Murphy v. The Queen, 80 DTC 6314, [1980] CTC 386 (FCTD)

Cattanach, J:—These are three appeals from three decisions by the Tax Review Board conjoined as one in each instance whereby the Board confirmed assessments by the Minister of National Revenue of the plaintiff to income tax for the plaintiff’s 1974, 1975, and 1976 taxation years as is correctly recited in paragraph 6 of the statement of claim.

In those years by the assessments in question the Minister added to the plaintiff’s taxable income the respective amounts, $26,225.75, $28,373.04 and $24,484.97 on the basis that the payment of those amounts by trustees of the estate of the late George P Murphy, (the father of the plaintiff), to Mrs Murphy, the wife of the plaintiff, was a payment of property made pursuant to the direction of the plaintiff or with his concurrence by virtue of an agreement to vary the trusts established by the testator and that it was a benefit that the plaintiff desired to have conferred upon his wife the whole within the meaning of subsection 56(2) of the Income Tax Act.

The further basis upon which the Minister assessed the plaintiff as he did was that the plaintiff by virtue of an agreement to vary the aforesaid trusts transferred property directly or indirectly by means of a trust or by other means to his spouse and that the payment of income by the trustees to Mrs Murphy is income from the property transferred by the plaintiff, that is a right to receive income as a subject of a discretionary trust, and accordingly is deemed to be the income of the plaintiff as transferor rather than income of Mrs Murphy as transferee in accordance with subsection 74(1) of the Income Tax Act.

It is expedient at this time to reproduce subsection 56(2) and subsection 74(1) of the Statute:

56.(2) A payment or transfer of property made pursuant to the direction of, or with the concurrence of, a taxpayer to some other person for the benefit of the taxpayer or as a benefit that the taxpayer desired to have conferred on the other person shall be included in computing the taxpayer’s income to the extent that it would be if the payment or transfer had been made to him.

74.(1) Where a person has on or after August 1, 1917, transferred property either directly or indirectly by means of a trust or by any other means whatever to his spouse, or to a person who has since become his spouse, any income or loss, as the case may be, for a taxation year from the property or from property substituted therefor shall, during the lifetime of the transferor while he is resident in Canada and the transferee is his spouse, be deemed to be income or a loss, as the case may be, or the transferor and not the transferee.

There is no dispute between the parties as to the relevant facts upon which these appeals are based. On the contrary prior to trial there was agreement by them through their solicitors to admitted facts and documents annexed thereto as six exhibits lettered from A to F inclusive as well as the material filed before the Tax Review Board and transmitted on appeal pursuant to subsection 176(1) of the Income Tax Act and that all such documents may be adduced at trial without further proof.

A summary of these facts and documents is to the following effect.

George Patterson Murphy died in 1936 leaving his widow, Edythe Agnes Murphy, and three children, George Arnold Murphy, the plaintiff herein, Nora Kathleen Murphy and Edythe Maryon Rhodes.

By his will the testator left his estate to trustees upon certain trusts.

The executors and trustees appointed were the testator’s wife, Edythe Agnes Murphy, his son, George Arnold Murphy, the plaintiff, his daughter, Edythe Maryon Rhodes and TN N Kirby, an accountant. Mr Kirby resigned from this appointment prior to any time material to these appeals and he and the testator’s widow, Edythe Agnes Murphy, were removed by court orders in 1954 and 1967 respectively.

Thus as at September 14, 1967 the executors and trustees of the estate were George Arnold Murphy, the plaintiff and his sister, Mrs Rhodes.

By the late Mr Murphy’s will:

(1) his widow was to receive a life annuity of $20,000 so long as she lived in the family home. If she left the annuity was increased to $21,500. The Trustees were empowered to encroach on capital, if necessary, to pay this life annuity;

(2) each of the testator’s three children, George Arnold Murphy, Nora Kathleen Murphy and Edythe Maryon Rhodes (each of whom survived the testator) were entitled to receive an equal share of the balance of the revenue or a minimum of $4,000 per year out of income or capital if necessary. That is, one-third to each.

