The Treasurer of Ontario v. Hommel, [1953] CTC 432

Pickup, C.J.O.:—This is an appeal by the the Treasurer of Ontario from the judgment of Judson, J., [[1953] C.T.C. 89], pronounced in non-jury Court at Milton. Two questions are involved, the first being whether succession duty is payable by reason of the death of the late Robert H. Hommel in respect of certain real property known as ‘‘Whitehaven’’. The second question is whether, in respect of certain insurance policies, the widow of the deceased is entitled to exemption to the extent of $1,200 per annum under Section 4(1) of the Succession Duty Act, R.S.O. 1950, c. 378.

As to the real property known as “Whitehaven”, there are no facts in dispute. The late Robert H. Hommel arranged for the purchase of the property in 1939. There was no written agreement for purchase and sale, but the transaction was carried out by a cash payment of $3,000 and a mortgage given back to the vendor of $10,000. The conveyance was made to Grace M. Hommel, wife of Robert H. Hommel, and she gave back a mortgage representing the unpaid balance of purchase-money of $10,000. Mr. Hommel did not join in that mortgage or assume any obligation for payment of the mortgage moneys, but he made the $3,000 cash payment. Later, substantial improvements were made to the property, and it is said that all of these improvements were undertaken, arranged and paid for by the deceased. The mortgage was paid off in the lifetime of Mr. Hommel and he provided the moneys. He died in 1949 and at his death his widow was the owner of the property, with the improvements and clear of encumbrance.

The Treasurer claims that the property is dutiable at the value thereof at date of death, as being a disposition of the lands made by Mr. Hommel in his lifetime in favour of his wife.

The learned trial Judge held that what Mr. Hommel had transferred to his wife at the time of the purchase was not the real property but the cash payment of $3,000. If the disposition made by Mr. Hommel in his lifetime was a disposition in the nature of a gift to his wife of the cash payment required at the time of purchase, plus the moneys provided by him for the improvements made during his lifetime, and the moneys provided by him for payment of the mortgage given back to the vendor, there would be no duty payable under the Succession Duty Act because all of these gifts were made more than 5 years before the death of Mr. Hommel, and therefore would not be subject to duty under the statute.

Counsel for the Treasurer contends, however, that Mr. Hommel, at the time of the purchase of ‘‘Whitehaven’’, made a disposition thereof in favour of his wife, within the meaning of the definition of ‘‘disposition’’ as it appears in Section 1(f) of the Succession Duty Act. By this clause ‘‘disposition’’ means, inter alia,

“ (i) any means whereby any property passes or is agreed to

be passed, directly or indirectly, from the deceased during his lifetime to any person,

(ii) any means whereby any person is benefited, directly or indirectly, by any act of the deceased during the lifetime of the deceased.’’

Counsel for the Treasurer argues that because Mr. Hommel made the arrangements for the purchase and paid the cash payment there must have been an agreement between him and the vendor whereby he became the purchaser, and that he, as purchaser, caused the property to be conveyed to his wife.

I have no hesitation in holding that at the time of the purchase no property interest in ‘‘ Whitehaven’’ passed from Mr. Hommel to his wife, within the meaning of clause (f) (i). He never at any time had any property interest in ‘‘Whitehaven’’ which could pass from him to his wife by any means. I agree with the learned trial Judge that the only property which passed from Mr. Hommel to his wife at the time of the purchase was the sum of $3,000 which he provided to enable the purchase to be made.

Counsel for the Treasurer further contended that what Mr. Hommel did in arranging for the purchase, in providing for the conveyance to be made to his wife, in arranging for her to give back a mortgage for the balance of the purchase-money and himself making the $3,000 cash payment were acts whereby his wife was benefited directly or indirectly within the meaning of sub-clause (ii) of Section 1(f). The acts of Mr. Hommel in arranging for this purchase constituted a benefit to the wife in the sense that they enabled her to become the purchaser of the property, but that, in my opinion, is not a disposition of “Whitehaven” within the meaning of clause (f), or a disposition of any property or the conferring of any benefit, except the disposition of the money which Mr. Hommel provided for the purchase, or the benefit of that sum of money. I do not accept the argument of counsel for the Treasurer, which was to the effect that it should be inferred from the fact of the completion of the transaction of purchase that there had been, prior to that time, an oral agreement between the vendor and Mr. Hommel which constituted Mr. Hommel the purchaser. No doubt, there was a meeting of minds among the vendor, Mr. Hommel and Mrs. Hommel, intended to result in a purchase of the property, but I think that any antecedent oral agreement to be inferred from the completion of the transaction must be an oral agreement whereby Mrs. Hommel and not Mr. Hommel would become the purchaser, with Mr. Hommel making the cash payment, Mrs. Hommel assuming the obligation of the mortgage and the vendor accepting a cash payment of $3,000, with a mortgage back from Mrs. Hommel for the balance of the purchase-price.

