Her Majesty the Queen v. Knut Myre, Royal Norwegian Consul General, Attorney for Knut Eide, Administrator of the Estate of Severine Dalsoren Eide, Deceased, [1974] CTC 353

Collier, J:—This is an appeal by the plaintiff from a judgment of the Tax Review Board in respect of estate tax. The Minister of National Revenue included in the aggregate value of all taxable property under subsection 34(1) of the Estate Tax Act, SC 1958, c 29, as amended, an amount of $36,564.86. Tax in the amount of $5,484.73 and interest of $712.30 was assessed on this amount. The defendant successfully appealed that assessment to the Tax Review Board.

An agreed statement of facts was filed on this appeal. Elias Andersen Dalsoren died intestate on December 19, 1965, domiciled in British Columbia. He left a gross estate of $44,552.78. W N Poole, an Official Administrator, was appointed administrator of the Dalsoren estate on January 14, 1966. Severine Dalsoren Eide was the aunt and only heir-at-law. She was domiciled in Norway. She died there on October 15, 1967.* [1] At her death, the administrator of the Dalsoren estate had:

(a) converted all property of the estate into cash;

(b) paid the outstanding debts of the estate;

(c) ascertained that Severine Dalsoren Eide was at all material times the sole person beneficially entitled to share in the distribution of the property of the estate; and

(d) paid on March 16, 1966 the succession duties and probate fees which were payable in respect of the estate pursuant to the Succession Duty Act and Probate Fees Act of the Province of British Columbia in accordance with their respective provisions, leaving available to him $36,564.86 for distribution to the lawful heir, Severine Dalsoren Eide.

At the date of death of Mrs Eide, no distribution had been made by Dalsoren’s administrator.

In the case of the death, after December 31, 1958, of a person domiciled outside of Canada, section 34 of the Estate Tax Act imposed a tax on the aggregate value of all taxable property, “being property situated in Canada at the time of his death, the value of which would, if that person had been domiciled in Canada at the time of his death, be required by this Act to be included in computing the aggregate net value of the property passing on his death”. It seems to me there are two essentials before tax is attracted by virtue of this section, and for clarity, I relate them to the facts here:

(a) the taxable property (Mrs Eide’s interest in the Dalsoren estate) be situated in Canada at the time of her death; and

(b) assuming Mrs Eide to have been domiciled in Canada at the date of her death, the value of her interest in the Dalsoren estate would have been required to be included in computing the aggregate net value of property passing on her death.

The problem in this assessment is in respect of (a), the situs of whatever interest Mrs Eide had in the Dalsoren estate in the state or form that estate was in at the time of her death.

Certain other provisions of the statute are relevant:

58. (1) In this Act,

(o) "property” means property of every description whatever, whether real or personal, movable or immovable, or corporeal or incorporeal, and without restricting the generality of the foregoing, includes any estate or interest in any such property, a right of any kind whatever and a chose in action;

38. For the purposes of this Part, (the Part dealing with estate of persons domiciled outside Canada) the situs of any property, including any right or interest therein of any kind whatever, shall, where that property comes within any of the classes of property mentioned in this section, be determined in accordance with the following rules:

(b) tangible movable property (except any right or interest therein by way of security and except any tangible movable property for which specific provision is made in any subsequent paragraph of this section), and, in any case, bank or currency notes and other forms of currency recognized as legal tender in the place of issue, shall be deemed to be situated in the place where such property was located at the time of death, or, if in course of transit at that time, in the place of intended destination;

(n) rights or causes of action ex delicto surviving to the benefit of the estate of any deceased or his legal representative shall be deemed to be situated in the place where such rights or causes of action arose, and other rights or causes of action so surviving shall be deemed to be situated in the place where, at the time of the death of the deceased, the person against whom the right or cause of action is enforceable was ordinarily resident;

The plaintiff submits it is unnecessary to go beyond paragraph (b) of section 38. It is urged that the Dalsoren estate, at the key time, was for practical and legal purposes, an administered estate. The fact that the net balance of the estate had not physically been turned over to the heir-at-law is said to be not essential. This was tangible moveable property held in trust for Mrs Eide by Dalsoren’s administrator. Its situs was in Canada. Mrs Eide had a beneficial interest in that trust property.

