Judgment Accordingly. Beulah Gorkin and Jack Adilman, as Administrators of the Estate of Nathan Adilman, Deceased v. Minister of National Revenue, [1962] CTC 244, [1962] DTC 1166

MARTLAND, J.:—On June 1, 1956, Nathan Adilman, of Saskatoon, then 67 years of age, entered into a written agreement with Edison Wholesale Ltd., a Saskatchewan corporation (hereinafter referred to as ‘‘Edison’’), whereby he transferred to Edison 72 common shares in the capital stock of a company known as Adilman’s Limited and three lots, and the building situated thereon, in the City of Saskatoon. The consideration for the transfer was his receiving from Edison a monthly sum of $1,666.66, during his lifetime, payable on the first of each month, commencing July 1, 1956. It was agreed that, in any event, the payments should cease after a total of $200,000 had been received.

Adilman’s Limited carried on a department store business in the building in question prior to the transfer. Out of its 160 issued shares, Nathan Adilman owned 72 and the appellants, his son and daughter, owned the rest. The appellants were the only beneficial shareholders of Edison.

It was agreed, in an agreed statement of facts, that ‘‘the said agreement was entered into by the deceased and Edison Wholesale Ltd. in good faith, for legitimate family reasons and in view of the intended remarriage of the deceased, and not in an attempt to avoid the payment of any Succession Duty’’.

Nathan Adilman died on June 20, 1956.

The fair market value of the shares and the land mentioned in the agreement, as of the date of his death, was $344,400. The annual value of that property, as in June, 1956, was $28,000. The present value of the annuity payable pursuant to the agreement, as of its date, was $148,000.

The respondent seeks to charge succession duty on the whole of the $344,400, as a gift under Section 3(1) (d) of the Dominion Succession Duty Act, R.S.C. 1952, c. 89. The appellants, who are the administrators of Nathan Adilman’s estate, concede that the difference between $344,400 and $148,000 is subject to duty, but contend that only the difference is subject to duty under Sec tion 3(1) (k) of the Act.

The learned trial judge reached the conclusion that the transaction in question was a ‘‘gift’’ with a benefit to the donor provided “by contract”, within the meaning of Section 3(1) (d) of the Dominion Succession Duty Act, and that the property was not ‘‘transferred for partial consideration’’, within the meaning of Section 3(1) (k) of the Act, because the obtaining of the consideration was not, in his view, the real object of the transaction.

The relevant provisions of the Act are as follows :

“3. (1) A succession’ shall be deemed to include the following dispositions of property and the beneficiary and the deceased shall be deemed to be the ‘successor’ and ‘predeces sor’ respectively in relation to such property :

(d) property taken under a gift whenever made of which actual and bona fide possession and enjoyment has not been assumed by the donee or by a trustee for the donee at least three years before the death of the deceased and thenceforward retained to the entire exclusion of the donor or of any benefit to him, whether voluntary or by contract or otherwise;

(k) property transferred within three years prior to the death of the deceased for partial consideration in money or money’s worth paid or agreed to be paid to the deceased, to the extent to which the value of the property when transferred exceeds the value of the consideration so paid or agreed to be paid;”

The words ‘‘agreed to be paid’’, where they appear in paragraph (k), were added to that paragraph by an amendment to the Act in 1952.

The learned trial judge reached his conclusion that the transaction fell within Section 3(1) (d) on the basis that, in substance, the agreement between Nathan Adilman and Edison was entered into for the purpose of conferring a benefit on the appellants and not for the purpose of acquiring the annuity; that the transaction was not dictated by commercial considerations and that, accordingly, on the authority of certain English decisions, it was a gift within the meaning of Section 3(1) (d).

The relevant English legislation, to which reference is made in those cases, was contained in the Customs and Inland Revenue Act, 1881, 44-45 Vict., c. 12, as amended, and in the Finance Act, 1894, 57-58 Vict., e. 30.

Section 38 of the first-mentioned statute provided, in part, as follows :

“38. (1) Stamp duties at the like rates as are by this Act charged on affidavits and inventories shall be charged and paid on accounts delivered of the personal or moveable property to be included therein according to the value thereof.