In the event that any one of the three children of the testator predeceased him or his wife then from:

(1) George Murphy’s share, the sum of $4,000 goes to his wife, Esther Murphy, and the balance to his sisters, Nora Murphy and Edythe Rhodes, equally or the whole balance to the surviving sister;

(2) Nora Murphy’s share to George Murphy and Edythe Rhodes, and

(3) from Edythe Rhodes’ share, $4,000 per year to her husband and the balance to her children and if her husband died during her lifetime then the whole of her share for the support of her children and in the event of all her children dying then her share to the surviving children of the testator, that is George and Nora Murphy.

On the death of the testator’s widow, Edythe Agnes Murphy, the remainder of the estate to be held, kept invested and the income to be paid:

(1) one-third to the plaintiff, during his lifetime and on his death, $4,000 per year to his wife, Esther Murphy, if she survived him and the balance to Nora Murphy and Edythe Rhodes equally if they survived their brother;

(2) one-third of the income to Nora Murphy during her lifetime and on her death to her brother and sister who survive her;

(3) one-third to Edythe Rhodes during her lifetime and on her death $4,000 per year to here husband if he survived her and if not then for the support of her children and if no husband or child left then to her mother and sister surviving.

In the event of the death of George Murphy, the plaintiff, Nora Murphy and Edythe Rhodes, subject to the provisions in favour of George Murphy’s wife, Esther, and Edythe Rhodes’ husband, the entire residue of the estate to be held in trust for the children of the Edythe Rhodes in equal shares payable to each of them on attaining 30 years of age.

Nora Kathleen Murphy died before September 14, 1967.

There then followed two events of consequence.

On September 14, 1967 an agreement was entered into between George Arnold Murphy, the plaintiff, and Edythe Rhodes, as executors and trustees of their father’s will as parties of the first part and George Arnold Murphy, Edythe Maryon Rhodes, Esther Murphy (wife of the plaintiff), Edgar N Rhodes (husband of Edythe Murphy), Edgar N Rhodes, Junior, and David Rhodes (the latter two being the children of Edythe and Edgar Rhodes) as parties of the second part. These six parties of the second part to the agreement are clearly the beneficiaries under the will of the late George P Murphy in accordance with its terms as previously summarized. This agreement can be conveniently called a family agreement by virtue of which it was agreed that the provisions of the trust under the terms of the will of George P Murphy was changed, subject to the life annuity to his widow remaining constant.

This family agreement provided for two basic things:

(1) the $4,000 per year to the wife of the plaintiff and to the husband of Edythe Rhodes was increased to $6,000 and

(2) the trusts created under the will were to be varied to the extent that the income to George A Murphy, the plaintiff and Mrs Rhodes (ie, one half each) was foregone and a discretionary trust substituted therefor under which:

. . . the surplus income and/or the whole of the income of the trust property as of the first day of January 1967, shall be distributed by the Executors and Trustees to/or for the benefit of such one or more and exclusive of the other or others of the parties of the second part or their issue as the trustees may from time to time select and determine in the absolute discretion to the said trustees and decide from time to time how much if any, of the said income is to be paid to or applied to any of the said parts of the second part, providing that in each year, all of the said income shall be applied in the discretion of the trustees to the benefit of or paid to the said beneficiaries or someone or more of them.

This agreement was the subject of an application for an order pursuant to The Variation of Trusts Act (RSO 1960, c 413) heard by the Honourable Mr Justice Ferguson in the Supreme Court of Ontario on September 29, 1967. Counsel for the Official Guardian was present at the hearing in the interest of infants affected.

Mr Justice Ferguson approved the application for variation and the trust created was recited in his order in the identical language as that in the family agreement.

George Patterson Murphy’s last will was dated October 4, 1937.

It is apparent from a recital in the family agreement dated September 14, 1967 that the testator had died on February 22,1938 and, of course, his will was probated.

