Estate of Paul Dontigny v. Her Majesty the Queen, [1973] CTC 529, 73 DTC 5398

Pratte, J:—This is an appeal from a decision of the Tax Review Board upholding the decision of the Minister of National Revenue tb claim an amount of $3,036.75 from the appellant by virtue of the Estate Tax Act, RSC 1970, c E-9.

The facts out of which the litigation arises are not in dispute. Moreover, at the start of the hearing, counsel for both parties placed on record a document entitled “Agreement as to the facts”, which it is pertinent to quote:

1. The death of Paul Dontigny occurred on or about May 12, 1970.

2. The late Paul Dontigny was domiciled at Cayamant Lake, in the county of Pontiac, in the province of Quebec.

3. He was the spouse of Georgette Rondeau.

4. According to the will dated March 13, 1953, (Exhibit E-1), sworn before Cléo Vaillancourt, notary, and appearing in his records as number 492, the late Paul Dontigny named Georgette Rondeau as his executrix.

5. The testator, Paul Dontigny, disposed of his property as indioated in clauses four and nine of the said will:

(TRANSLATION)

a) Clause four: I bequeath all my property, movable and immovable, without exception, that I may leave on my death, including life insurance policies in force at the time of my death, to my wife, GEORGETTE RONDEAU, whom I appoint as my residuary legatee: under the conditions mentioned in clause nine.

b) Clause nine: If my wife and residuary legatee does not remain a widow and remarries, I wish all my immovable property to devolve upon my children living at the time of the second marriage of their mother or, if there are no children living, upon the children of the latter.

6. The aggregate net value of the property left by the deceased is $85,395.76, $57,075.00 being immovable property.

7. By a Notice of Assessment dated May 17, 1971, the Minister of National Revenue advised the appellant that he had established a tax assessment of $3,036.75 by virtue of the Estate Tax Act.

8. The appellant appealed the assessment to the Tax Review Board, which dismissed the appeal in the judgment dated November 6, 1972.

9. The only question at issue may be formulated thus: is the value of the immovable property belonging to the deceased at the time of his death, and included in the calculation of the aggregate net value, deductible from the latter by virtue of paragraphs 7(1 )(a) or 7(1 )(b) of the Estate Tax Act for the purpose of establishing the aggregate taxable value?

Subsection 7(1) of the Estate Tax Act reads as follows:

7. (1) For the purpose of computing the aggregate taxable value of the property passing on the daeth of a person, there may be deducted from the aggregate net value of that property computed in accordance with Division B such of the following amounts as are applicable:

(a) the value of any property passing on the death of the. deceased to which his spouse is the successor that can, within six months after the death of the deceased or such longer period as may be reasonable in the circumstances, be established to be vested indefeasibly in his spouse for the benefit of such spouse, except any such property comprising a gift made by the creation of a settlement or the transfer of property to a trustee in trust;

(b) the value of any gift made by the deceased whether during his lifetime or by his will that can, within six months after the death of the deceased or such longer period as may be reasonable in the circumstances, be established to be absolute and indefeasible and that was made by him by the creation of a settlement under which

(i) the spouse of the deceased is entitled to receive

(A) all the income of the settlement that arises after the death of the deceased and before the death of such spouse, or

(B) periodic payments in ascertained amounts or limited to ascertained maximum amounts, to be made at intervals not greater than twelve months, out of the income of the settlement that arises after the death of the deceased and before the death of such spouse, or, if that income is completely exhausted by those payments, out of the income and capital of the settlement, and

(ii) no person except such spouse may receive or otherwise obtain, after the death of the deceased and before the death of such spouse, any of the capital of the settlement or any use thereof, or any of the income of the settlement to which such spouse is entitled or any use thereof,

Counsel for the appellant claimed that, in order to compute the aggregate taxable value of the property passing on the death of Mr Dontigny, the value of the immovables bequeathed to his wife under the terms of clauses four and nine of his will should, according to paragraph 7(1 )(a) just quoted, be deducted from the aggregate net value of his property. In support of this claim he advanced certain arguments which may, as I understood them, be summarized as follows:

1. Clauses 4 and 9 of the deceased’s will do not create a substitution

(a) because the will does not impose upon the legatee of the immovables the obligation of keeping the immovables so bequeathed;

(b) because the will does not impose upon the legatee of the immovables the obligation of giving the immovables to her children, but merely the option of so doing, since the legatee is free to remarry or not;

(c) because the will does not impose upon the legatee of the immovables the obligation to give them to her children at a specified date, but rather at the time of her remarriage.