Agreeing as I do with the learned trial Judge that the disposition made by Mr. Hommel at the time of the purchase was a disposition of money, namely the sum of $3,000, and not a disposition of ‘‘Whitehaven’’, it is unnecessary to consider the second legal question dealt with by the learned trial Judge in relation to “Whitehaven”.

Counsel for the widow contended before the learned trial Judge that even if what happened at the time of the purchase constituted a disposition by Mr. Hommel of ‘‘ Whitehaven’’, the property would still not be dutiable because of the provisions of Section 4(1) (g) of the statute. That clause exempts from duty a disposition i ‘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’’, with a proviso which has no application here. As I hold that there was no disposition by Mr. Hommel of ‘‘Whitehaven’’, I express no opinion as to whether or not, on the facts of this case, actual and bona fide enjoyment and possession of that property was retained by Mrs. Hommel to the entire exclusion of Mr. Hommel or of any benefit to him during his lifetime, within the meaning of Section 4(1) (g).

As to the insurance policies, again there is no dispute about the facts. Mr. Hommel, in his lifetime, caused several insurance policies to be issued upon his life. These policies named his wife as beneficiary, with a provision for a contingent bene- ficiary. Under these policies there was a right under option “A” to have the whole or any designated part of the net proceeds retained by the insurance company until the death of the last surviving beneficiary or contingent beneficiary, the company in the meantime to pay interest thereon monthly at a rate specified, the amount of the monthly payments being dependent upon the amount of principal moneys retained. This option ‘‘A’’ gave the person entitled as beneficiary the right, at any interest-payment date, to withdraw the principal amount retained, provided Mr. Hommel did not specifically withhold such right. A special clause was added to each of these policies which limited the privilege of surrender and commutation conferred upon Mrs. Hommel by option ‘‘A’’. By this special clause Mr. Hommel directed that settlement of the proceeds of the policies should be made in accordance with the provisions of option “A”, with the privilege to Mrs. Hommel of withdrawing $5,000 of the principal sum in any one year, such withdrawal being non-cumulative but continuing until the proceeds of the policies were exhausted. This subclause also gave Mrs. Hommel the privilege of changing to another option for stipulated monthly instalments after she attained the age of 65 years. It provided that the settlement therein directed should be made without the privilege of surrender or commutation, except as in the special clause expressly stipulated.

Clause (i) of Section 4(1) of the Succession Duty Act provides that no duty shall be levied on ‘‘any non-commutable annuity, income or periodic payment effected in any matter 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 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 learned trial Judge held that the settlement provisions of these insurance policies brought them within the meaning of clause (i) referred to, and that the widow was, therefore, entitled to the exemption by that clause provided to the extent of $1,200 per annum.

Counsel for the Treasurer contends that the right given to Mrs. Hommel under these insurance policies, to withdraw capital is not a non-commutable annuity ; that it is not income and not a periodic payment. He argues that the amount of capital which Mrs. Hommel is entitled to withdraw in any year is within her absolute discretion, up to $5,000, and that therefore there is no annuity involved in the withdrawal of capital because the amount is not a sum certain. He argues that in order to constitute an annuity payable out of capital, not only must the amount be certain but the payments must also be a series of payments de anno in annum. This might be so if what the widow was entitled to under these policies was merely a right to payment out of capital, but that is not this case. The widow is first entitled to interest, which, in my opinion, is income within the meaning of clause (i), and in addition to or partly in substitution for that income, she is given a limited right to encroach upon capital, the effect of which would be to decrease the income payments.

I do not think that we need decide whether this settlement provision constitutes a non-commutable annuity within the meaning of the clause or not, because I am of the opinion that it does provide for payment of income and periodic payments. The right to withdraw capital is periodic. It is non-cumulative, but it is a right to withdraw capital up to $5,000 in each year until the fund is exhausted.

Counsel for the Treasurer contends, however, that the income payments, meaning thereby the payments of interest on the moneys held on deposit by the insurance company, although income, are not income within the meaning of clause (i) because they were not paid for by the deceased during his lifetime. He argues that what Mr. Hommel paid for in his lifetime was the principal sum, and that the consideration for the interest payments is the leaving of the principal sum on deposit with the insurance company. I do not agree with this contention. In my opinion what Mr. Hommel paid for in his lifetime included the right of the beneficiary to leave the principal sum with the insurance company on terms whereby the insurance company would pay interest on the amount so retained. That being so, the income payments which the widow receives on the moneys which she permits to remain on deposit from time to time were provided and paid for by Mr. Hommel in his lifetime, and therefore come within the clause.

I am therefore in agreement with the learned trial Judge on both of the issues involved in this appeal, and would dismiss the appeal with costs.

Appeal dismissed.