Nora Kathleen Murphy had died prior to the execution of the family agreement on September 14, 1967.

Mrs Edythe Agnes Murphy, the testator’s widow died on November 27, 1971.

Thus as at that date the surviving beneficiaries under the will were the plaintiff, George A Murphy, and his sister, Mrs Edythe Maryon Rhodes. Had the terms of their father’s will remained inviolate they would have been entitled to a division of the total income in equal shares.

However by reason of the order dated September 29, 1967 under The Variation of Trusts Act the income from the trusts became payable in its entirety as from November 27, 1971 in accordance with that order to the six beneficiaries thereof, namely, George Arnold Murphy, the plaintiff, Edythe Maryon Rhodes, Esther Murphy, Edgar N Rhodes, Edgar N Rhodes, Jr and David Rhodes, as the trustees, the plaintiff and Mrs Rhodes, in their absolute discretion might determine.

The executors and trustees directed that one quarter of the income earned by them for each of the 1974, 1975 and 1976 taxation years as trustees be paid to Esther Murphy, the plaintiff’s wife.

That was done. Payments out of income to the trust in the amounts of $26,225.75, $28,373.04 and $24,484.97 were paid to the plaintiff’s wife in the respective taxation years.

It was those amounts which the Minister of National Revenue, by assessments dated September 27, 1977, added to the plaintiff’s taxable income in those three taxation years upon the bases outlined at the outset the correctness of which the plaintiff disputes in these appeals.

To fall within subsection 56(2) each essential ingredient to taxability in the hands of the taxpayer therein specified must be present.

Those four ingredients are:

(1) that there must be a payment or transfer of property to a person other than the taxpayer;

(2) that the payment or transfer is pursuant to the direction of or with the concurrence of the taxpayer;

(3) that the payment or transfer be for the taxpayer’s own benefit or for the benefit of some other person on whom the taxpayer wished to have the benefit conferred,

and

(4) that the payment or transfer would have been included in computing the taxpayer’s income if it had been received by him instead of the other person.

Subsection 74(1) of the Income Tax Act (eliminating the language which has no application to the facts of the present appeals) is applicable where a person transferred property either directly or indirectly by means of a trust or other means to his spouse, income from the property transferred or property substituted therefor. In that event the income so transferred is deemed to be that of the transferor and not of the transferee and taxable accordingly.

There are ingredients common to subsection 56(2) and subsection 74(1) and there are differences.

The common elements in each are that:

(1) there must be a transfer from one person to another, and

(2) the transfer must be of property.

The differences are that under subsection 56(2) it is specifically provided that the “transfer of property’’ must be at the direction of or with the concurrence of the transferor.

Under subsection 74(1) there is no specific provision that the transfer of property must be at the direction or with the concurrence of the transferor. In the facts of the present appeals no particular significance attaches to the absence of this language in subsection 74(1) in that the condition is that the person must transfer property. That being so it is implicit therein that the animus of the transferor was to direct and concur in the transfer.

Under subsection 56(2), the transfer must be for the taxpayer’s own benefit or for the benefit of some other person upon whom the taxpayer wished to confer a benefit. Such a requirement is not included in subsection 74(1). Under subsection 74(1) the transferee must be the spouse of the transferor and there is no mention of the conference of a benefit on the other spouse or upon the spouse who transfers. Further in subsection 74(1) when property is transferred it is any income therefrom or loss thereon that is deemed to remain vested in the transferring spouse.

As I appreciate this difference in language between the two subsections it follows from the purpose to be accomplished by each. Subsection 56(2) is to impute receipt of income to the taxpayer that was diverted at his instance to some one else. It is to cover cases where the taxpayer seeks to avoid the receipt of what in his hands would be income by arranging to transfer that amount to some other person he wishes to benefit or for his own benefit in doing so. Apart from any moral satisfaction the practical benefit to the taxpayer is the reduction in his income tax.

The purpose of subsection 74(1) is to prevent the avoidance of tax by the transfer of property to his spouse and to accomplish this any income from or loss upon the property so transferred remains in the hands of the transferor. Therefore the mention of benefit is irrelevant in subsection 74(1).

