankerton in the Kerr case:

What this principle indicates is that a transmission tax is nothing more than a personal tax on a beneficiary in the province. If a transmission takes place in the province only when the decedent dies domiciled there and when the beneficiary is there, we add nothing to provincial taxing power by describing a tax as a tax on transmission. The effective charging provision is against the beneficiary; and, on this view, it should not matter—if a province wishes to take full advantage of its legislative power—whether the decedent died domiciled in the province or outside, so long as his successors, or one of them, are within the province.

That is the point, of course. A tax on transmission is nothing more than a tax on a beneficiary. In both instances the power to tax Is dependent, so far as personal property situate outside the province is concerned, on the beneficiary becoming entitled by the law of the taxing province. So the deceased must be shown to have been domiciled in the taxing province.

Professor Laskin went on:

In either case, the measure of tax (under the Ontario statute) is referable to the benefits conferred. The property may therefore be outside the province or inside. It was long ago held in Bank of Toronto v Lambe, [1887] 12 App Cas 575, that a person found in the province may be taxed there if taxed directly; and I can think of no tax more direct than one imposed on the beneficiary of a deceased’s estate.

It seems to me the issue does not depend on whether the tax is direct or indirect. Estate taxes and succession duties are direct taxes: City of Halifax v Fairbanks, supra. A tax on a beneficiary is a tax on succession. So the issue in the case at bar is whether the tax is one which is imposed with respect to the succession to personal property under the law of British Columbia or the law of Alberta.

Professor Laskin said that if the beneficiary is within the province, it should not matter whether the deceased died inside or outside the province. But the point is that unless the deceased died inside the province, the beneficiary would not become entitled to succeed “by our law”, in the words of Lord Robson in RA v Lovitt. In Winans v Attorney-General, [1910] AC 27, Lord Shaw of Dunfermline said, at p 47:

Legacy and succession duties are duties upon the accession to property by legatees and successors, and the levy of them is, in my opinion, an incident of such accession, meant to have been governed under the law of the domicile of the deceased which regulates the distribution of his personal estate. Estate duty is of a different character; the levy and payment thereof occur not at the point of accession to property, but of the passing

of property by the death of a testator.

(underlining added)

The levy of a succession duty occurs at the point of accession to property. Provincial taxing power cannot reach personal property situate outside the province, except by virtue of a transmission under the law of the taxing province, because the point at which the beneficiary succeeds to the property is, in the eye of the law, within the province. This appears to be the footing upon which the principle mobilia sequuntur personam has been made the basis for, on the one hand, extending the reach of provincial taxing power to personal property outside the province where the deceased was domiciled within the province, and, on the other hand, limiting it to cases where the deceased was domiciled within the province, even though the beneficiaries may be within the province. The application of the principle depends entirely upon whether the law of the province governs the devolution of the estate, and not in any way upon the domicile or residence of the beneficiary.

Professor Laskin’s views expressed in 1960 should not be regarded as altogether considered. He said:

. . . the purpose of this paper is to be reasonably provocative to the end of clarifying the constitutional limits of provincial taxing power in respect of a decedent’s estate. The present case law is, in my view, far from satisfactory.

Of course, the case law is never satisfactory. Nevertheless, the cases have drawn a line with a view to an orderly division of taxing authority as between one province and another.

Counsel for the Attorney-General also relies on the recent judgment of Hart, J of the Nova Scotia Supreme Court, Trial Division in Cowan et al v Minister of Finance of Nova Scotia (1977), 78 DLR (3d) 66. Subsections 8(1) and (2) of the Nova Scotia Succession Duties Act read:

8. (1) Subject as hereafter otherwise provided, duty shall be paid on all property of a deceased that is situated, at the time of the death of the deceased, within the province.

(2) Subject as hereafter otherwise provided, where property of a deceased was situated outside the province at the time of the death of a deceased and the successor to any of the property of the deceased was a resident at the time of the death of the deceased duty shall be paid by the successor in respect of that property to which he is the successor.