2. In any case, at the death of Mr Dontigny his immovables became “vested indefeasibly in his spouse”, and consequently paragraph 7(1 )(a) authorizes the deduction claimed even if the will creates a substitution:

(a) Subsection 7(2) stipulates that a superannuation benefit payable to the spouse of a deceased, in respect of the death of the deceased, “subject to a provision that such benefit ceases to be payable to such spouse if he remarries, shall not, by reason only of such provision, be considered not to be vested indefeasibly in him”. This subsection indicates, according to counsel for the appellant, that in the eyes of the legislator, a legatee has indefeasible title to the property bequeathed even if he is to lose it in the event of his remarriage.

(b) There is not the slightest doubt, according to the definition given by subsection 62(1) for “property passing on the death” and “successor”, that, in the meaning of the act in question, the immovables of the deceased did pass to his spouse, whose title to them was indefeasible since she could only lose them in the event of her remarriage, in other words of her own volition.

(c) The legacy of immovables made to the wife on the condition that she not remarry is a legacy dependent on a condition declared void by Article 1081 of the Civil Code of the Province of Quebec.

(d) The legacy made to a spouse under charge of substitution permits the deduction allowed for in paragraph 7(1)(a) to be claimed in spite of the fact that this provision specifies that the value of property “comprising a gift made by the creation of a settlement” may not be deducted. In fact, since subsection 62(1) defines the term “settlement” as including “any deed . . . under or by virtue of which a usufruct or substitution is created”, it follows from paragraph 3(1 )(e) that this phrase refers only to substitutions created by a deed other than a will.

From this, counsel concluded that paragraph 7(1 )(a) authorizes the deduction claimed.

A brief examination of the claims which I have just summarized suffices to show that they are unfounded. It is obvious, for example, that contrary to the arguments advanced by counsel for the appellant, the meaning of the word “settlement” in section 7 is in no way modified by paragraph 3(1)(e). It would merely be a waste of time to endeavour to prove this.

It is also clear that the fourth and ninth clauses of the will of the deceased create a “substitution” in the sense understood by the Civil Code and constitute a “settlement” as understood by the Estate Tax Act. Under the terms of these clauses the testator bequeathed his immovables to his wife on the condition that she deliver them over to her children if she remarried. Contrary to the claim made by counsel for the appellant, the wife of the deceased did have the obligation to keep the immovables bequeathed to her: if she did not keep them, how could she deliver them over? She also has the obligation, not the option, to deliver all these immovables to her children in the event of her remarriage. Finally, if the widow remarries, she is to deliver her property over at the time of her remarriage; we are therefore dealing with a legacy in which the beneficiary is charged with delivering over the inheritance at a specified time (Article 925, Civil Code). The fact that the remarriage of the spouse may not take place serves only to make the substitution conditional, as described in the final paragraph of Article 929 of the Civil Code of the Province of Quebec* [1] Article 1081 of the Civil Code, far from declaring that such a condition is void; expressly confirms its validity.! [2]

It was therefore under charge of substitution that the widow of the deceased received the immovables which he bequeathed to ‘her. She would only ‘be eligible for the deduction claimed if the gift of which she was the beneficiary met the conditions described in paragraph 7(1)(b). However, under the circumstances it is indisputable that the widow of the testator does not have a right to the immovables bequeathed to her which satisfies these conditions.

Even if one were to say that the gift in question did not result from the creation of a substitution it would still be necessary to conclude that the appellant has no right to the deduction claimed. Under such circumstances the appellant could only . have obtained- a favourable decision if the immovables of the deceased had been “vested inde- feasibly in his spouse for the benefit of such spouse”, as required by paragraph 7(1)(a). As I interpret the law, the property is not “vested indefeasibly” in a spouse when it is bequeathed under the condition that the spouse not remarry. If it were otherwise, the provision of subsection 7(2) would be meaningless.

For these reasons the appeal is dismissed with costs.