Anne Zanatta, Executrix of the Estate of Moses Anthony Zanatta, Deceased v. Minister of Finance for The, [1977] CTC 316

Ruttan, J (in Chambers):—This is an appeal from the decision of the Minister of Finance for the Province of British Columbia made March 14, 1977 affirming a succession duty assessment dated November 15, 1976 which levied succession duties on the value of farm property of which the deceased died possessed and which formed a large part of the estate of the deceased.

It is the submission of the appellant that this farm property comes within the definition of a “family farm’’ in clause 5(1 )(n) of the Succession Duty Act, RSBC 1960, c 372, and is therefore exempt from succession duty.

In clause 5(1 )(n) of the Act it is provided:

5. (1) This act does not apply, so far as liability to pay succession duty is concerned,

(n) to property that is a family farm, as defined in the regulations, passing on the death of the deceased to a child;

urning to the regulations, the family farm purports to be defined in section 2 of which the relevant passage are these:

2. For the purposes of sections 14A and 5(1 )(n) of the Act, a family farm means any agricultural endeavour wherein the deceased or the deceased and those individuals referred to under subsection (1) of section 2 of the Act as special beneficiaries or brothers and sisters of the deceased carried on their farming operations either alone, in partnership or under a corporate structure, provided, however, that

(a) 95% of the farming assets are physically located in the Province of British Columbia as at date of death; and

(c) 95% of the deceased’s beneficial interest passes outright to individuals, resident in the Province, and the operation continues as an active farming operation during the full period of time allowed for payment of duties under section 14A. For purposes of section 5(1)(n) the "individuals” referred to in this clause must be a child of the deceased, resident in the Province and such child must operate the family farm as an active farming operation for a period of not less than ten years immediately subsequent to the death of the deceased or until the death of that child whichever shall first occur;

It is admitted that the one clause in respect of which the farm property in the present estate may not qualify, is clause (c) of section 2 of the regulations. This inheritance and this farm cannot fit within all the requirements contained in that section and if the section is to apply, then the property cannot qualify as a family farm and the succession is properly charged.

However, Mr Thorsteinsson submits that clause 2(c) is ultra vires in that it goes far beyond the purposes for which the regulations were promulgated. The regulations, it is submitted, are confined to defining what is a “family farm’’, not what is a “child’’, or what is “property’’, which are already adequately defined in the statute. These definitions by regulation succeed only in cutting down the general definition and so cutting down the exemption and altering the tax liability. It is submitted that the reference to 95% of the property defines the nature of the interest that passes, and not the nature of a “family farm’’. A “family farm’’, Mr Thorsteinsson submits, is an interest in property, not 95% of an interest. To define it in percentage terms is not to make any definition at all.

Counsel submits further that to say, as it does in regulation 2(c), that a ‘family farm’’ means 95% of the farm passing outright to children who must operate the family farm for a period of time, is not to define “family” farm, but to assess the portion that must pass. “Outright” means the manner of passing, not the quality of the interest which goes to make up a family farm. Moreover, to define a child is simply that and has nothing to do with the farm itself. None of the definitions of “property”, “outright” or “individuals” have any reference to what is a “family farm”.

Clauses (a), (b) and (d) do refer to qualities that may define a family farm. Thus clause (a) provides that 95% of the farming assets must be physically located in British Columbia and 95% of the total value of its assets must be actively employed in farming. Clause (d) refers to the gross income from the farming operations as being at least 65% of the deceased’s total income prior to his death. Mr Thorsteinsson suggests that the farm could have been defined further as possessing a certain acreage or devoted to certain types of farming activity and as having been the family home for some years prior to the death of the deceased. But he submits that to define it as a 95% interest passing outright does not define a family farm, nor is it defined by referring to the child who is to carry on operating it.

In reply, Mr Smith submits there is no conflict between the Act and the regulations which are consequential and flow from the requisite section of the Act. Thus the Act does not attempt to define “property that is a family farm”, leaving that task entirely to the regulations.

The question posed by the statute may be stated as “What special attributes make property a family farm?” Mr Smith submits in answer that the words “95% of the property” and “outright” are words of definition and qualification that make the property into the nature of a family farm, by defining the property that passes, as a 95% interest going to the children outright who are going to operate the farm, that is to say without reservation. Only that property in the estate that goes to make up the family farm is exempt of duty; therefore, counsel submits, it is important to establish precisely the size, the continuity and the continued existence in the family unit of the property which is to be free from taxation.

