|
Citation: 2003TCC410
|
|
Date: 20030617
|
|
Docket: 2002-3369(IT)I
2002-3370(IT)I
2002-3392(IT)I
|
|
BETWEEN:
|
|
GEORGE ALEXANDER HALL,
MARY KATHERINE DOBBIN,
JAMES DOUGLAS HALL,
|
|
Appellants,
|
|
and
|
|
|
|
HER MAJESTY THE QUEEN,
|
|
Respondent.
|
____________________________________________________________________
Counsel for the Appellants: J. L. Marc Boivin
Counsel for the Respondent: Alain Gareau
____________________________________________________________________
REASONS FOR JUDGMENT
(Delivered orally from the Bench on
May 9, 2003, at Montréal, Québec)
McArthur, J.
[1] These three appeals were heard
together on common evidence concerning each Appellant's 2000
taxation year. The issue is whether the Minister of National
Revenue correctly included certain interest income in the
Appellants' 2000 taxation year. The Royal Trust Company of
Canada was the sole executor and trustee of the Estate of Herbert
L. Hall who was the uncle of the three Appellants, the residuary
beneficiaries. Royal Trust issued T5 Statements of Investment
Income for the year 2000 to the Appellants in the amount of
$5,193 each which amount was not received by the Appellants until
2001.
[2] The Appellants take the position
that the administration of the Estate had not been completed and
there had been no distribution to the taxpayers in the year 2000
and the amount should not be included in their income for that
year. The Minister's position is that the interest became
payable to the Appellants during the 2000 taxation year in
accordance with subsections 104(13) and 104(24) of the Income
Tax Act. The Minister submits that following the wind-up of
the Estate, which he took as of January 2000, the Appellants were
in a position to enforce distribution and thereby the interest
earned became payable to them in the period following the
wind-up.
[3] These subsections read in part as
follows:
104(13)
There shall be included in computing the income for a particular
taxation year of a beneficiary under a trust such of the
following amounts as are applicable:
(a) ... as
became payable in the trust's year to the beneficiary;
104(24)
... an amount shall be deemed not to have become payable to a
beneficiary in a taxation year unless it was paid in the year to
the beneficiary or the beneficiary was entitled in the year to
enforce payment of the amount.
And that is the crux of the question before us.
[4] For the most part, the facts are
not in dispute. The issue boils down to whether the
administration of the Estate had been completed in the year 2000
and whether the amounts became then payable and that the
Appellants were entitled to enforce payment in that year. The
Act treats income differently from different sources.
Income from employment is included in the year it was received,
income from business is included in the year the amount becomes
an amount receivable. Yet, income from a trust differs in that
the amount must be found to be payable to the beneficiary.
[5] Many cases have explored the
difference between received and amounts receivable. This question
was considered, whether payments received but yet not earned were
to be included in a taxpayer's income in Kenneth B.S.
Robertson Ltd v. M.N.R., [1944] 3 D.L.R., Ex.Crt. 170, where
Thorson J. found that an amount received was to be included in
the income of the taxpayer, even if it was unearned, provided
that it had the "quality of income". He stated:
Did such amounts have, at the time of their receipt, or
acquire, during the year of their receipt, the quality of income,
to use the phrase of Justice Brandeis in Brown v.
Helvering. In my judgment, the language used by him, to which
I have already referred, lays down an important test as to
whether an amount received by a taxpayer has the quality of
income. Is his right to it absolute and under no restriction,
contractual or otherwise, as to its disposition, use or
enjoyment?
The Supreme Court of Canada considered quality of income in
Gagnon v. Canada, [1986] 1 S.C.R. 264, and turned to other
cases interpreting both Robertson and Brown in
concluding that this referred to "restrictions on the right
to dispose of an amount, not to restrictions on the way it was
used". Mr. Justice Beetz quoted a rule in Rutkin v.
United States, 343 U.S. 130 (1952), stating:
A gain constitutes taxable income when its recipient has such
control over it that, as a practical matter, he derives readily
realizable economic value from it.
As regards the concept of quality income, trust income is not
different.
[6] Therefore, in analyzing the issue
in the present cases, we need to explore the question of whether
the Appellants should have an absolute right to their
distributions and "be under no restriction, contractual or
otherwise, as to its disposition, use or enjoyment". Given
the facts of this case, the amounts in question were payable but
for the fact that Royal Trust refused to release the distribution
until the settlement of a dispute with the Appellants.
[7] I find as a fact that Royal Trust
had not completed the administration of the Estate; the
beneficiaries were presented a Statement of Accounts for the
Estate in January 2000 which included executor's
compensation, to which the beneficiary, James, who is an
attorney, vigorously opposed. He was not about to release Royal
Trust from its duties of passing accounts. In addition, there
were further funds to be collected, for example, a $64,000
Revenue Canada refund. I refer to the Supreme Court of Canada
decision in Hall v. Québec Minister of Revenue,
[1998] 1 S.C.R. 200, where Gonthier, J. stated:
A contrary conclusion would have the unfair effect of making
legatees pay tax on income from which they are not
benefiting.
This quote was also included in the Appellants' Notices of
Appeal.
[8] I find that Royal Trust caused the
delay of the distribution until 2001 after the T5 slips had been
prepared and issued. Royal Trust refused to amend them. It seems
quite evident that for these reasons the Appellants did not have
an absolute right to their distribution, nor could they, as a
practical matter, readily realize economic value from them.
[9] Counsel for the Respondent argued
that the delay in the distribution was due to the Appellants'
own actions, or at least the actions of one of the three
beneficiaries. I believe the testimony of James Hall who admitted
that in this respect, he was the offending party. He laid out his
reasons for persisting in the dispute with Royal Trust.
Certainly, he could have given in and surrendered his position so
that the Appellants would receive their funds when originally
anticipated. I do not believe, however, that it was the intent of
Parliament, in enacting subsections 104(13) and 104(24), that the
beneficiaries of trusts relinquish the right to pursue funds
which they believe belong to them for the sake of including a
lesser amount in their income at the earliest possible
opportunity. As Justice Gonthier said, this would be unfair.
[10] I therefore find the amounts in
question were not payable to the Appellants in the year 2000
because the Appellants' distribution did not possess the
requisite "quality of income". For these reasons, the
appeals are allowed with costs.
Signed at Ottawa, Canada, this 17th day of June, 2003.
J.T.C.C.
Email this Content