A further difference is that under subsection 56(2) it is the payment or transfer of property that is included in the transferor’s income but in subsection 74(1) it is the income or loss from the property transferred to a spouse that remains in the transferring spouse’s income for taxation purposes.

But the major difference between the two subsections pertinent to these appeals is that under subsection 74(1) the transfer of property by a person to the spouse may be: (1) directly by means of a trust, or (2) indirectly by means of a trust, or (3) by any other means whatever.

Reverting to the facts prior to the execution of the family agreement on September 14, 1967 and the order of the Supreme Court of Ontario dated September 29, 1967 under The Variation of Trusts Act which confirmed the variation of the existing trusts the plaintiff, George A Murphy and his sister, Edythe M Rhodes, each have a vested one-half interest in the income from the estate of their father.

After the family agreement and its ratification the vested one-half interest of the plaintiff and Mrs Rhodes were extinguished and replaced by a newly created discretionary trust in favour of a new class, the members of which were six in number, the plaintiff, Mrs Rhodes, the plaintiff’s wife, Mrs Rhodes’ husband, and the two sons of the Rhodeses as objects of the trust.

Under the discretionary trust so created none of the individual objects thereof is entitled to any part of the property, income or capital. A beneficiary is entitled to only what the trustees, in their discretion, elect to bestow. Until that is done the beneficiary has no vested interest therein.

I accept the reasoning of Megarry, J in Re Holt’s Settlement, [1969] 1 Ch 100 at 120, that in this instance, the family agreement, coupled with the order of the court, constitute the instrument which varies the trust and that what takes place after September 29, 1967 is the result of the complex of the court order of that date and the family agreement dated September 14, 1967.

The significance of this circumstance is that it may be susceptible of being construed as the concurrence of the plaintiff, within the meaning of subsection 56(2), to a payment or transfer of property to his spouse by virtue of him being a party to the agreement and thereby consenting to its confirmation by the order of the court as a possible consequence of the variation in the trusts when that possibility became a reality.

In the same vein the plaintiff’s participation in the family agreement by being a party thereto and consenting to its confirmation by court order is also susceptible of being construed as being a benefit that the plaintiff desired to have conferred upon Mrs Murphy prospectively to the time when a benefit was so conferred. I have made no further mention of the more nebulous benefit to the plaintiff himself;

Walton, J in Thorn v IRC, [1976] 2 All ER 622 said at 632-3:

In the context of a family arrangement of this nature, I think the proper way to regard the actions of a person who gives up a fixed and certain interest in exchange for the somewhat spectral interest of being included in a class of discretionary beneficiaries is that the interest has been given up for the benefit of those who obtain the benefit of it under the scheme, the benefit conferred by the discretionary trust being much more in the nature of a long stop, in case anything should go seriously wrong with the finances of the person giving up the interest thereafter, rather than as a seriously intended quid pro quo.

These are the contentions which I have conceived to have been advanced on behalf of the Minister to bring the facts in these appeals within subsection 56(2) in that there has been “concurrence” to a payment or transfer of property by the plaintiff to his spouse and upon whom he desired to confer a benefit.

Contrary thereto, assuming that there has been a transfer of property which counsel for the plaintiff does not concede, the contention on behalf of the plaintiff that the “concurrence and direction’’ by the plaintiff implicit in his participation in the family agreement was to a transfer of property to the trust and not to Mrs Murphy.

Similarly, it was contended that the plaintiff conferred no benefit upon himself and none on Mrs Murphy because Mrs Murphy gained no right to the estate by the plaintiff’s participation in the family agreement but by the act of the plaintiff as one of the trustees of the discretionary trust and that act is not an act in his personal capacity as is contemplated by the Statute.

By virtue of subsection 140(2) for taxation purposes a trust is treated as a completely separate taxpaying entity distinct from the trustee in control of its property. This is the device adopted to ensure the taxation in such year of all income of the trust either in the hands of the trust or in the hands of a beneficiary and it is emphasised that the trust is taxed as an individual.