As far as the children are concerned, all of the children to whom that interest has passed must operate the farm. This, Mr Smith says, has nothing to do with the nature of passing or manner of passing, or the definition of “children”. It says those to whom it passes must operate to make it a “family farm’’. It defines those children who qualify as beneficiaries of a “family farm’’ and it defines the farm as one operated by the children who inherited 95% of the estate and who will operate it for ten years. These are the factors which make the farm a “family farm’’.

Counsel referred me to several leading authorities respecting the extent to which regulations may extend or define the provisions in the statute and whether or not there have been excesses to the degree of rendering the regulations ultra vires. In the present case, the purpose of the regulations is defined in section 54 in these words:

54. For the purpose of carrying into effect the provisions of this Act according to their true intent or of supplying any deficiencies therein, the Lieutenant-Governor in Council may make such regulations not inconsistent with the spirit of this Act that may be considered necessary or justified, and, without limiting the generality of the foregoing, may make regulations. . .

and then follows a series of provisos of a more or less housekeeping nature. Almost the same words are to be found in the leading case of Gruen Watch Company of Canada Limited et al v Attorney-General of Canada, [1950] CTC 440 at 450; 4 DTC 784; [1950] 4 DLR 156 at 165; [1950] OR 429, where in the course of his judgment Chief Justice McRuer said:

The power conferred on the Minister is to make regulations confined to what “he deems necessary or advisable for carrying out the provisions of this Act” (the italics are mine). This does not give the Minister power to amplify the law, defining who are manufacturers of watches or who may be producers of watches adapted to household or personal use, nor does it give the Minister power to fix the base of taxation. This must be done by legislative authority.

And in the earlier case of Attorney-General of Canada v Coleman Products Co, [1929] 1 DLR 658, Mr Justice Wright said (at p 660):

I think it would be ultra vires of the Minister to make any regulation that would vary or modify or affect the positive declaration of the statute itself. The regulations I take it, are solely to point out the means by which the Act is to be enforced, not to place an interpretation or construction upon the Act itself.

In this province in cases decided under the Logging Tax Act, it has been held that where the statute already defines “income derived from logging operations’’, the regulations cannot re-define those words. See Re Whonnock Lumber Co Ltd and Minister of Finance (1970), 12 DLR

(3d) 298; and Re Lamford Cedar Ltd and Minister of Finance (1972), 25 DLR (3d) 210.

I was also referred by counsel to the recent decisions of the Supreme Court of Canada in Midwest Hotel Co Ltd v MNR, [1972] CTC 534; 72 DTC 6440, affirming the decision of Mr Justice Walsh in the Exchequer Court, [1970] CTC 482; 70 DTC 6316. The leading cases and principles are gathered in the judgment of Mr Justice Walsh at pages 488-9 [6320] where he quotes in part from a judgment of Maclennan, JA in Smylie v The Queen (1900), 27 OAR 172 at 174:

. . . if the regulation is not in accordance with the statute, . . . it must give way to the statute, and can confer no right beyond what the statute authorized . . .

I cannot see any conflict between the regulations and the statute in the present case. I agree with Mr Smith that the regulations do no more than define precisely the statutory provision. To the regulations is entrusted the task of laying down the qualities that will precisely fit a property to be classed as a “family farm’’. It must be borne in mind that only a “family farm’’ is entitled to exemption of taxation and to qualify as a “family farm’’ the property in question must meet certain criteria. It is reasonable to conclude that privilege is available only to a legitimate farm out of which a living is made, and since the exemption is being granted to permit a family of the deceased to continue to operate it as a farm, it is required to ensure that the farm is being operated by the family, and only by the family, without other encumbrances. Accordingly, the regulations lay down guidelines into which property must fit to qualify for the exemption.

In Attorney-General v Great Eastern Railway (1880), 5 App Cas 473 at 478 Lord Selburne said:

whatever may fairly be regarded as incidental to, or consequential upon, those things which the Legislature has authorized, ought not (unless expressly prohibited) to be held, by judicial construction, to be ultra vires.

So in the present case, the Lieutenant-Governor in Council is defining a “family farm’’ and in its regulations only putting in consequential aids to the statute. That is the intent and purpose of the regulations. I find that the regulation in question is not ultra vires, and the appeal therefore must be dismissed.