In the Matter of the Estate of John Gillespie, Deceased., [1942] CTC 249

MACDONALD J.:—This is an appeal by the Executors of the Estate of the late John Gillespie from the decision of the Provincial Treasurer confirming assessment to Income Tax of certain premiums paid under a policy of insurance on the life of said John Gillespie. Counsel for the parties have agreed upon a statement of Facts and this statement together with various exhibits produced and filed on the hearing constitute the evidence in the ease.

On November 30th, 1923, the Manufacturers Life Insurance Company issued a policy in the sum of $125,000.00 on the life of John Gillespie. It was payable upon the death of insured or on the 15th day of November, 1948. The beneficiary designated in the policy was Gillespie Grain Company Limited, and this Company paid all the premiums, which amounted to $6,656.25 per year, during the full term of the policy, with the exception of the last premium which fell due on the 15th day of November, 1941, and which was carried as a loan against the policy. John Gillespie died on the 19th day of November, 1941. The Provincial Treasurer asserts that the estate of deceased is liable to be assessed for Income Tax with respect to ‘the premiums paid in each of the years 1931 to 1940 inclusive.

From the incorporation of Gillespie Grain Company Limited, John Gillespie was, until his death the President and managing Director of the Company. He owned or controlled outright 9,900 of the 10,000 shares of the Company and held a proxy from his brother with respect to the remaining 500 shares. During most of this period he did not maintain a personal or private bank account, but drew money from the Company as he required it.

Although Gillespie Grain Company was originally named beneficiary in the policy, John Gillespie by instrument in writing (Exhibitl) dated the 14th of April, 1927, revoked this appointment and ordered and declared that the moneys secured by the policy should be payable to the Provincial Treasurer of the Province of Alberta for the purpose of paying any duties on his estate under the Succession Duties Act. This document was executed by Gillespie Grain Company Limited as well as by the insured but no notification thereof was given to the Insurance Company. However, on the 23rd of December 1929 a declaration in similar terms (Exhibit 2) was executed by the insured and the Company and registered in due course with the Insurance Company. It expressly revoked "any designation of beneficiary or appointments of benefits heretofore made’’ in the policy, and declared it to be his desire and order that the moneys payable under the policy should be paid to the Provincial Treasurer of the Province of Alberta for the purpose of paying Succession Duties.

On the 24th of June, 1931, Gillespie Grain Company Limited assigned to John Gillespie all its right, title and interest in the policy and "‘all benefit and advantage to be derived therefrom.’’ This assignment (Exhibit 3) was registered with the Insurance Company. On the 18th day of June, 1931 and on the 21st. of October, 1931, John Gillespie obtained two loans of $20,000.00 each from the Insurance Company on the security of the policy and paid the money to Gillespie Grain Company Limited. The latter Company paid the Insurance Company the full amount of this loan in September 1938.

At all material times Gillespie Grain Company Limited was indebted to the Bank of Montreal in a large amount. John Gillespie was a guarantor of this debt. In October 1931 he and the Company executed an assignment of the policy and all moneys payable thereunder to the Bank as security for this indebtedness. The bank released and reassigned the policy on the 27th of October 1941.

An agreement in writing (Exhibit 7) was entered into on the 24th of January, 1930, between John Gillespie and Gillespie Grain Company Limited. It recites that the Company had paid the premiums on the policy to date in consideration of the guarantee by John Gillespie of the Company’s indebtedness to the Bank of Montreal, the obtaining by him of a loan of $40,- 000.00 and his consent to the pledging of the policy to the Bank. The Company agrees that, subject to the claim of the Bank, it is a trustee of the proceeds of the policy for the purpose of paying succession Duties on the estate of the insured and it further agrees to continue to pay the premiums until the policy matures.

"‘The Income Tax Act’’ must be construed strictly. The taxing authority must bring itself "plainly and indubitably’’ within the definition of ‘‘income’’ set forth in Section 3. If the taxing enactment when applied to the facts of a particular ease leaves the matter in doubt, the taxpayer should receive the benefit of the doubt. On the other hand, the definition in Section 3 is quite comprehensive in its terms, and its scope is not re- stricted and is probably extended by the use of the word in- cludes’’ with relation to the general meaning of "‘income’’ as well as with respect to the enumeration of particular receipts.

Counsel for the Appellants concedes that if the payments of premiums were made for the benefit of John Gillespie he would be taxable in each year with respect to them. He contends, however, that these payments were made by the Company for its own benefit and not for the benefit of the insured. I cannot give effect to this contention. Gillespie Grain Company Limited ecased to be the beneficiary under the policy in April, 1927. At the same time the Provincial Treasurer of the Province of Alberta was made beneficiary for the purpose of paying any duties imposed on the estate of the insured under the Succession Duties Act. This designation of beneficiary was confirmed in December 1929. It was never revoked. It was acknowledged in the agreement of the 24th of January, 1939. As far back as 1931 the Company assigned all its right, title and interest in the policy to the insured. As a matter of fact the estate of John Gillespie ultimately received the entire proceeds of the policy through partial payment of Succession Duties. In my view the premiums were paid on his behalf and for his benefit.

I am not overlooking the fact that the policy was assigned to the Bank as security for the indebtedness of the Company. But the Insured was personally liable for this indebtedness under his guarantee and moreover I do not think the pledging of the policy could affect the real issue, namely, whether or not the premiums were income in the hands of the insured.

In view of the terms of the agreement (Exhibit 7) there can be no doubt the premiums were paid as compensation to the insured for services rendered by him to the Company, including the guarantee of the Company’s account. The situation was the same in effect as if the payments had been made direct to the insured and by him paid over to the insurance Company. The principle in Ryall v. Hoare, [1923] 2 K.B. 447, cited by Counsel for the Provincial Treasurer, applies.

The appeal is dismissed with costs.