These foregoing matters are peculiar to subsection 56(2).

The elements common to both are that there must be “property’’ and a “transfer” of that property.

Property is defined in subsection 248(1) as meaning:

. . . “property” of any kind whatever whether real or personal or corporeal or incorporeal and without restricting the generality of the foregoing, includes

(a) a aright of any kind whatever, a share or a chose in action,

(b) unless a contrary intention is evident, money, and

(c) a timber resource property;

What the plaintiff had held was the vested right to one-half of the income of his father’s estate. Clearly that was not transferred by him to his wife. The plaintiff gave up that right in exchange for being included in a class of discretionary beneficiaries. The contention of the plaintiff is that if this chain of circumstances is to be considered as a transfer of “property” it is a transfer of property to the trust and not to the spouse.

Added to this is the further contention that whatever income the plaintiff may have given up and transferred to the trust cannot be identified in specie as the income received by Mrs Murphy from the trust. Put another way the property of the plaintiff cannot be “traced” to his spouse.

Also common to both subsection 56(2) and 74(1) is the concept of a “transfer”.

I accept the contention of counsel for the plaintiff that the word “transfer” as used in subsection 56(2) and the word “transferred” as used in subsection 74(1) are not used in a technical sense and in its ordinary dictionary meaning it is to give or hand over property from one person to another.

I also accept the contention of counsel for the plaintiff that in construing a taxation statute the tax is exigible only if it is clearly imposed by the express terms of the statute. The popular way of putting the contention is that a taxing statute is to be strictly construed and the onus is on the Crown to show that the persons whom it is sought to tax fall clearly within its operation.

Apart from that a taxing statute is to receive the same interpretation as any other statute. The words are to be interpreted in their popular sense unless they have acquired a technical or other special meaning and in case of doubt the party sought to be made liable is to be deemed to be exempt.

On the basis of these observations I find it incongruous that the Minister seeks to impose liability upon the plaintiff by virtue of subsection 56(2) and because of the emphasis placed thereon in argument I considered expedient to set out the contentions so put forward in detail.

In my view what was transferred by the plaintiff was “property” within the broad and all embracing definition thereof in subsection 248(1) including “a right of any kind whatever”.

I am equally certain that the plaintiff “transferred” that property but within subsection 56(2) the question which remains is to whom did the plaintiff transfer that property.

In my view the plaintiff’s liability to tax liability falls to be determined by the applicability of subsection 74(1) to the facts of these appeals and, while I entertain reservations as to the applicability of subsection 56(2) to the facts of these appeals, I do not decide that question.

Subsection 74(1) differs substantially from subsection 56(2). Subsection 56(2) deals with transfer of property by a taxpayer to a person upon whom the taxpayer wishes to confer a benefit.

Subsection 74(1) deals with the transfer of property by a taxpayer to a spouse. That transfer of property may be accomplished either “directly or indirectly by means of a trust or by any other means whatever”. There is no such language in subsection 56(2). It is the income from the property transferred by the taxpayer to the spouse that is deemed to be the income of the taxpayer and not the spouse. Language to that effect is not included in subsection 56(2). It is the payment or property transferred to another person that remains taxable in the hands of the taxpayer who transferred it, not the income therefrom as under subsection 74(1).

Guidance is obtained in the interpretation of subsection 74(1) in a decision of the Appeal Division, Sachs v The Queen rendered on July 21, 1980, [1980] CTC 358; 80 DTC 6291. The interpretation of subsection 75(1) was involved rather than subsection 74(1) but the language of these subsections is substantially the same. Subsection 74(1) deals with transfers of property between husbands and wives whereas subsection 75(1) deals with transfers to children under 18 years of age. In all other respects the subsections are the same. In each instance the transfer of property may be accomplished “either directly or indirectly by means of a trust or by any other means whatever” and it is the income from the property so transferred, or property substituted therefor, that is deemed to be the income of the transferor and not of the transferee.

