Gibson,
J:—What
is
the
subject
matter
in
this
appeal
from
assessment
is
a
deemed
realization
of
a
gain
on
capital
property
consisting
of
certain
common
shares
in
Mastronardi
Produce
Limited
because
of
the
death
of
the
owner
of
these
shares
on
February
20,
1973
while
resident
in
Ontario.
Such
deemed
realization
of
a
gain
is
statutorily
created
by
subsection
70(5)
of
the
Income
Tax
Act.
By
reason
of
subsection
70(5)
of
the
Act,
the
deceased
owner
is
“deemed
to
have
disposed
[of
these
shares,
being
capital
property],
immediately
before
his
death,
.
.
.
and
to
have
received
proceeds
of
disposition
therefor
equal
to
the
fair
market
value
of
the
property
at
that
time”.
The
applicable
“rollover”
provision
in
respect
to
the
devisees
or
recipients
of
these
shares
from
the
estate
of
this
deceased
owner
at
the
material
time
was
section
70,
subsection
(5),
paragraph
(c)
of
the
Income
Tax
Act,
SC
1970-71-72,
c
63,
section
1,
which
read:
(c)
any
person
who,
by
virtue
of
the
death
of
the
taxpayer,
has
acquired
any
particular
capital
property
of
the
taxpayer
(other
than
depreciable
property)
that
is
deemed
by
paragraph
(a)
to
have
been
disposed
of
by
him
shall
be
deemed
to
have
acquired
it
at
a
cost
equal
to
its
fair
market
value
immediately
before
the
death
of
the
taxpayer;
Since
then,
section
70,
subsection
(5),
paragraphs
(a)
and
(c)
of
the
Income
Tax
Act
have
been
amended
by
SC
1973-74,
c
14,
section
19,
so
that
each
now
reads
as
follows:
(a)
the
taxpayer
shall
be
deemed
to
have
disposed,
immediately
before
his
death,
of
each
property
owned
by
him
at
that
time
that
was
a
capital
property
of
the
taxpayer
(other
than
depreciable
property
of
a
prescribed
class)
and
to
have
received
proceeds
of
disposition
therefor
equal
to
the
fair
market
value
of
the
property
at
that
time;
(c)
any
person
who,
by
virtue
of
the
death
of
the
taxpayer,
has
acquired
any
particular
capital
property
of
the
taxpayer
(other
than
depreciable
property
of
a
prescribed
class)
that
is
deemed
by
paragraph
(a)
to
have
been
disposed
of
by
him
at
any
time
shall
be
deemed
to
have
acquired
it
immediately
after
that
time
at
a
cost
equal
to
its
fair
market
value
immediately
before
the
death
of
the
taxpayer;
The
parties
have
agreed
to
certain
facts,
among
which
are
the
following:
The
Plaintiffs
were
confirmed
as
executors
and
trustees
under
the
Last
Will
and
Testament
of
the
late
Umberto
Mastronardi,
(hereinafter
referred
to
as
the
deceased),
by
Grant
of
Probate
dated
July
5,
1973
issued
by
the
Surrogate
Court
of
the
County
of
Essex
in
the
Province
of
Ontario.
.
.
.
The
deceased
died
suddenly
and
without
warning
of
cardiac
arrest
on
February
20,
1973
at
which
time
he
was
a
resident
of
the
Province
of
Ontario.
(Since
1972,
a
five-year
term
insurance
policy
on
the
life
of
the
deceased
Umberto
Mastronardi
in
the
face
amount
of
$500,000
reducing
by
$100,000
on
each
anniversary
date
was
owned
by
Mastronardi
Produce
Limited.)
(It
is
common
ground
that
prior
to
the
death
of
the
deceased,
because
of
the
special
provisions
of
this
term
life
insurance
policy,
an
informed
purchaser
of
the
shares
of
Mastronardi
Produce
Limited
would
not
pay
any
more
for
such
shares
of
that
company
than
he
would
have
if
that
company
did
not
own
this
term
life
insurance
policy.)
(Mastronardi
Produce
Limited
as
the
owner
of
this
term
life
insurance
policy
on
the
life
of
the
deceased
had
assigned
it
to
the
bank
at
the
time
of
death
of
the
deceased
but
such
assignment
is
irrelevant
for
the
purposes
of
this
appeal.)
In
accordance
with
subsection
70(5)
of
the
Income
Tax
Act
as
it
applied
during
the
1973
taxation
year,
the
deceased
was
deemed
to
have
disposed,
immediately
before
his
death,
of
311.4
common
shares
in
Mastronardi
Produce
Limited
and
to
have
received
proceeds
of
disposition
therefor
equal
to
the
fair
market
value
at
that
time.
Without
having
regard
to
any
value
attributable
to
the
life
insurance
policy
in
question
immediately
before
the
death
of
the
deceased
each
common
share
in
question
would
have
a
fair
market
value
equal
to
$323.58.