(2) The personal or moveable property to be included in an account shall be property of the following descriptions, viz. :

(a) Any property taken as a donatio mortis causa made by any person dying on or after the first day of June one thousand eight hundred and eighty-one, or taken under a voluntary disposition, made by any person so dying, purporting to operate as an immediate gift inter vivos whether by way of transfer, delivery, declaration of trust or otherwise, which shall not have been bona fide made three months before the death of the deceased.”

This provision was amended in 1889, 52-53 Vict., c. 7, by Section 11 thereof, which provided :

“11. (1) Sub-section two of section thirty-eight of the Customs and Inland Revenue Act, 1881, is hereby amended, as follows :

The description of property marked (a) shall be raed as if the word ‘twelve’ were substituted for the word ‘three’ therein, and the said description of property shall include 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:”

The Finance Act, 1894 provided for the imposition of estate duty, which, in respect of property falling within its terms, replaced the duties payable under the Customs and Inland Revenue Act, 1881. Section 2(1) (c) of the Finance Act, 1894 provided :

“2. (1) 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 per- sonal property, and the words ‘voluntary’ and ‘voluntarily’ and a reference to a ‘volunteer’ were omitted therefrom ; ’ ’

In addition, Section 3 of this Act provided for an exception, regarding the payment of estate duty, in the following terms:

‘3. (1) Estate duty shall not be payable in respect of property passing on the death of the deceased by reason only of a bona fide purchase from the person under whose disposition the property passes, nor in respect of the falling into possession of the reversion on any lease for lives, nor in respect of the determination of any annuity for lives, where such purchase was made, or such lease or annuity granted, for full consideration in money or money’s worth paid to the vendor or grantor for his own use or benefit or in the case of a lease for the use or benefit of any person for whom the grantor was a trustee.

(2) Where any such purchase was made, or lease or annuity granted, for partial consideration in money or money’s worth paid to the vendor or grantor for his own use or benefit, or in the case of a lease for the use or benefit of any person for whom the grantor was a trustee, the value of the consideration shall be allowed as a deduction from the value of the property for the purpose of Estate duty.’’

A.-G. v. Worrall, [1895] 1 Q.B. 99, one of the cases mentioned by the learned trial judge, arose prior to the enactment of the Finance Act, 1894. In that case, Lopes, L.J., at page 105, said:

“One question is whether in this case there was a ‘gift’ of property at all. It is suggested that there was not, because there was a collateral covenant by the son to pay to the father an annuity. It appears to me that there was not the less a gift within the meaning of the Act on that account.’’

A. L. Smith, L.J., at page 107, said :

“The next point is this. It is said that the transaction is not a gift within the meaning of the statute because a consideration was given. On reading s. 11, sub-s. 1, it seems clear that the legislature in using the word ‘gift’ in that section contemplated cases where the donee enters into a covenant such as this.”

A.-G. v. Johnson, [1903] 1 K.B. 617, was concerned with the application of the Finance Act, 1894. In that case £500 was paid to the directors of an unincorporated charitable society in lieu of a legacy, the trustees of the society to pay to the donor and to his wife, if she survived him, an annuity of £25. The Crown claimed that, on the donor’s death, estate duty became payable by the society on the £500. Phillimore, J., at the trial, held that the £500 was, in the first instance, taxable, but further held that there should be deducted from that amount the value of the annuity of £25. This view was overruled by the Court of Appeal, which held that this was not a case of a bona fide purchase of an annuity at all and that it was a case of a testamentary gift effected by the machinery of a present donation subject to a reservation of something intended to be the equivalent of a life interest in the subject-matter of the donation.

It will be noted that the first of these cases, having arisen prior to the enactment of the Finance Act, 1894, was not concerned with the possible application of Section 3(2) of that Act. Th second case did deal with that provision and, as pointed out, the Court of Appeal disagreed with Phillimore, J., who would have applied it.