I think the position advanced on behalf of the plaintiff is correct. The leading decision cited, Commissioner of Stamp Duties (Queensland) v Livingston, [1965] AC 694 (HL) and the cases therein referred to, are not on all fours with the facts here. The estates under consideration there were unadministered estates. The Privy Council in the Livingston case considered the rights of persons having an interest in an administered estate and an unadministered estate. In so doing, the Committee, in my view, supplied guidelines as to when, in law, an estate might be considered to be “administered” (p 704):

The testator’s assets consisted of real and personal estate in New South Wales and real and personal estate in Queensland. Mrs Coulson died on July 8, 1950, intestate, having married her second husband on June 22, 1950. She thus survived her first husband by less than two years, and at the date of her death his estate was still in the course of administration, no clear residue had been ascertained, and, consequently, no final balance payable or attributable to the shares of residuary beneficiaries had been determined. It is essential to the decision of this case that Mrs Coulson’s rights at her death were the rights of a person Interested in a dead man’s unadministered estate.

And at pages 706-8:

What, then, could be the “beneficial interest in property” that was charged by this Act as the subject of a succession on Mrs Coulson’s death? .. . . One way or the other then, if there Is to be a taxable succession, it must be because she died owning a beneficial interest in real property In Queensland or had beneficial personal property interests locally situate in Queensland. This is the way in which the issue has been posted in the judgments of the High Court of Australia, and in their Lordships’ view it is the correct formulation of the problem.

When Mrs Coulson died she had the interest of a residuary legatee in the testator’s unadministered estate. The nature of that interest has been conclusively defined by decisions of long-established authority, and its definition no doubt depends upon the peculiar status which the law accorded to an executor for the purposes of carrying out his duties of administration. There were special rules which long prevailed about the devolution of freehold land and its liability for the debts of a deceased, but subject to the working of these rules whatever property came to the executor virtute officii came to him in full ownership, without distinction between legal and equitable interests. The whole property was his. He held it for the purpose of carrying out the functions and duties of administration, not for his own benefit; and these duties would be enforced upon him by the Court of Chancery, if application had to be made for that purpose by a creditor or beneficiary interested in the estate. Certainly, therefore, he was in a fiduciary position with regard to the assets that came to him in the right of his office, and for certain purposes and in some aspects he was treated by the court as a trustee. “An executor,” said Kay J in In re Marsden, “is personally liable in equity for all breaches of the ordinary trusts which in Courts of Equity are considered to arise from his office.” He is a trustee “in this sense.”

lt may not be possible to state exhaustively what those trusts are at any one moment. Essentially, they are trusts to preserve the assets, to deal properly with them, and to apply them in a due course of administration for the benefit of those interested according to that course, creditors, the death duty authorities, legatees of various sorts, and the residuary beneficiaries. They might just as well have been termed “duties in respect of the assets” as trusts. What equity did not do was to recognise or create for residuary legatees a beneficial interest in the assets in the executor’s hands during the course of administration. Conceivably, this could have been done, in the sense that the assets, whatever they might be from time to time, could have been treated as a present, though fluctuating, trust fund held for the benefit of all those interested in the estate according to the measure of their respective interests. But It never was done. It would have been a clumsy and unsatisfactory device from a practical point of view; and, indeed, it would have been in plain conflict with the basic conception of equity that to impose the fetters of a trust upon property, with the resulting creation of equitable interests in that property, there had to be specific subjects identifiable as the trust fund. An unadministered estate was incapable of satisfying this requirement. The assets as a whole were in the hands of the executor, his property; and until administration was complete no one was in a position to say what items of property would need to be realised for the purposes of that administration or of what the residue, when ascertained, would consist or what its value would be. Even in modern economies, when the ready marketability of many forms of property can almost be assumed, valuation and realisation are very far from being interchangeable terms.

At the date of Mrs Coulson’s death, therefore, there was no trust fund consisting of Mr Livingston’s residuary estate in which she could be said to have any beneficial interest, because no trust had as yet come Into existence to affect the assets of his estate. . . .