If
the
value
of
the
corporation’s
assets
were
deemed
to
be
increased
by
the
face
amount
of
the
life
insurance
policy
in
question
immediately
before
the
death
of
the
deceased
it
is
common
ground
that
each
common
share
held
by
the
deceased
would
have
a
fair
market
value
equal
to
$778.59.
The
Minister
of
National
Revenue
concluded
that
immediately
before
the
death
of
the
deceased
the
value
of
the
policy
was
not
less
than
$500,000.00
and
that
such
amount
would
have
to
be
taken
into
account
in
arriving
at
the
net
worth
of
the
company
and
hence
the
value
of
the
common
shares
immediately
before
the
death
of
the
deceased.
On
reassessing
the
deceased’s
estate
in
respect
of
the
deceased’s
1973
taxation
year,
notice
of
which
reassessment
was
dated
July
21,
1975,
the
Minister
of
National
Revenue
added
to
taxable
income
a
taxable
capital
gain
of
$70,845.05
in
respect
of
the
deemed
disposition
of
311.4
shares
of
Mastronardi
Produce
Limited
at
$778.59
per
share
less
the
valuation
day
value
per
share
which
was
$323.58.
Among
other
things,
the
plaintiffs
submitted
that
the
capital
property
of
the
deceased
represented
by
the
common
shares
of
Mastronardi
Produce
Limited
owned
by
the
deceased
had
a
fair
market
value
equal
to
$323.58
per
share
immediately
before
the
death
of
the
deceased
and
that
no
regard
should
be
had
to
any
value
which
might
be
added
to
the
value
of
such
shares
attributable
to
the
said
term
life
insurance
policy
owned
by
Mastronardi
Produce
Limited
in
the
amount
of
$500,000.
The
respondent
in
the
pleadings
submitted
that:
.
.
.
immediately
before
the
death
of
the
deceased,
the
term
insurance
policy
on
his
life,
which
was
owned
by
Mastronardi
Produce
Ltd,
had
a
value
of
$500,000.00,
and
that
accordingly
such
value
is
to
be
considered
in
the
determination
of
the
fair
market
value
of
the
shares
in
Mastronardi
Produce
Lid
which
the
deceased
was
deemed
to
have
disposed
of
pursuant
to
subsection
70(5)
of
the
Income
Tax
Act.
In
the
present
Income
Tax
Act,
for
the
first
time,
there
was
enacted
a
scheme
of
taxation
in
respect
to
capital
gains
and
capital
losses.
(At
the
same
time,
the
federal
estate
tax
was
abolished.)
The
provisions
in
respect
to
capital
gains
or
losses
apply
in
relation
to
the
disposition
of
property
not
included
in
income
under
paragraph
3(a)
of
the
Act.
Some
dispositions
provided
for
in
the
Act
are
fictional
dispositions.
The
capital
gain,
the
subject
of
this
appeal,
as
stated,
is
the
deemed
realization
of
these
shares,
which
deemed
realization
is
statutorily
created
by
the
provisions
of
subsection
70(5)
of
the
Income
Tax
Act.
The
provisions
of
subsection
70(5)
of
the
Act
require
valuation.
of.
these
shares
(1)
“immediately
before”
the
death
of
the
deceased,
and
(2)
“equal
to
the
fair
market
value
of
[these
shares]
.
..
at
that
time”.
Speaking
generally,
section
70,
subsection
(5)
of
the
Income
Tax
Act
applies
not
only
to
capital
property
which
appreciates
after
death
but
also
to
capital
property
which
depreciates
after
death.
For
example,
in
the
case
of
a
joint
tenancy
of
land,
on
the
death
of
one
joint
tenant,
that
interest
disappears
and
the
capital
property
the
joint
tenant
held
during
his
lifetime
depreciates
100%
after
his
death.
This
result
also
obtains
in
other
situations
as
for
example
in
the
case
of
a
life
interest
not
secured
by
way
of
trust
or
to
any
other
right
being
capital
property
that
ceases
on
death.
In
this
case,
after
the
death
of
the
deceased
Mastronardi
Produce
Limited
obtained
the
proceeds
of
the
said
$500,000
term
life
insurance
policy
which
appreciated
the
fair
market
value
of
the
shares
of
that
company
from
an
amount
equal
to
$323.58
per
share
to
a
fair
market
value
equal
to
$778.59
per
share.
In
the
process
of
interpreting
this
statutory
provision
in
relation
to
of
this
case,
it
is
apparent
that
there
is
a
two-step
fiction
enacted
by
section
70,
subsection
(5)
of
the
Act.
The
first
fiction
is
that
the
taxpayer
after
he
dies
is
deemed
to
have
disposed
of
the
subject
property
“immediately
before
his
death”.
The
second
fiction
is
that
he
is
deemed
“to
have
received
proceeds
of
disposition
therefor
equal
to
the
fair
market
value
of
the
property
at
that
time”.
