MCTAGUE
J.:—Sir
Albert
Edward
Kemp
died
on
the
12th
day
of
August,
1929.
In
his
will
dated
1st
day
of
December,
1927,
by
clause
3,
he
gave
and
devised
his
residence,
known
as
"Castle
Frank’’
to
his
trustees
upon
certain
trusts,
viz.,
to
allow
his
widow
during
her
lifetime,
and
so
long
as
she
remained
his
widow,
to
occupy
it
free
of
rent,
and
during
her
lifetime
to
keep
up
Castle
Frank
and
pay
all
taxes,
insurance
renewals,
repairs
and
the
like.
In
addition,
he
directed
his
trustees
to
bear
the
expense
of
maintenance
and
management
of
the
property,
and,
to
cover
such
cost,
to
pay
Lady
Kemp
a
certain
sum
monthly
in
advance
so
long
as
she
continued
to
reside
there
and
use
it
as
her
home.
Provision
was
also
made
for
payment
to
Lady
Kemp
of
a
certain
lump
sum
if
she
preferred
to
reside
somewhere
else
than
Castle
Frank,
together
with
monthly
payments
not
quite
so
large
as
they
would
have
been
had
she
continued
to
reside
in
Castle
Frank.
Then
follows
the
important
clause
out
of
which
this
application
to
the
Court
arises
:
“4.
I
direct
that
the
above
provisions
in
favour
of
my
wife
shall
be
a
first
charge
upon
my
estate,
and
shall
be
provided
for
and
paid
by
my
trustees
in
priority
to
any
other
legacies
payable
under
my
said
will,
and
I
further
direct
that
any
succession
duties,
and
all
income
taxes
which
may
be
payable
in
respect
of
the
said
above
provisions
for
my
wife
shall
be
paid
out
of
my
estate
by
my
trustees.’’
It
so
happens
that
Lady
Kemp
is
the
recipient
of
a
considerable
income
under
subsequent
clauses
in
the
will
not
expressed
to
be
free
from
income
tax,
and
has
as
well
income
of
her
own
from
sources
outside
the
will
altogether.
This
state
of
affairs
has
made
it
necessary
for
the
executors
to
propound
the
following
questions
for
advice
of
the
Court
:
Question
I.
Are
the
amounts
of
income
taxes
which
the
executors
are
directed
under
clause
4
of
the
will
to
repay
to
Lady
Kemp,
to
be
determined
upon
the
footing,
(a)
that
Lady
Kemp
has
no
income
apart
from
the
income
received
under
clause
3
of
the
will;
or
(b)
that
her
income
from
any
or
all
of
the
following
sources
is
to
enter
into
the
computation,
(1)
sources
outside
the
will,
(2)
under
clause
16
of
the
will,
(3)
the
repayment
of
income
tax
under
clause
4?
Question
II:
If
question
1(b)
is
in
whole
or
part
answered
in
the
affirmative,
must
the
executors
repay
to
Lady
Kemp,
(a)
the
whole
of
the
income
tax
payable
by
her,
or
(b)
a
proportion
only
of
such
income
tax,
and
if
so,
what
proportion
?
Question
III
:
Must
the
executors,
in
determining
the
amount
of
income
tax
which
they
are
directed
to
repay
to
Lady
Kemp,
take
into
the
computation
(a)
the
whole
of
the
deductions
and
exemptions
allowed
to
her
by
The
Income
Tax
Acts,
or
(b)
a
proportion
only
of
such
deductions
and
exemptions,
and,
if
so,
what
proportion,
or
(ce)
no
part
of
the
said
deductions
and
exemptions?
Question
IV:
Do
the
"‘income
taxes’’
referred
to
in
clause
4
of
the
will
include
all
taxes
from
time
to
time
imposed
on
income
(including
the
Ontario
Income
Tax,
first
imposed
in
1936)
or
only
such
taxes
as
were
imposed
on
income
at
the
date
of
the
testator’s
death?
Question
V
:
Are
the
income
taxes
which
are
repayable
by
the
executors
to
be
paid
by
them
out
of
capital
or
income
of
the
estate,
or
apportioned
between
capital
and
income,
and,
if
so,
on
what
basis?
To
answer
the
questions
involves
a
consideration
of
the
intention
of
the
testator
in
so
far
as
it
can
be
ascertained
from
the
will
itself,
and
the
knowledge
which
the
testator
can
be
presumed
to
have
had
at
the
date
of
making
his
will.
