Vingood Realty Company Limited v. Minister of National Revenue, [1976] CTC 2224, 76 DTC 1173

A W Prociuk:—The appellant corporation appeals from the respondent’s reassessment for the taxation years 1970 and 1971 wherein it was taxed on the basis that it was not a personal corpora- tion within the provisions of section 68 of the Income Tax Act, as it was then in force. The appellant’s ground of appeal is that it was a personal corporation in the said years since the executors of the J H Vineberg Estate fall within the meaning of the term “individual” as it is used in the said section 68 and accordingly control the appellant corporation on behalf of the family of the deceased.

The late Joseph Hirsch Vineberg, the principal shareholder of the appellant, died on or about December 24, 1967, testate, having named his sons N S Vineberg and L V Vineberg, and his daughter L R Betcherman, all of Ottawa, Ontario, his executors. The appellant corporation, during the material time herein, held a commercial building on Rideau Street in Ottawa. The deceased in his lifetime controlled a retail enterprise, Larocque (Ottawa) Limited, which was located in the above referred to commercial building. Larocque (Ottawa) Limited controlled the appellant corporation.

Thus, during the material time herein, the common shares of the appellant company were held as follows:

The common shares in Larocque (Ottawa) Limited during the same period were as follows:

The last will and testament of the deceased, dated September 12, 1960, was duly probated on September 10, 1968. The pertinent portion thereof reads as follows:

3. I GIVE, DEVISE AND BEQUEATH all my estate, both real and personal, of which I am seised (sic) or possessed or entitled, or over which I have any power of appointment, unto my said Trustees upon the following trusts:—

(c) All the rest and residue of my estate, I give, devise and bequeath, share and share alike, to my three children, Lloyd Volney Vineberg, Nordau Spencer Vineberg and Lita Rose Betcherman, and to my natural born grandchildren who may be living at the date of my death, and each of my grandchildren are to receive the same share as each of my own children. At the time of the making of this my will such division of the said rest and residue of my estate would consist of eight parts.

5. As a considerable portion of my estate is composed of preferred and common shares of Larocque (Ottawa) Limited, Vingood Realty Co Limited and Vinmont Investments Limited, I direct that any shares to which my grandchildren may be entitled while under the age of twenty-one years shall be voted at all meetings of the said Companies by my son, Lloyd Voiney Vineberg, on behalf of Robert Andrew Vineberg, or any further natural born child of his and by my daughter, Lita Rose Betcherman, on behalf of her children or any future natural born children of hers. As each of my grandchildren reach the age of twenty-one years, the shares to which he or she may be entitled shall be transferred and registered in the name of such grandchild or grandchildren. It is my intention and I so direct that the shares of each of my natural born grandchildren in the rest and residue of my estate shall be turned over to them as they respectively reach the age of twenty-one years.

The three children of the deceased and five natural born grand- children all survived him. Accordingly, the beneficial owners of the shares in Larocque (Ottawa) Limited, during the period in question, were as follows:

The preferred shares issued and outstanding are of no consequence herein.

For the purpose of convenience I quote section 68 of the Income Tax Act, as it was then in force:

68. (1) In this Act, a “personal corporation” means a corporation that, during the whole of the taxation year in respect of which the expression is being applied,

(a) was controlled, whether through holding a majority of the shares of the corporation or in any other manner whatsoever, by an individual resident in Canada, by such an individual and one or more members of his family who were resident in Canada or by any other person on his or their behalf;

(b) derived at least one-quarter of its income from

(i) ownership of or trading or dealing in bonds, shares, debentures, mortgages, hypothecs, bills, notes or other similar property or an interest therein,

(ii) lending money with or without securities,

(iii) rents, hire of chattels, charterparty fees or remunerations, annuities, royalties, interest or dividends, or

(iv) estates or trusts; and

(c) did not carry on an active financial, commercial or industrial business.

(2) For the purpose of paragraph (a) of subsection (1), the members of an individual’s family are his spouse, sons and daughters whether or not they live together.

(3) Where both section 67 and subsection (4) of section 81 provide that a dividend or a part thereof is not to be included in computing the recipient’s income, section 67 only shall be regarded as so providing.

(4) Where it has been determined for the purpose of subsection (1) of section 13 that a corporation’s chief source of income for a taxation year is neither farming nor a combination of farming and some other source of income, its farming business shall be deemed, for the purpose of paragraph

(c) of subsection (1), not to have been during the year an active financial, commercial or industrial business.

It will be observed that the three executors as one entity held the shares on behalf of eight individuals. No one individual together with one or more members of his or her family, resident in Canada, could exercise control in the appellant corporation.

In the case of Settled Estates Ltd v MNR [1960] CTC 173; 60 DTC 1129, Mr Justice Judson of the Supreme Court of Canada, at page 176 [1130] states as follows:

The argument is that since an individual means a person (other than a corporation) and as the definition of “person” includes executors and legal representatives, it follows that the executors of the Fiddes estate are individuals and that having had the requisite control and ali the other requirements of Section 68(1) having been met, the appellant company was in 1955 and 1956 a personal corporation.

I have no hesitation in rejecting this argument. The executors controlled this company during the taxation years in question on behalf of the beneficiaries of the estate. This, in my opinion, is not one of the three modes of control contemplated by Section 68(1 )(a). The three modes of control are:

(i) by an individual resident in Canada;

(ii) by such an individual and one or more members of his family who were resident in Canada (family being defined by statute);

(iii) by any other person on his or their behalf.

In my opinion, the individual first referred to must be a natural living person exercising control on his own behalf. The word does not include executors, whether corporate or otherwise. I say this because that individual first referred to is next referred to in connection with his family. There is no room for executors, whether corporate or otherwise, in this scheme of control. The last mode of control is by any other person on behalf of an individual or on behalf of the individual and members of his family. I can think of situations where executors could exercise control under this third mode of control, for example, if T dies leaving all his shares in a personal corporation to executors and trustees in trust for an individual or for that individual and members of his family. But this is not the present case. Under the terms of the Will left by the late Mr Fiddes, the executors control on behalf of numerous beneficiaries. They do not control on behalf of an individual or the individual and members of his family. My conclusion therefore is that an executor cannot be the individual referred to in Section 68(1 )(a).

The appellant corporation, during the lifetime of its principal shareholder, the late Joseph Hirsch Vineberg, was treated as a personal corporation. However, at the material time herein, for reasons stated above, with particular reference to share distribution, I cannot see how the appellant can be regarded as a personal corporation.

The appeal accordingly is dismissed.

Appeal dismissed.