Herbert Victor Tyrell Estate v. Treasurer of Ontario, [1962] CTC 72

MCLENNAN, J.:—This is an appeal under the provisions of Section 34 of The Succession Duty Act, R.S.O. 1960, c. 386. The appellant National Trust Company Limited is a trustee of the will of the deceased who died in 1942. The appellant Harrison is a daughter of the deceased.

By his will the deceased directed that the income from the residue of his estate be paid to his wife for life and then the income be paid to his daughter, the appellant Harrison, for her life, with the remainder over. The widow died on January 9, 1958, and as of that date the appellant Harrison became entitled to the income from the residue. Both life incomes were subject to powers of encroachment.

The appellant National Trust Company is charged under the will with the payment of all succession duties payable on any gift or benefit given by the will.

At the death of the deceased, the life interest of the widow was valued and duty was paid thereon. One of the constituent elements used in arriving at a valuation of the life income was the value of the residue at the date of the death of the deceased.

Following the death of the widow, the respondent obtained from the appellant National Trust Company Limited the market value of the residue as at the date of the widow’s death. This residue had increased in value from approximately $141,000 to approximately $313,000 in the period from 1942 to 1958. The respondent valued the life interest of the appellant using this larger sum, which increased the amount of duty by $16,579 from the figure payable if the value at the death of the deceased'had been used in that calculation. The question is whether, on a true construction of The Succession Duty Act, the 1958 valuation should be used or the value at the date of death of the deceased.

Other points as to whether the increased rates applied in calculating, under the statute, the duty on the life interest of the appellant Harrison and on past encroachments on corpus were also discussed but, in view of the conclusion I have come to, it is unnecessary to deal with those matters.

The general rule is that the dutiable value, defined in Section 1(g), of property passing upon the death and upon which succession duty is levied, is determined at the date of death of the deceased (Section 6(a)). However, in Section 16, which, generally speaking, deals with the time when payment of duty is due and to be made, contains an exception to that general rule and a time is fixed for calculation of value other than the testator’s death with reference to interests in expectancy in the circumstances described in subsection (5) of Section 16.

Section 16 reads as follows:

“16. (1) Unless otherwise provided, duty shall be due at the death of the deceased and paid within six months thereafter and if the duty or any part thereof is paid within such period no interest is chargeable or payable on the amount so paid.

(2) Where any annuity, term of years, life estate or income is created by the will of the deceased or by any disposition, the duty for which any person who benefits by such annuity, term of years, life estate or income is liable with respect thereto shall, unless otherwise provided, be paid in a number of equal annual instalments equal to,

(a) the number of years,

(i) of expectancy of life of such person, ascertained as provided in subsection 4 of section 3, or

(ii) for which such annuity, term of years or income is to run as the case may be; or

(b) ten,

whichever is the lesser, and such instalments shall commence one year after the death of the deceased.

(3) Where the deceased had any interest in expectancy, the duty levied on such interest in expectancy or on the person to whom there is a transmission or to whom a disposition is made of such interest in expectancy may be paid as provided by subsection 1 or in the manner provided by subsection 5 or 7.

(4) Where any interest in expectancy is created by the will of the deceased or by any disposition, the duty for which any person who benefits by such interest in expectancy is liable with respect thereto may be paid as provided by subsection 1 or in the manner provided by subsection 5 or 7.

(5) The duty mentioned in subsections 3 and 4, if not paid within the time provided by subsection 1, is due when such interest in expectancy falls into possession and shall be paid within three months thereafter on the basis of the value at the date of falling into possession of the property in respect to which such interest in expectancy existed, and no deduction shall be made for any duty paid on or with respect to any prior interest, income or annuity arising out of the property in respect of which such interest in expectancy exists.

(6) Notwithstanding subsections 3, 4, 5 and 7, the duty mentioned in subsections 3 and 4 may, with the consent of

&

the Treasurer, be paid after the time provided by subsection 1 and before such interest in expectancy falls into possession and shall be on the basis of the value of such interest in expectancy ascertained as provided in this Act as at the date when such consent is given and no deduction shall be made for any duty paid on or with respect to any prior interest, income or annuity arising out of the property in respect of which such interest in expectancy exists.

(7) Where any interest in expectancy is an annuity, term of years, life estate or income, the duty for which any person who benefits by such interest in expectancy is liable with respect thereto, shall, if not sooner paid, be paid in a number of equal annual instalments equal to,

(a) the number of years,

(i) of expectancy of life of such person ascertained as provided in subsection 4 of section 3, or

(11) for which such annuity, term of years or income is to run,

as the case may be; or

(b) ten,

whichever is the lesser, and such instalments shall commence one year after the date when such annuity, term of years, life estate or income commences to be enjoyed.’’

It is common ground that at the death of the deceased the appellant National Trust Company could have paid the duty on the life interest of the widow, on the life interest of the daughter and of the interest in remainder under subsection (1). In fact the duty was paid only upon the life interest of the widow.

The appellant National Trust Company also had the option of paying duty on the life interest of the widow under subsection (2) of Section 16, it being common ground that the mode of payment set out in that subsection applies only to the interests therein described arising directly on the death of the deceased and not to the sort of interest which the appellant Harrison or those who benefited in the remainder received under the will.