It
seems
quite
clear
that
Sir
Edward
was
well
aware
at
the
time
of
making
his
will
that
Lady
Kemp
was
then
in
receipt
of
an
independent
income
of
her
own
and
I
think
it
fairly
can
be
presumed
that
he
knew
what
income
tax
was
and
the
method
in
existence
for
its
execution.
Since
1927
it
has
not
changed
substantially
in
principle
or
method
of
computation
but
only
in
the
matter
of
amount
and
variety,
with
consequent
added
pain
to
the
taxpayer.
The
questions
involved
here
have
not
been
dealt
with
previously
in
this
Court
or
in
any
Canadian
Court
as
far
as
I
know,
and
therefore
one
must
turn
for
guidance
to
the
decisions
of
other
Courts.
In
England
the
question
appears
to
have
come
up
first
in
In
re
Bowring;
Wimble
v.
Bowring
(1918),
34
T.L.R.
919.
In
that
case
a
testator
left
a
certain
definite
annuity
to
his
widow,
there
being
no
stipulation
as
to
how
it
was
to
be
used
and
no
suggestion
of
any
particular
purpose.
The
widow
had
an
independent
income
of
her
own
in
addition
to
the
annuity.
Sargant
J.
held
in
these
circumstances
that
the
residue
of
the
estate
must
bear
such
proportion
of
the
total
supertax
payable
by
the
testator’s
wife
as
the
£4,000
annuity,
with
income
tax
added,
bore
to
the
total
amount
of
the
assessment
for
the
purpose
of
supertax.
It
must
be
remembered
that
the
English
Act
is
different
from
ours
and
income
tax
in
the
narrow
sense
means
a
certain
definite
percentage
levied
on
the
whole
of
the
income
before
consideration
is
given
to
supertax,
or,
as
it
becomes
known
later,
surtax.
The
supertax
or
surtax
was
levied
on
the
basis
of
increasing
percentages
according
to
the
size
of
the
income.
Supertax
or
surtax
in
England
is
more
like
what
we
know
as
income
tax
in
this
country.
I
point
this
out
in
explanation
of
Mr.
Justice
Sargant’s
expression
"‘with
income
tax
added’’.
The
same
learned
Judge
adopted
the
same
principle
in
Jn
re
Dozat;
Doxat
v.
Doxat,
[1920]
W.N.
262.
In
In
re
Bowen;
Paddock
v.
Bowen,
[1925]
W.N.
206,
Lawrence
J.
follows
the
principle
initiated
in
In
re
Bowring,
and
the
principle
is
applied
again
in
In
re
Hulton;
Hulton
v.
Midland
Bank,
[1931]
1
Ch.
77,
in
Michelham’s
Trustees
v.
Commissioners
of
Inland
Revenue
(1931),
144
L.T.
163,
and
in
In
re
Reckitt,
[1932]
2
Ch.
144.
It
must
be
kept
in
mind
that
all
these
cases
dealt
with
straight
bequests
of
annuities
free
from
income
tax,
or
words
to
that
effect.
In
the
meantime
in
1927
the
matter
came
before
an
American
Court,
the
Rhode
Island
Court
of
Appeal,
in
Read
v.
Sayles
(1927),
51
A.L.R.
451.
The
judgment
is
very
clear,
and
excellently
summarizes
the
three
different
methods
of
approaching
the
problem,
which
I
quote
as
follows,
at
p.
452
:
“'Three
possible
methods
of
making
such
determination
and
allocation
have
been
suggested
:
(1)
By
computing
the
tax
that
would
be
imposed
on
the
beneficiary
‘s
income
if
he
received
no
income
except
the
annuity,
and
considering
that
amount
of
tax
as
payable
by
the
trustees.
‘This
method,
it
appears
to
us,
would
clearly
fail
to
carry
out
the
testator’s
intention
that
the
beneficiary
should
receive
the
annuity
free
and
clear
of
all
income
taxes
and
duties.
The
presence
of
the
annuity
as
a
constituent
part
of
the
annuitant’s
total
income
has,
under
the
revenue
act,
increased
the
rate
imposed
upon
every
portion
of
the
total
income,
including
the
annuity
itself,
and
yet
under
this
method
the
annuitant
would
receive
from
the
trustees
in
exoneration
of
the
annuity
no
portion
of
the
increased
amount
of
tax
upon
the
annuity
consequent
upon
the
increased
rate
of
income
tax
and
surtax.
