Walter G. Lumbers v. Minister of National Revenue, [1944] CTC 67

Rand J. (Concurred in by Taschereau, J.) :—This is an appeal from the Exchequer Court [[1943] C.T.C. 281] which upheld a ruling by the Minister of National Revenue that a payment of $1,500. received by the appellant during the year 1940 was not income arising from an annuity contract within the exemption provisions of the Income War Tax Act.

The contract, under which monthly payments of $125 were made, was entered into in the year 1918. In general, its terms provided for the payment of annual premiums for 20 years upon the completion of which the insurance company, subject to a lump sum commuted value option, would pay to the appellant, the insured, the sum mentioned during his lifetime, and at his death, to his wife for her lifetime. Underlying both these life interests was a guaranteed period of 20 years. During the payment of the premiums the contract constituted a policy of insurance and, on the death of the insured, the monthly sums would become payable to his wife, if then living, for her lifetime with the same guarantee of 20 years. There was provision also for the payment of dividends both during the endowment period and thereafter, and as well for cash surrender values, loan values and paid-up term insurance options. Both the assured and his wife were living on January 1, 1939, when the policy matured and when the monthly instalments became payable.

In 1930 the Income War Tax Act was amended to the effect that income to the extent of $5,000 derived from annuity con- tracts with the Dominion or Provincial Governments or with a properly licensed incorporated company "‘effecting like annuity contracts’’ should be exempt from taxation. In 1932 this was in turn amended by reducing the amount of exemption to $1,200 but preserving the exemption of the 1930 legislation to all contracts entered into prior to May 26, 1932, when the 1932 Act came into force. In 1940 a further amendment was made by which the exemption was limited to the income arising from an annuity contract entered into before June 25, 1940, to the extent provided by the legislation of 1930 and 1932.

No question arises as to whether these annual sums are or are not income within the definition of that term in the Income War Tax Act. The amount received during 1940 was included in the return of the appellant and it is only on the question of the right to the exemption claimed that this appeal turns.

The amendment of 1930 provided that the decision of the Minister in respect of any question arising under the paragraph dealing with annuities should be final and conclusive. Such a question did arise under that paragraph, s. 5, para. (k), and it was whether the contract of the appellant was one "‘like’’ an annuity contract of the Governments mentioned. Some point was made that the language of the 1930 amendment, "‘income

derived from annuity contracts with . . . any company incorporated or licensed to do business in Canada effecting like annuity contracts’’ characterized only the company and not the actual contract and it was argued that, as admittedly the insurance company in question did both in 1918 and 1939 issue contracts of the same sort as those made by the Dominion and Provincial Governments, the contract in the case, being an annuity contract issued by such a company, was, therefore, within the exempting legislation. On its true construction, however, the language used in 1930 must be taken to refer not only to the company but to the contract out of which the payments arise and the question remains whether or not the contract upon which the appellant stands is an annuity contract like those at the time issued by the two Governments.

Whether, at the time it was made, the contract could properly be described as an ‘‘annuity contract’’ is extremely doubtful. It was argued to be a contract of insurance plus annuity. But it is also contended that, whether or not it was so before 1939, on January 1st of that year all insurance features had dropped and that at that moment it had become both an annuity contract and one with the characteristics of government contracts: it is then urged that in each case the question to be asked under the Income War Tax Act is this : what is the nature of the obligation under which the income is paid at the moment when it is paid? and from these premises the conclusion of exemption is drawn.

In the amendments made in 1930, 1932, and 1940, what is dealt with is an ‘‘annuity contract entered into ‘ ‘ prior to certain dates. That language is plain and well understood. The contract here was entered into in 1918 and the payments arising in 1939 flow from the obligations then created. What is contemplated is an annuity contract as of the time of its being made and not as of any moment thereafter which may mark the beginning of some stage of performance under it.

The essential characteristic of the government annuity agreement is that the benefits shall be fully purchased by the an- nuitant. That may be either by one payment or by a series of payments, but until the price has been received the right to the annuity does not arise. In the contract in question, for the first 20 years there was present a fundamental obligation of insurance for which there was no purchase in the annuity sense. Assuming, then, that it was an annuity contract, a point which I do not find it necessary to decide, the circumstances of insurance and the other differentiating features mentioned were ample grounds, I should say, upon which the Minister could rule that the contract was not " ‘ like ‘ ‘ a government annuity contract. No error in the interpretation of the statute on his part has been shown and, if this exercise of Judgment is not within his exclusive field of determination, I should feel at a loss to know in what circumstances such a ruling would not be reviewable.

The decision of the President of the Exchequer Court was, therefore, right and the appeal should be dismissed with costs.

Appeal dismissed.