Section 3 of the Finance Act, 1894 was not a definition of a certain kind of property which was deemed to pass on the death of the deceased. It created an exception to the obligation to pay estate duty, an exception which, in both its subsections, was limited to ‘‘a bona fide purchase’’. Consequently, in deciding whether or not Section 3(2) was applicable in A.-G. v. Johnson, the issue before the Court was as to whether or not the transaction in question was a bona fide purchase. On the other hand, paragraph (k) of Section 3(1) of the Dominion Succession Duty Act does not define an exception to the obligation to pay duty. It defines a certain kind of transaction which shall be deemed to be a succession under the Act. I agree with the contention of the appellants that when that definition was included in Section 3(1) it must be assumed that it was placed there so as to include, as a succession, a certain type of transaction which would not otherwise have been included under any of the other paragraphs of that subsection.

Further, paragraph (k) is in terms substantially different from those of Section 3 of the Finance Act, 1894. Paragraph (k) does not refer to ‘‘a bona fide purchase’’. It refers to ‘‘ property transferred for partial consideration in money or money’s worth paid or agreed to be paid’’. I accept the view of Rowlatt, J., in In re Baroness Bateman, [1925] 2 K.B. 429, when, in interpreting the English provision, he construed the words “partial consideration” as meaning something less than the full and fair value of the property.

In my opinion, the transaction in question here fell squarely within the provisions of paragraph (k). It involved a transfer of property for a partial consideration agreed to be paid. With respect, I cannot agree with the view of the learned trial judge that, in applying this definition, it must be determined that the obtaining of the partial consideration was ‘‘the real object of the transaction’’. It seems to me that paragraph (k) defines a certain kind of situation which, on the facts of the present case, existed here.

As we are called on, in the present case, to deal with a provision which did not exist in the English statute, it is necessary to construe Section 3(1)(d) of the Dominion Succession Duty Act in the light of the existence, in the same subsection, of paragraph (k). The English cases cited do not assist us in this matter. Whatever the word ‘‘gift’’ might mean within Section 2(1)(c) of the Finance Act, 1894, standing by itself, it is necessary, in construing the present Act, to construe Section 3(1) (d) in the light of the existence of paragraph (k) and, in my view, a transaction which falls within paragraph (k) cannot be regarded as being a gift within the meaning of Section 3(1) (d).

My view as to the proper method of construing these provisions of our own statute is, I think, reinforced by what was said by Lord Blanesburgh, in A.-G. Ontario v. Perry, [1934] A.C. 477 at page 487, when he said, with respect to the construction of the Ontario Succession Duty Act:

“First then, is the Ontario sub-section, unlike the corresponding British enactment, an 4 original’ section? In their Lordships’ judgment it undoubtedly is, and must be so construed. It contains on its face no reference to any origin. It comes into Ontario legislation full grown and without ancestry. It would, in their Lordships’ judgment, be contrary to all principle, for the purpose of construing it, to look at the evolution even of the same enactment under some other system of law. ’ ’

I do not agree, therefore, with the submission of the respondent that the question before us is as to whether or not the agreement in question can be fairly considered to have been merely a commercial agreement, or whether, looking at the substance of it and the circumstances in which it was entered into, one may regard it as a gift. In my opinion, if paragraph (k) is to have any effect at all, it must apply to transactions in which, while there is an element of bounty involved, there is also a partial consideration paid or agreed to be paid for a transfer of property. That was clearly the intention in the circumstances of the present case. There was certainly an element of bounty involved, but, notwithstanding that fact, there was an agreement to pay a partial consideration for the transfer of property. It, therefore, fell within paragraph (k) and, that being so, in my opinion it does not constitute a gift within the meaning of Section 3(1) (d) of the Dominion Succession Duty Act.

In my opinion, therefore, the appeal should be allowed, with costs throughout, on the basis that, pursuant to Section 3(1) (k) of the Dominion Succession Duty Act, only the difference between $148,000 and $344,400, 7.e., $196,400, was dutiable as a succession to Edison Wholesale Ltd. from the estate of Nathan Adilman, deceased, and the matter should, therefore, be referred back to the respondent for re-assessment accordingly.

Judgment accordingly.