The
result
would
be
that
by
reason
of
the
annuity
an
increased
burden
of
income
taxation
has
been
placed
upon
the
beneficiary,
and
contrary
to
the
intention
of
the
testator
no
portion
of
such
increased
burden
is
carried
by
the
trustees.
"
"
The
second
method
suggested
is
as
follows:
(2)
By
computing
the
tax
upon
the
beneficiary’s
entire
income
from
all
sources
and
subtracting
therefrom
the
tax
which
would
be
imposed
if
the
beneficiary
received
no
annuity
from
the
trustees,
and
considering
the
balance
as
the
amount
of
tax
payable
by
the
trustees.
"‘This
method
is
unfair
to
the
trust
estate
and
results
in
a
payment
by
the
trustees
of
a
portion
of
the
beneficiary’s
income
tax
which
is
in
excess
of
the
amount
necessary
to
exonerate
the
annuity.
By
reason
of
the
fact
that
the
beneficiary’s
other
income
is
placed
in
the
same
total
with
the
annuity,
the
rates
and
the
amount
of
tax
ascribable
to
each
item
of
income
are
increased
and
yet
by
this
second
method
suggested
the
whole
increase
is
ascribed
to
the
annuity
and
the
whole
of
such
increase
would
be
paid
by
the
trustees
in
exoneration
of
the
annuity,
thus
relieving
the
other
income
of
the
beneficiary
from
all
of
the
added
burden
of
taxation
placed
upon
it
by
reason
of
the
fact
that
it
had
become
a
component
part
of
a
larger
total
of
income.
The
purpose
of
the
testator
was
that
the
beneficiary
should
receive
the
annuity
free
and
clear
of
all
income
taxes
and
duties.
It
cannot,
however,
fairly
be
construed
as
his
intention
that
the
trustee
should
relieve
the
annuitant
of
any
portion
of
the
burden
of
increased
taxation
imposed
upon
that
beneficiary’s
other
income,
even
though
under
the
revenue
act
such
increase
might
result
from
the
testator’s
bounty
in
creating
the
annuity.
"The
third
possible
method
suggested
for
determining
the
portion
of
the
beneficiary’s
total
income.
tax
which
should
be
paid
by
the
trustees
in
exoneration
of
the
annuity
is
as
follows:
(3)
By
computing
the
tax
upon
the
beneficiary’s
entire
income
and
apportioning
it
between
the
trustees
and
the
beneficiary
ratably
in
proportion
to
the
amount
of
the
annuity
and
the
amount
of
income
received
from
other
sources,
and
considering
the
amount
of
tax
so
apportioned
to
the
trustees.
as
payable
by
them.
"‘This
appears
to
us
to
be
the
equitable
method.
The
annuity
and
the
other
income
of
the
beneficiary
are
each
component
parts
of
the
total
income.
To
the
combination
of
them
both
should
be
ascribed
the
increased
rate
and
the
increased
amount
of
tax,
and
between
them,
to
each
in
the
same
proportion
that
its
amount
bears
to
the
total
amount
of
the
income,
should
the
total
tax
be
apportioned.
Thus
it
will
be
seen
that
the
American
Court
followed
In
re
Bowring,
In
re
Doxat
and
In
re
Bowen
(supra).
In
the
Scottish
Reports
are
to
be
found
at
least
three
interesting
cases
on
the
subject:
In
re
Bowring
was
followed
in
Re
Wordie
f
s
Trustees;
Buchanan
v.
MacGregor
or
Wordie,
[1922]
S.C.
28,
but
a
Scottish
Court
of
Appeal
in
Baird
f
s
Trustees
v.
Baird,
[1933]
S.C.
553,
expresses
disapproval
of
In
re
Bowring
and
decided
in
that
case
that
the
amount
of
surtax
for
which
the
trustees
were
liable
was
to
be
determined
upon
the
footing
that
the
annuitants
had
no
independent
income
apart
from
the
annuities.
Criticism
was
directed
at
the
English
decisions
on
the
ground
that
they
were
rather
the
result
of
friendly
arrangement
than
fervid
controversy.
I
must
confess
I
have
difficulty
in
following
the
judgments
of
the
majority
of
the
Court
and
rather
prefer
the
dissenting
Judgment
of
Lord
Murray,
which
would
have
applied
In
re
Bowring.
Baird
f
s
Trustees
v.
Baird
appears
to
be
an
assertion
of
Scottish
independence
rather
than
anything
else.
That
such
was
the
case
seems
to
be
borne
out
by
Richmond
v.
Richmond,
[1935]
S.C.
