The taxpayer was an estate whose executors and trustees were the son (John) and accountant (Gordon) of the deceased. Gordon had married the widow of the deceased and, upon surviving her, had become a beneficiary of the estate, as were John and the daughter of the deceased (Mary Louise). John, Gordon and Mary Louise also were the equal shareholders of a company (“WWHL”) that had paid various expenses on behalf of the estate for which it had not yet been reimbursed. CRA assessed the estate under s. 15(2) on the basis that was connected (i.e., did not deal at arm’s length) with a shareholder of the corporation (WWHL) to which it owed such amounts.
The estate was found not to be related to the three individual shareholders of WWHL notwithstanding that they also were beneficiaries of the trust and that two of their number were the trustees, because the trust was a separate person for purposes of the Act and, as such, could not be connected by blood relationship to a shareholder of WWHL. After referring to ss. 104(1) and (2) and to the trust's status as a deemed person, McArthur TCJ stated (at p. 1512):
I must determine if the Appellant was related to a shareholder of WWHL and, if not, was the Appellant in fact dealing with a shareholder of WWHL at non-arm's length? Subsection 251(2) provides that related persons are individuals connected by blood relationship, marriage or adoption. The Appellant, a trust, is in fact a person. Subsection 248(1) defines "individual" as a person other than a corporation. Thus, by applying the connecting sections of the Act to the present situation, it is clear that the legislature has created a new person, a trust, which is related to no one. The Appellant is therefore a separate person and separate legal entity and as such is not connected by blood relationship, marriage or adoption to a shareholder of WWHL.