In the Sachs case a settlor established a family trust naming his wife as trustee. The settlor sold to the trustee dividend producing shares in company in consideration of a promissory note bearing no interest. The beneficiaries of the trust were the children of the settlor and his wife. The trust estate was to be held and accumulated for the benefit of the children until a child had reached a certain age at which time that child became entitled absolutely to an equal share in the capital and accumulated income of the trust. There was a provision in the trust deed that the trustee at her absolute and uncontrolled discretion may at any time and from time to time pay to any one of the beneficiaries some or all of the income or capital prior to the maturity dates for each child.

In the 1974 and 1975 taxation years dividends from the shares transferred to the trust were received by the trust. I should add that in those taxation years preferred beneficiary elections were made by or on behalf of the beneficiaries and by the trust that this income was to be taxable in the hands of the beneficiaries and not in the hands of the trust as provided for in seciton 104.

The Minister assessed the settlor of the trust to income tax on the basis that the dividends received by the trust were deemed to be income of the settlor and not of the beneficiaries of the trust by virtue of subsection 75(1).

The contention was that for subsection 75(1) to apply there must have been a transfer of property to a person under 18 years of age with the attributes of a transfer by a vesting of the property in the beneficiary. The like contention has been made before me with repect to the application of subsection 74(1).

In the Sachs case the property transferred was a chose in action whereas in the present appeals it was an intangible or incorporeal right, a much more nebulous type of property but property nevertheless.

In each instance, however, there was a transfer to a discretionary trust for the potential benefit to the object of the trust. In the Sachs case the potential benefit might occur before the absolute benefit to the beneficiaries upon their reaching the age requirement.

This contention is predicated upon the remarks of Lord Radcliffe in St Aubyn v Attorney-General, [1952] AC 15, those of Thorson, P in Fasken Estate v MNR, [1948] Ex CR 580; [1948] CTC 265; 49 DTC 491, and those of Thurlow, J (as he then was) in J B Dunkelman v MNR, [1960] Ex CR 73; [1959] CTC 375; 59 DTC 1242.

Lord Radcliffe said at 53:

If the word “transfer” is taken in its primary sense, a person makes a transfer of property to another person if he does the act or executes the instrument which divests him of the property and at the same time vests it in that other person.

Thorson, P in considering the predecessor section to subsection 74(1) said at 592 [279, 497] of the Fasken case:

The word “transfer” is not a term of art and has not a technical meaning. It is not necessary to a transfer of property from a husband to his wife that it should be made to any particular form or that it should be made directly. All that is required is that the husband should so deal with the property as to divest himself of it and vest it in his wife, that is to say, pass the property from himself to her. The means by which he accomplishes this result, whether direct or circuitous, may properly be called a transfer. The plain fact in the present case is that the property to which Mrs Fasken became entitled under the declaration of trust, namely, the right to receive a portion of the interest on the indebtedness, passed to her from her husband who had previously owned the whole of the indebtedness out of which the right to receive a specified portion of the interest on it was carved. If David Fasken had conveyed this piece of property directly to his wife by a deed such a conveyance would clearly have been a transfer. The fact that he brought about the same result by indirect or circuitous means such as the novation referred to by counsel involving the intervention of trustees cannot change the essential character of the fact that he caused property which had previously belonged to him to pass to his wife. In my opinion, there was a transfer of property from David Fasken to his wife within the meaning of the Act.

Thurlow, J cited both of the above quotations in Dunkelman v MNR in which he had under consideration the predecessor section to subsection 75(1). He said at 78 [380, 1244]:

The expression “has transferred’’ in s 22(1) has, in my opinion, a similar meaning. All that is necessary is that the taxpayer shall have so dealt with property belonging to him as to divest himself of it and vest it in a person under 19 years of age. The means adopted in any particular case to transfer property are of no importance, as it seems clear that the intention of the subsection is to hold the transferor liable for tax on income from property transferred or on property substituted therefor, no matter what means may have been adopted to accomplish the transfer.