585,
where
another
division
of
the
same
Court
adopted
the
principle
in
In
re
Bowring
and
courteously
criticized
Baird
f
s
Trustees
v.
Baird.
If
the
bequest
to
Lady
Kemp
had
been
in
the
form
of
a
simple
annuity
I
should
have
no
trouble
in
applying
the
principle
established
by
In
re
Bowring
and
followed
in
most
of
the
cases
referred
to.
But
one
must
endeavour
to
give
effect
to
the
intention
of
the
testator
as
it
can
be
deduced
from
the
will.
Sir
Edward
was
aware
that
Lady
Kemp
had
an
independent
income.
I
judge
from
the
wording
of
his
will
that
he
was
anxious
that
Lady
Kemp
should
retain
and
keep
up
Castle
Frank
and
that
no
financial
burden
should
be
placed
upon
her
personally
as
the
result
of
doing
so.
As
long
as
Lady
Kemp
was
willing
to
reside
in
Castle
Frank
the
testator
makes
its
up-keep
and
maintenance
a
first
charge
on
his
estate,
and
provides
that
the
amounts
required
for
such
purposes
shall
be
free
from
all
income
tax
"
"
and
all
income
taxes
which
may
be
payable
in
respect
of
the
said
above
provisions
for
my
wife
shall
be
paid
out
of
my
estate
by
my
trustees.’’
The
benefits
accruing
to
Lady
Kemp
in
question
here
are
subject
to
an
obligation
on
her
part
to
reside
in
and
keep
up
Castle
Frank.
She
having
assumed
such
obligation,
it
seems
to
me
that
Sir
Edward
intended
that
no
income
tax
burden
should
be
placed
upon
her
as
the
result
of
her
compliance
with
his
wishes.
The
provisions
in
her
favour
were
not
direct
benefits
to
her
personally,
but
benefits
coupled
with
the
obligation
of
keeping
up
Castle
Frank.
I
think
it
was
his
intention
that
there
should
be
no
additional
income
tax
burden
placed
upon
her
whatever.
The
view
which
I
have
taken
of
the
matter
naturally
brings
up
for
consideration
another
important
question.
In
any
given
year
the
trustees,
by
paying
a
proportion
of
Lady
Kemp’s
income
tax,
will
be
increasing
her
taxable
income
for
that
year
by
the
amount
of
tax
paid
by
them.
On
that
additional
amount
of
income
a
further
tax
will
be
imposed
in
the
following
year.
To
require
the
residuary
estate
to
pay
this
is
saddling
it
with
a
heavy
and
increasing
burden
from
year
to
year.
There
is
much
to
be
said
against
placing
such
a
burden
upon
the
residuary
legatees,
but,
nevertheless,
I
think
such
construction
is
in
accordance
with
Sir
Edward’s
intention.
Therefore
my
answers
to
the
questions
will
be
in
the
following
terms.
Income
taxes
directed
to
be
paid
by
the
executors
under
clause
4
of
the
will
are
to
be
determined
upon
the
footing
that
Lady
Kemp’s
income
includes
income
from
sources
outside
of
the
will,
income
under
clause
16
of
the
will
and
repayment
on
income
tax
under
clause
4.
The
executors
should
repay
to
Lady
Kemp
all
additional
income
tax
which
becomes
payable
by
virtue
of
the
income
under
clause
3
being
superimposed
upon
her
income
from
all
other
sources.
Deductions
and
exemptions
are
to
be
taken
as
belonging
to
and
for
the
benefit
of
Lady
Kemp
and
not
for
the
benefit
of
the
executors,
subject
to
this,
that
counsel
for
Lady
Kemp
has
intimated
that
she
is
willing
that
the
executors
shall
have
the
benefit
of
a
proportion
of
the
saving
due
to
deduction
for
charitable
donations.
If
counsel
cannot
agree
on
an
approprite
term
in
the
formal
order
to
cover
this
concession,
that
matter
may
be
spoken
to.
The
words
"‘income
taxes’’
referred
to
in
clause
4
of
the
will,
include
all
income
taxes
from
time
to
time
on
income
and
specifically
include
Ontario
income
tax.
The
income
taxes
repayable
by
the
executors
to
Lady
Kemp
are
to
be
paid
out
of
income
primarily
and
if
there
is
a.
deficiency
of
income,
then
out
of
capital.
All
parties
may
have
their
costs
of
the
motion
out
of
the
estate;
costs
of
the
executors
as
between
solicitor
and
client.
Order
accordingly-
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