Hart, J dealt with the argument that the legislation was ultra vires at p 87. He said:

I now turn to consideration of the second point in issue which is whether or not paragraph 2(5)(b) of the Nova Scotia Succession Duties Act is ultra vires the province of Nova Scotia. Section 92 of the British North America Act, 1867 says:

92. In each province the Legislature may exclusively make laws in relation to matters coming within the classes of subjects next hereinafter enumerated, that is to say,—

2. Direct taxation within the province in order to the raising of a revenue for provincial purposes.

Counsel for the estate says that paragraph 2(5)(b) of the Act is not taxation within the province and is therefore beyond the power of the Legislature. He argues that the section is an attempt to tax property that is not situate within the province.

Counsel for the Crown claims that the section of the Act is well within the powers of the provincial Legislature because it is designed to tax persons resident within the province rather than property.

Hart, J went on to hold that the question was one of characterization. In this he relied on Kerr v Superintendent of Income Tax et al, [1942] SCR 435; [1942] 4 DLR 289; [1943] CTC 97, and CPR v Provincial Treasurer of Manitoba, [1953] 4 DLR 233; 10 WWR (NS) 1; 61 Man R 262, a judgment of Freedman, J (as he then was). He concluded:

Although the last few cases deal with problems under income tax statutes I am satisfied that the principle is the same as should be applied under the Succession Duty Acts.

The Nova Scotia Succession Duty Act under s 8 makes resident successors to property of deceased persons situate outside the province liable for payment of succession duties. Subsection 2(5) deems the shareholders of nonresident corporations becoming beneficially entitled to property of deceased persons as a result of their death to be successors to the extent of the increase in value of their shareholdings. In my opinion this is clearly direct taxation upon residents of the province and establishes a method for the calculation of the benefit being received by the successor. It is not [taxation] on property outside the province but rather on persons within the province to the extent to which they have been benefited by transfers to non-resident corporations.

I find therefore that subsection 2(5) of the Nova Scotia Succession Duties Act is valid legislation within the legislative competence of the province of Nova Scotia to the extent that the shareholders benefited are residents of this province. The province would not, of course, have the power to tax nonresident shareholders of these corporations but only those who are resident successors under subsection 8(2) of the Act.

The Nova Scotia legislation does not go so far as the British Columbia legislation. It does not seek to tax a beneficiary with respect to personal property passing to him by virtue of a transmission under the law of another province. In the Cowan case the beneficiaries became entitled under Nova Scotia law. The fundamental condition for the imposition of provincial succession duty was present. The issue arising in the case at bar was not before Hart, J.

Counsel for the Attorney-General argues in the alternative that section 6A imposes a tax on property within the province, the property having become vested in residents of the province by operation of law outside the province. In such a case, it is said, the tax is one falling within provincial jurisdiction under subsection 92(2). But if the tax is considered a tax on property the Attorney-General is no better off. Property can have only one local situs, for determining the incidence of succession duty, and that situs will be determined by the common law: The King v National Trust Co, [1933] SCR 670; [1933], 4 DLR 465. Under the common law rules, the property in the case at bar can have one and only one situs, Alberta.

The argument advanced on behalf of the Attorney-General is an attempt, by one means or another, to convert the situs of personal property from Alberta to British Columbia. Clearly the tax in the case at bar cannot be justified as a tax on property, the property being situate—both physically and in contemplation of law—outside the province.

These matters may be receding in importance now that many provinces (including British Columbia) have put an end to succession duties. But all of the provinces, and the Government of Canada, still have access to this field of taxation. So it is essential that there should continue to be an orderly division of taxing power in this field as between the provinces. The principles that have been laid down cannot now be overthrown except by the Supreme Court of Canada.

Section 6A, invoked here for the purpose of claiming succession duties upon property which is situate outside British Columbia, is to that extent ultra vires the province. This is not to say that British Columbia cannot tax a beneficiary. It can with respect to personal property situate outside the province passing by virtue of a transmission under the law of British Columbia. But it cannot tax a beneficiary with respect to the receipt by him of personal property situate outside the province in a case where the deceased was domiciled in another province and the beneficiary became entitled to succeed under the law of that other province.

The very question which has arisen in the case at bar is posed in Laskin’s Canadian Constitutional Law, Fourth Edition, Revised, in the notes to the Kerr case (pp 733-4):

Having regard to the Kerr case, is it important to a province in its succession duty legislation to tax a beneficiary in the province in respect of benefits received, regardless of deceased’s domicile and of the situs of his estate?

I think the answer is no.

The plaintiffs are entitled to the declaration they seek.