With respect to the interpretation of subsection 75(1) Thurlow, CJ had this to say in the Sachs case:

I shall deal first with my view of the interpretation of subsection 75(1) of the Income Tax Act. It has been said in Fasken Estate v MNR and in Dunkelman v MNR that the provision is to be strictly construed. That means that it is to have effect only when its application to the facts is clear and that the language is not to be extended to situations not strictly within the language used but within some supposed purpose or intendment of the provision. The subsection must be read as a whole to determine its application. But the wording is not technical and its interpretation should not be approached as if it were technical. Nor should it be construed as if it turned on the niceties of distinctions as to the vesting of property which have been developed and recognized by courts of equity.

Predicated upon the basis of interpretations so expressed I am taking the liberty of paraphrasing his subsequent remarks by substituting the language in subsection 74(1) for that of subsection 75(1) used by the Chief Justice.

He said:

In the course of explaining the applicable provisions, in both Fasken and Dunkelman, the word “vest” was used. It was said that all that was necessary was that the transferor so deal with his property as to divest himself of it and vest it in a person referred to in the provision. But in neither case was there occasion to use the word in a technical sense.

In these two cases there was no occasion to use the word “vest” as distinguished between rights that are vested and those that are not.

Subsection 74(1) does not use the word “vest”. What the initial wording says is: “Where a person has transferred property either directly or indirectly by means of a trust or by any means whatever to his spouse ..

All this calls for is a transferor and a transfer of property by him by any means to his wife. It is not necessary, in order to fall within this wording, that all of the rights to property transferred became immediately or even eventually the property of the spouse.

But it is apparent from what follows the opening words that the subsection is concerned only with the property transferred to a spouse and with income from that property or property substituted for it. Both Fasken and Dunkelman were concerned with whether property had been transferred in the sense of the statutory provisions. Here the question arising on the opening words is not whether property was transferred but whether property or rights in property were transferred to a spouse.

The application of the subsection depends on whether the plaintiff directly or indirectly by the device of a trust transferred property to his Spouse.

Immediately prior to the execution of the family agreement and the confirming court order the plaintiff had a vested one-half interest in the income of his father’s estate. That was the property of which he was possessor and of which he divested himself. He forewent that right as did his sister forego an equal right. Thus the whole of those rights reverted to the varied trust for diposition in accordance with the varied terms. The plaintiff received in exchange therefor the right of being included in a class of six discretionary beneficiaries including his wife who had hitherto had no share in the plaintiff’s right and now may share in the income from the estate at the discretion of the trustees.

It is difficult to assess the advantage which may have accrued to the plaintiff by giving up which was obviously a substantial financial interest in exchange for something less upon any quid pro quo basis. Clearly there must have been other considerations present to the plaintiff which influenced him to agree to the exchange that he did.

The property right of what the plaintiff was possessed generated income. It was aright to income.

I fully appreciate that the plaintiff’s wife would not receive any income from the trust unless the trustees so decreed.

This the trustees did in the 1974, 1975 and 1976 taxation years to the extent of the amounts in question in these respective years, that is one-half of the one-half of the income from the assets of the estate that would have come to the plaintiff in those years but for the variation in the trust.

When the plaintiff gave up his vested right in exchange for the rights under the varied trust he was well aware and must be taken to have anticipated that the eventuality which did happen in the taxation years in question could happen.

The action by the trustees is but the concluding link in the chain of circumstances set up by the plaintiff’s participation in the family agreement.

Viewing the matter broadly and stripped of its legal concepts, it is difficult to see any answer but that, within the ordinary meaning of the words of subsection 74(1), as applied to the facts prevailing in 1974, 1975 and 1976, the plaintiff had by means of a trust transferred property to his spouse and that the income generated by thai property by virtue of the subsection is deemed to remain the income of the plaintiff and is accordingly taxable as such.

For the foregoing reasons the appeals are dismissed with the costs to Her Majesty.