The
problem
is
to
determine
what
was
the
legislative
concept
of
section
70,
subsection
(5)
of
the
Act
and
apply
such
to
the
facts
of
this
case.
The
submission
of
the
defendant
in
relation
to
the
shares
of
Mastronardi
Produce
Limited
is
that
they
should
not
be
valued
anterior
to
the
death
of
the
deceased.
Instead,
the
submission
is
that
the
words
in
section
70,
subsection
(5)
of
the
Act
“immediately
before
his
death”
are
equivalent
in
meaning
and
intent
to
the
instant
of
death.
On
that
assumption
then,
it
is
submitted
that
the
price
that
would
be
paid
for
each
of
the
shares
in
a
transaction
between
an
informed
vendor
and
an
informed
purchaser
would
be
$778.59
because
at
the
instant
of
death
an
informed
purchaser
would
know
that
the
company
would
receive
the
$500,000
proceeds
from
the
said
term
life
insurance
policy.
On
the
other
hand,
the
plaintiffs
submit
that
the
words
in
that
subsection
“immediately
before
his
death”
refer
to
a
span
of
time
before
death
which
is
relevant
in
determining
the
fair
market
value
of
these
shares
of
the
subject
private
company.
A
number
of
English,
Australian
and
Canadian
authorities
were
submitted
by
the
parties,
but
none
of
them
are
of
substantial
assistance
in
determining
the
legislative
concept
of
section
70,
subsection
(5)
of
the
Income
Tax
Act.
However,
after
careful
consideration
of
these
authorities,
of
the
provisions
of
section
70,
subsection
(5)
of
the
Income
Tax
Act,
both
as
it
appeared
in
SC
1970-71-72,
c
63
and
as
it
appeared
in
SC
1973-74,
c
14
and
of
the
facts
of
this
case,
I
have
come
to
the
following
conclusions:
The
words
“immediately
before
his
death”
in
section
70,
subsection
(5)
of
the
Income
Tax
Act
should
not
be
construed
as
meaning
the
equivalent
of
the
instant
of
death;
and
also
those
words
do
not
import
a
necessity
of
valuing
capital
property
taking
into
account
the
imminence
of
death.
In
the
subject
case,
at
the
date
of
death
of
the
deceased
Umberto
Mastronardi,
section
70,
subsection
(5)
of
the
Act,
SC
1970-71-72,
c
63,
prescribed
that
the
deemed
realization
took
place
“immediately
before
[the
deceased’s]
.
.
.
death”
and
that
at
that
time,
as
owner,
he
was
deemed
‘‘to
have
received
proceeds
of
disposition
therefor
equal
to
the
fair
market
value
of
the
property
at
that
time”.
And
the
“rollover”
provision
at
the
date
of
death
of
the
deceased
in
respect
to
the
recipients
or
the
devisees
in
this
case
of
these
shares
from
the
estate
of
this
deceased
owner
was
section
70,
subsection
(5),
paragraph
(c)
of
the
Income
Tax
Act,
SC
1970-71-72,
c
63
and
it
provided
that
these
persons
“acquired”
these
shares
“that
is
deemed
by
paragraph
(a)
to
have
been
disposed
of
by
him
shall
be
deemed
to
have
acquired
[these
shares]
.
.
.
at
a
cost
equal
to
its
fair
market
value
immediately
before
the
death
of
the
taxpayer”.
In
my
view,
therefore,
in
this
case,
both
such
valuations
must
be
considered
as
having
taken
place
at
some
other
time
rather
than
at
the
instant
of
death
of
the
deceased
and
no
premise
of
imminence
of
death
of
the
deceased
should
form
any
part
of
such
valuations.
It
follows,
therefore,
as
a
result
and
I
so
find
that
the
defence
as
pleaded
is
untenable,
namely
that
“immediately
before
the
death
of
the
deceased,
the
term
insurance
policy
on
his
life,
which
was
owned
by
Mastronardi
Produce
Ltd,
had
a
value
of
$500,000.00,
and
that
accordingly
such
value
is
to
be
considered
in
the
determination
of
the
fair
market
value
of
the
shares
in
Mastronardi
Produce
Ltd
which
the
deceased
was
deemed
to
have
disposed
of
pursuant
to
subsection
70(5)
of
the
Income
Tax
Act’’.
On
the
contrary,
the
finding
is
that
no
value
of
this
term
insurance
policy
is
to
be
considered
in
the
determination
of
the
fair
market
value
of
these
shares.
Accordingly,
this
appeal
is
allowed
and
the
assessment
is
referred
back
for
further
reassessment,
not
inconsistent
with
these
Reasons.
The
plaintiffs
are
entitled
to
costs.
Either
party,
by
appearance
of
counsel
or
under
Rule
324,
may
move
for
judgment
based
on
these
Reasons.
Judgment
shall
not
issue
until
settled
by
the
Court.
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