Page 711:

. . . The law as they there stated It was reaffirmed by the House In the same terms In Dr Bernardo's Homes v Special Income Tax Commissioners. It is sufficient to quote two short passages from speeches in that case. Viscount Finlay said: “. . . the legatee of a share in the residue has no interest in any of the property of the testator until the residue has been ascertained. His right is to have the estate properly administered and applied for his benefit when the administration is complete”; while Viscount Cave says: “When the personal estate of a testator has been fully administered by his executors and the net residue ascertained the residuary legatee is entitled to have the residue, as so ascertained, with any accrued Income, transferred and paid to him; but until that time he has no property in any specific investment forming part of the estate or in the income from any such investment, and both corpus and income are the property of the executors and are applicable by them as a mixed fund for the purposes of administration.”

Page 717:

. . . . It is idle to use such phrases as . . . that she had an ‘interest’ -. in this estate.” If the present appeal is tried by this test, which they accept

as the correct one, their Lordships regard it as clearly established that Mrs Coulson was not entitled to any beneficial interest in any property in Queensland at the date of her death. What she was entitled to in respect of her rights under her deceased husband’s will was a chose in action, capable of being invoked for any purpose connected with the proper administration of his estate; and the local situation of this asset, as much under Queensland law as any other law, was in New South Wales, where the testator had been domiciled and his executors resided and which constituted the proper forum of administration of his estate.

For these reasons their Lordships agree with the view of the law that Is expressed in the opinions of those members of the High Court, Fullagar, Kitto and Menzies JJ, who formed the majority on this appeal. They have studied, too, the reasoning. of the Supreme Court of Canada on a similar issue in In re Steed and Raeburn Estates; Minister of National Revenue v Fitzgerald, and they note that the views that they have expressed in this opinion coincide with the judgments delivered by four out of five of the members of that court.

In the present case, I conclude the Dalsoren estate was administered at Mrs Eide’s death. Her beneficial interest in it-was tangible moveable property located in Canada (paragraph (b) of section 38). It was therefore taxable under section 34 of the statute.

Even if the Dalsoren estate were considered to be an unadministered estate, I am of the view Mrs Eide’s right in it, at the time of her death, fell within paragraph (n) of section 38. As was said by the Judicial Committee in one of the passages quoted from the Livingston case (supra), dealing with the widow’s rights in her husband’s unadministered estate: “What she was entitled to in respect of his rights under her deceased husband’s will was a chose in action, capable of being invoked for any purpose connected with the proper administration of his estate; and the local situation of this asset . . . was in New South Wales where the testator had been domiciled and his executors resided and which constituted the proper forum of administration of his estate.”

Counsel for the defendant contends the right or chose in action here was one properly enforceable or exercisable in Norway. Reliance was placed on certain portions of the reasons for judgment delivered in the Supreme Court of Canada in MNR v Fitzgerald, [1949] SCR 453; [1949] CTC 101; 49 DTC 580. I cannot accept the defendant’s interpretation of the Fitzgerald case. When properly analysed, it seems to me to support the conclusion that Mrs Eide’s right was enforceable only in Canada, and therefore her interest was properly taxable. It is necessary to set out the facts of the Fitzgerald case (supra). One Bonnie Steed was entitled under the will of her sister to the residue of her estate. It consisted largely of real estate in Vancouver which was not realized into cash until 1945. Bonnie Steed died in 1941 domiciled in California. Her will bequeathed all her property to her husband George Steed and named him executor. George Steed died several months after his wife. At the date of his death no proceedings to prove his wife’s will had been taken in California, although probate had earlier been granted to him in British Columbia, limited to his wife’s estate there. George Steed at his death was domiciled in California, leaving all his property by will to a nephew, Raeburn. Raeburn was killed in December 1944, domiciled also in California. Raeburn by his will divided among various people what he had inherited from his uncle.

