Hommel v. The Treasurer of Ontario, [1953] CTC 89

JUDSON, J.:—The first question is whether succession duty is payable on a residential property. The Department asserts the right to tax it as a dutiable disposition and values it at the date of death at $43,000. Mr. and Mrs. Hommei first rented the property from a friend, Edythe MacKay. On October 31, 1939, Edythe MacKay granted the property to Grace M. Hommel for a consideration of $3,000 cash and a mortgage back for $10,000. The name of the husband, Robert H. Hommel, does not appear on the face of the transaction, but he supplied the $3,000 cash and later paid off the mortgage. There is no evidence that there was any agreement in writing for the transfer of this property before the execution of the deed. The probabilities are against the existence of such an agreement in view of the relationship between grantor and grantee.

The property was still registered in the wife’s name at the date of the husband’s death. In addition to the original purchaseprice of $13,000 the husband, between 1939 and 1948, spent about $23,000 on alterations and improvements. The husband and wife lived together in the house.

The case for the Department is that this was a disposition of a house in 1939 by a husband to his wife and that the wife, being a resident of Ontario at the date of death, must pay duty with respect to this disposition under Section 5(c) of The Succession Duty Act, R.S.O. 1950, c. 378. The case for the wife is, first, that the subject-matter of the disposition was $3,000, or that, if it was the house, the disposition was made more than five years before the death and is exempt under Section 4(1) (g) of the Act.

I cannot see, on the material before me, that the husband ever had any property-interest of any kind in this house. The subjectmatter of the disposition was $3,000 which the wife used, doubtless on her husband’s direction, to buy a house. “Disposition” is defined in the broadest terms by Section 1(f) of the Act. It is a transaction of some kind involving a transfer of property. But taxation is imposed, not on the transaction or the result of the transaction, but on a person with respect to the propertyinterest acquired by the transaction and the property-interest is to be valued according to the rules set out in Section 2 of the Act. I think the property-interest was $3,000.

The case was also fully argued in the alternative on the basis that the property given by the husband to the wife was a house. Although I am not deciding this case on this ground, it is desirable that I express an opinion on it. At the date of death, the house was valued at $438,000. The widow says she is still not taxable because it was given more than five years before the death. The Department answers that she is not entitled to this exemption, that she does not come within the terms of Section 4(1) (g) because she did not have possession and enjoyment of the house, the subject-matter of the gift, to the entire exclusion of her husband, or of any benefit to him.

Section 4(1) (g), the exempting section, reads: ‘‘any disposition to any person made more than five years before the date of death of the deceased, where actual and bona fide enjoyment and possession of the property in respect of which the disposition is made, was immediately assumed by the person to whom the disposition is made and thenceforward retained to the entire exclusion of the deceased or of any benefit to him whether voluntarily or by contract or otherwise, provided that this clause shall not apply to any disposition resulting in the making of periodic payments, except such payments made more than five years before the date of death of the deceased”.

This section has a history. Something like it first appears in the English legislation which imposed an account or probate duty. This legislation was the Customs and Inland Revenue Act, 1881, 44 Vict., e. 12, Section 38. It was amended by 1889, e. 7, Section 11, and was incorporated in the Finance Act, 1894, 57 and 58 Vict., e. 30, the legislation which established estate duty by Section 2(1) (c) as follows:

‘‘Property passing on the death of the deceased shall be deemed to include the property following, that is to say :—

(c) Property which would be required on the death of the deceased to be included in an account under section thirty-eight of the Customs and Inland Revenue Act, 1881, as amended by section eleven of the Customs and Inland Revenue Act, 1889, if those sections were herein enacted and extended to real property as well as personal property and the words ‘voluntary’ and ‘volun- tarily’ and a reference to a ‘volunteer’ were omitted therefrom.’’

The result of all this was that estate duty in the United Kingdom was imposed on 11 property taken under any gift whenever made, of which property bona fide possession and enjoyment shall not have been assumed by the donee immediately upon the gift, and thenceforward retained, to the entire exclusion of the donor, or of any benefit to him by contract or otherwise’’ (Section 38(2) (a) of the 1881 Act as amended by Section 11(1) of the 1889 Act). The section was taken into the Ontario Succession Duty Act in this form and it remained unamended until 1914. I shall deal later with the precise form of the amendment. It now appears with the 1914 amendment in Section 4(1) (g) of the Ontario Act as a condition to the establishment of a claim to exemption for a disposition made more than five years before death.