Subsections (3), (4), (5), (6) and (7) deal with ‘‘interests in expectancy’’. Such an interest is defined in Section 1(1) and reads as follows:

‘ “Interest in expectancy’ includes an estate, income or interest, in remainder or reversion and any other future interest whether vested or contingent, but does not include a reversion expectant upon the determination of a lease.’’

I do not think it is disputed that an interest in expectancy may be of two kinds: (a) where the interest is an interest in expectancy in a corpus or capital; and (b) where such interest is in a life estate or income for life or for a term of years where revenue, profits or income is received and the corpus or capital remains for future disposition.

Subsection (3) of Section 16 is not material to the question to be decided but the important subsections are (4), (5), (6) and (7).

Subsection (4) refers to any interest in expectancy. If I am right in my conclusion that there are two kinds of interest in expectancy, it may apply to an interest in expectancy in either income or capital. That subsection provides that the duty may be paid on any kind of interest in expectancy under subsection (1), subsection (5) or subsection (7).

I have had the benefit of a very able argument from both counsel and have considered the provisions of the section and the other relevant provisions of the statute and, in my opinion, the kind of interest in expectancy which is described in subsection (5) is different from the kind of expectancy in subsection (7). In subsection (7) it is obviously an income interest and not a capital interest that is referred to. On the other hand, subsection (5) refers to an interest in expectancy which ‘‘falls into possession’’. Subsection (7) refers to an income interest which is or “commences to be enjoyed’’. It seems to me it is not income but corpus which ‘‘falls into possession’’. What the appellant Harrison received on her mother’s death was a right to income. One does not ordinarily speak of a right falling into possession. No doubt either income or corpus may be enjoyed, and while it might be said that an interest in expectancy in income can be said to fall into possession, I think that where the descriptive words such as are contained in subsections (5) and (7) are used by the Legislature, some difference in meaning is to be attributed to the two phrases.

It does no violence to the precise language of subsection (5) if it be read in this way :

The duty mentioned in subsection 4 is due when such interest in expectancy falls into possession and shall be paid on the basis of the value at the date of falling into possession of the property in respect to which such interest in expectancy existed.”

The concluding words of the subsection, which provide that no deduction shall be made for any duty paid with respect to any prior interest or income arising out of the property, lead me to the conclusion that subsection (5) applies only to an interest in expectancy in capital and not to an interest in expectancy in income which is dealt with in subsection (7).

Counsel for the respondent relied on three cases in the United Kingdom: Re O’Connor’s Estate, [1931] Ir. L.R. 98; Fry v. Ireland, [1958] 3 All E.R. 90; and Re Eyre, [1907] 1 K.B. 331. Those decisions were based upon the Finance Act of the United Kingdom. It is to be observed that in that statute no provision is contained similar to subsection (7) of The Succession Duty Act which separates interests in expectancy in income from interests in expectancy falling into possession. All three cases deal not with an expectancy in income but with an expectancy in capital. In my opinion, those decisions are of no assistance in construing the Ontario statute.

Counsel for the respondent also relied on subsection (6) of Section 16 as indicating that subsection (5) was a section of general application applying to all interests in expectancy, whether income or capital. As subsection (6) is phrased, in that it refers to subsection (7) and refers to interests in expectancy falling into possession, the wording of subsection (6) does support his argument. However, notwithstanding that, I think the inference to be drawn from a comparison of the words of subsection (5) and those of subsection (7) leads me to the conclusion that if there is any error the error is in including subsection (7) in the words of subsection (6) or in omitting the words ‘‘commences to be enjoyed’’ from subsection (6).

Another matter that was put forward by counsel for the respondent in support of his case was the legislative history of Section 16. The present Act was passed in 1939. The statute formerly in existence was The Succession Duty Act, 1934, being

e. 55, and the particular section to be compared with Section 16 of the present Act is Section 15(3). The wording and arrangement of the latter section is different, but a perusal of it does not lead me to the conclusion that had the present case arisen under the former Act the result would have been any different from that which I think is the correct one.

It was also said that the interpretation put forward by the appellants would mean that there would be some unfairness as between those who fell into possession of capital interest and those who fell into possession of an income interest. While taxing statutes are said to be devoid of any equity, a view which I hesitate to adopt, it would seem that there is ample justification for treating an interest in income in a different way from an interest in capital.

I do not wish to be taken, in what I have said, as finding that the words of Section 16 and the interpretation I have put on subsections (4) to (7) inclusive are so clear as to be beyond reasonable doubt. They are not. However, I think it is a reasonable construction ; and, if I am right that it is a reasonable construction, where there are two constructions, each capable of conveying two different meanings and both being reasonable, then the principle in Re Hennell, [1933] 1 K.B. 415, applies. For these reasons the appeal is allowed.

It was stated to me during the course of the hearing of this matter that it was necessary for some express finding to be made as to the amount of duty payable. I do not find that in the statute; it may be a matter of practice. But, in any event, there is no dispute about it, and the figure supplied by the respondent of $16,579 is the amount which, being subtracted from the figure in Exhibit 8, is the true amount due for duty on the life interest of the appellant Harrison. This amount is $9,941.09.

The appellants are entitled to their costs.

Appeal allowed.