The question before the Supreme Court of Canada was whether there was “property situated in Canada” within section 6 of the Succession Duty Act, firstly upon the death of George Steed, and secondly upon the death of Raeburn. Kerwin, J said at page 457 [122-3]:

However, the important date so far as George Steed is concerned Is that of his death, August 16, 1944. Upon his death, all that any one claiming under him was entitled to, in relation to the Vancouver real estate of Adolphus Williams, was a right to have the estate of Bonnie Steed administered. The crux of the matter is to ascertain where that right was naturally and properly: enforceable, per Lopes and Kay LJJ in the Court of Appeal in Sudeley v Attorney General, [1896] 1 QB 354, whose judgments were explicitly approved in the House of Lords [1897] AC 11. That right was the property which devolved upon the death of George Steed, and that property had its situs, not in Canada, but in Bonnie Steed’s domicile, California. . . . Upon George Steed’s death there was no personal representative of Bonnie Steed in Canada. Neither, it is true, was there one in California but that was her domicile, and the right of any one claiming under George. Steed to have the estate of the latter’s wife administered was naturally and properly enforceable in the country of her domicile. . . .

and at page 460 [125]:

. . . All that devolved upon . . . [Steed’s] death was a right to have the estate of Bonnie Steed administered; and that right was a chose in action properly enforceable and therefore situated in California and not in Canada.

Kellock, J said at pages 468-9 [110-12]:

There is a further consideration which confirms the view to which I have come, as above expressed. In. Lord Sudeley v Attorney-General, [1897] AC, a case dealing with probate duty, it was held that the residuary legatee of a testator who died domiciled in England where his estate was undergoing administration, but whose property included mortgages on real property in New Zealand, was not entitled to any part of the mortgages In specie but to require the testator’s executors to administer his personal estate and to receive her share and that this was an English asset of the estate of the residuary beneficiary. The judgment of Lopes, LJ, in the Court of Appeal, [1896] 1 QB 354, was approved. At p 363 that learned judge said:

“The right of the executors of Frances (the widow and residuary legatee of the testator) as against the executors of her husband is a right to have his estate administered. Administration where? The husband was domiciled in England, his will was proved in England, his executors are in England, and his estate is being administered in England, and the money recoverable will be brought to England. The executors of the husband can only be sued in the English Courts by the executors of Frances. It is an English chose in action, recoverable in England, and is, in my Opinion, an English and not a foreign asset, . . .”

With respect to estate duties in England the law is thus stated in Dymond on Death Duties, 10th Edition, at page 93:

“In tho case of absolute interests in an unadministered estate the right of a residuary legatee, under English law and many other legal systems, is not to the specific assets of the testator. He is entitled merely to require the executors to administer the estate, and to pay him the clear residue, or a share thereof, as the case may be. The same rule applies under an intestacy. If, therefore, a residuary legatee or person entitled under an intestacy dies while the original estate is still under administration, the locality of his interest, as an asset in his estate, is determined by the residence of the debtors, viz, the personal representatives of the original testator or intestate (Sudeley v A-G, [1897] AC 11; Barnardo’s Homes v Special Commissioners of Income Tax, [1921] 2 AC 1; Re Steinkopff, Favorke v Steinkopff, [1922] 1 Ch 174), and by the forum of administration, the latter being determined by the domicile of the testator or intestate. . . .

if the question be looked at therefore in accordance with the view of the text writer, the locality of the interest of George Steed in the estate of his deceased wife was situate in California, where the executor was domiciled and where the main administration would proceed. . . .

On the facts of this case, the right or cause of action in question is in respect of the Dalsoren estate, not Mrs Eide’s estate. Those rights arose in Canada and were enforceable only in Canada where the administrator was ordinarily resident (see paragraph (n) of section 38)..

Counsel for the defendant urged that to support the assessment here meant supporting the imposition of a tax caused, in effect, by the delay of an administrator in turning over the net residue of Dal- soren’s estate to Mrs Eide. If this had been done, as apparently it could have before the date of her death, then the question of estate tax would, of course, never have arisen. It is said, delay situations of this kind. could lead to numerous or successive taxations.

While one may sympathize in this particular case, the function of the Court is to apply the law, where as I see it in this case, the law is clear.

The appeal from the Tax Review Board is allowed. The assessment of the Minister is restored. The tax gatherer here has received what I might term a small windfall. The plaintiff is entitled, if she insists, to recovery of the costs of this appeal.