The very problem that arises here has been considered on almost the same facts, apart from the relationship of husband and wife, under the Finance Act of 1894. The cases are Lord Advocate v. M’Taggart Stewart et al. (1906), 8 F. (Ct. of Sess.) 919, and Attorney-General v. Seccombe, [1911] 2 K.B. 688. The first case involved a release of a life-interest by a mother in favour of a daughter, the second a transfer of the fee from an uncle to a nephew. In both cases the donor continued to live in the property after the gift, as he had done before, as a member of the household, not as a matter of right but as a matter of hospitality and grace. It was held that this continued residence did not deprive the property of its exemption from estate duty. The reason for so holding is that the ‘‘exclusion’’ and ‘‘benefit’’ contemplated by the section meant the absence of any legally enforceable right with respect to the property whether it arose from contract or otherwise. There was exclusion and there was no retained benefit if the donor merely continued his residence as a member of the family. Hamilton, J., in the Seccombe case went further and held that the words ‘‘or otherwise’’ were to be construed as ejusdem generis with ‘‘contract’’. There is good reasons to doubt whether this was a case for the application of the ejusdem generis rule (see Dymond 9 s Death Duties, 11th Ed. 1951, p. 14), but so far as I know the case has never been doubted for the proposition for which it really stands, namely, that exclusion means legal exclusion and benefit means a benefit arising from a right.

In 1914, by 4 Geo. V, ce. 10, Section 5, the Ontario Act was amended by the addition of the words ‘‘whether voluntary or’’, so that the concluding words of the section read ‘‘to the entire exclusion of the donor, or of any benefit to him whether voluntary or by contract or otherwise’’. Even before the amendment and before the two above-mentioned cases were decided, Re Roach (1905), 10 O.L.R. 208, had held that a transfer from a father to his daughters was taxable when the father continued his residence in the property until his death. The reason for the decision is that this donor was never excluded from possession or enjoyment. In view of the reasoning of the M’Taggart Stewart and Seccomb e cases, I seriously doubt the correctness of this.

My opinion is that in the present case the wife always had bona fide possession and enjoyment of the property and that the husband was excluded from all beneficial interest and that his occupancy of the property after its acquisition is attributable not to any benefit conferred upon him by his wife, but to the marriage relationship—to the fact that husband and wife are entitled to each other’s society. This has nothing to do with the gift. The husband had no legal right to reside in the house. He lived there because he was married to the woman who owned it. I do not think this is the ‘‘benefit’’ meant by the section. To hold otherwise would mean that a wife could never get this exemption unless she and her husband parted company when the gift was made. I am not prepared to go as far as the submission of counsel for the appellant, to the effect that the addition of the word ‘‘voluntary’’ to the subsection in 1914 made no difference, and that benefit must still be some legally enforceable right or property-interest either in the subjectmatter of the gift or in some collateral advantage. What I am saying is that cohabitation between husband and wife is not the “benefit” spoken of in the section.

These proceedings come before me by way of appeal from the Treasurer’s statement. This statement is prepared on the basis of the house being a taxable disposition. At the hearing the Department sought to amend the ‘‘pleadings’’ by alleging that the husband was always the beneficial owner of the property. There are no pleadings to amend in proceedings under Section 32 of the Act. The documents are a notice of appeal, a notice of the Treasurer’s decision, a notice of dissatisfaction and a reply. The Department surely must take its stand in the Treasurer’s statement, which is really an assessment. It is difficult to see how an assessment for taxation can be prepared in the alternative. The position taken in the Treasurer’s statement is that the house was a gift. I heard evidence, taken subject to objection, which was intended to show beneficial ownership in the husband. The evidence was to the effect that the husband paid for the alterations and improvements and engaged the architects and contractors. Even if the house had been transferred originally from husband to wife, this evidence would not rebut a presumption of advancement.

The second point on this appeal is whether the proceeds of certain insurance policies, which were settled inter vivos on the wife by the husband, are exempt under Section 4(1) (i) to the extent of $1,200 per year as a non-commutable annuity. Under Section 4(1) (i) there is an exemption in respect of ‘‘any non- commutable annuity, income or periodic payment effected in any manner other than by will or testamentary instrument and paid for by the deceased during his lifetime, and paid to or enjoyed by the wife or dependent father or mother or any dependent brother, sister or child of the deceased after the death of the deceased, to the extent of $1,200 per annum with respect to any one person and to the extent of $2,400 per annum in the aggregate”.

The terms of the settlement are that the proceeds of the policies are to remain on deposit with the insurance company on interest at a fixed rate. The wife is entitled to receive the interest and in addition she may call on the insurance company to pay her sufficient principal to make up $5,000 in any one year. This right to withdraw principal is non-cumulative. The wife has the right, on reaching the age of 65, to take whatever is left as a life annuity guaranteed for twenty years. There are no Other rights of commutation or alteration given to the wife under the terms of the settlement.

It is the right to call for principal to bring the annual payments up to $5,000 per year that attracts the attention of the Department. The argument is that with this privilege given to the wife, it is no longer a ‘ ‘ non-commutable annuity, income, or periodic payment’’. An annuity is a sum of money payable yearly or periodically from a source which is exclusively or primarily personal estate: 28 Halsbury’s Laws of England, 2nd. Ed. 1938, p. 175, s. 321. The interest, without the power to encroach on principal, would clearly be entitled to the exemption. If fixed payments of blended principal and interest had been provided for, this would not have been attacked. Can it make any difference that the amount received by the wife may fluctuate within certain limits according to her request? I do not think so. The language of the exemption is broad; so is the legal meaning of annuity. I think the settlement is within the terms of the exemption to the extent of $1,200 per year.

The appeal is allowed on both grounds with costs.

Appeal allowed.