Bond Estate v. The Queen, docket 97-2923-IT-I (Informal Procedure)

Date: 19980924

Docket: 97-2923-IT-I

BETWEEN:

ESTATE OF ROBERT BOND,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Hamlyn, J.T.C.C.

[1] In computing income for the 1993, 1994 and 1995 taxation years, the Appellant claimed as investment counsel fees the amount of $11,301 for 1993, $12,940 for 1994 and $20,762 for 1995.

[2] In reassessing the Appellant for the 1993, 1994 and 1995 taxation years, the Minister of National Revenue (the “Minister”) reduced the claim for investment counsel fees by $10,801, from $11,301 to $500 for 1993, by $12,440, from $12,940 to $500 for 1994 and by $20,262, from $20,762 to $500 for 1995.

THE APPELLANT’S POSITION

[3] From the Appellant’s Notice of Appeal, the following is set forth:

- The fees paid to the Public Trustee for the Province of Saskatchewan are “forced” fees by way of Government regulation; they are non-discretionary and are based on the amount of income for the period of time.

- The nature of the said fees is such as to protect the assets of the taxpayer, (due to mental incapacity), and to ensure wise investment of funds which, in turn, will generate more income and hence greater income tax payable by the taxpayer. The fee is an expense paid to create income.

- The Office of the Public Trustee manages and administers the assets, including shares and securities of the taxpayer which is a portion of the principal business of the Public Trustee and as such qualifies pursuant to sec. 20(1)(bb) of The Income Tax Act.

THE RESPONDENT’S POSITION

[4] The amounts claimed as investment counsel fees in each year are in respect of amounts paid to the Public Trustee. The fees paid to the Public Trustee were in respect of managing the personal affairs of the Appellant, including the paying of personal expenditures such as payments to the Assiniboia Pioneer Lodge, the payment of medical expenses, the payment of income tax instalments and the payment of clothing.

the appellant's argument

[5] In McEntyre Estate v. The Queen, 97 DTC 245 (T.C.C.), the Appellant asserts the Tax Court of Canada recognized the potential for a similar deduction by an executor of an estate, but disallowed the deduction because the executor did not incur the management fees in the normal course of business. In this case, the Public Trustee incurred the management fees in the course of discharging its statutory responsiblities and regularly engages in managing the affairs of other incompetent individuals. As a result, the fees charged in this case fall within the parameters set out in paragraph 20(1)(bb) of the Income Tax Act (the "Act").

THE RESPONDENT’S ARGUMENT

[6] The amounts claimed as investment counsel fees of $10,801 for 1993, $12,440 for 1994 and $20,262 for 1995 were properly disallowed by the Minister in accordance with paragraphs 18(1)(a) and 20(1)(bb) of the Act.

[7] The fees paid to the Public Trustee were not in respect of amounts paid to a person for advice as to the advisability of purchasing or selling a specific share or security of the Appellant or for services in respect of the administration or management of shares or securities of the Appellant.

[8] The Public Trustee is not in the principal business of advising others as to the advisability of purchasing or selling specific shares or securities or for providing services in respect of the administration or management of shares or securities.

LEGISLATION

[9] The relevant legislation reads:

20(1) Notwithstanding paragraphs 18(1)(a), (b) and (h), in computing a taxpayer's income for a taxation year from a business or property, there may be deducted such of the following amounts as are wholly applicable to that source or such part of the following amounts as may reasonably be regarded as applicable thereto:

...

(bb) an amount other than a commission paid by the taxpayer in the year to a person

(i) for advice as to the advisability of purchasing of selling a specific share or security of the taxpayer, or

(ii) for services in respect of the administration or management of shares or securities of the taxpayer,

if that person's principal business

(iii) is advising others as to the advisability of purchasing or selling specific shares or securities, or

(iv) includes the provision of services in respect of the administration or management of shares or securities.

ANALYSIS

[10] The Public Trustee for the Province of Saskatchewan was the only witness called in these appeals.

[11] The Public Trustee (a corporate sole) is established by an Act of the Legislature of the Province of Saskatchewan.

[12] The function and role of the Public Trustee in relation to a dependant adult subject to a court order is primarily custodial, that is, take charge of the assets of the dependant adult, manage and protect the assets and pay whatever expenses are to be paid.

[13] The custodial and managing role is such that the Public Trustee acts in the place of the dependant adult.

[14] The fees charged by the Public Trustee under The Public Trustee Act are by way of Order-in-Council and are set forth in the Saskatchewan regulations, The Public Trustee Regulations.

[15] The fees paid to the Public Trustee for the Province of Saskatchewan are required to be paid by way of government regulation are non-discretionary and are based on income and gross asset value. The nature of the fees is to protect the assets of the Appellant due to mental incapacity. During the period of the mental incapacity the Public Trustee administers the property of the dependant adult and includes the managing of the personal affairs of the dependant adult. The assets of dependant adults can be administered and managed over extended periods. Monies not required immediately by the dependant adult are invested in the name of the Public Trustee.

[16] The responsibility for investing the liquid assets of dependant adults was delegated to Greystone Capital Management Inc. ("Greystone") by the Public Trustee. Any fees charged by Greystone were offset against income earned with the result in income reported by the Public Trustee on behalf of the Appellant was net of the fees charged by Greystone.

[17] It is clear from the evidence and the legislation that the primary function of the Public Trustee in relation to dependent adult assets is custodial and protective.

[18] The Public Trustee "principal business" is not advising others as to the advisability of purchasing or selling specific shares or securities or the provision of services in respect of the administration or management of shares or securities. The Public Trustee is not a commercial undertaking. The Public Trustee does not hold out the office to be an investment counsel within the meaning of paragraph 20(1)(bb).

[19] The Appellant alternatively argued the Public Trustee fees should be treated by analogy to medical expenses. No evidence was tendered to support this contention.

CONCLUSION

[20] The amounts claimed as investment fees for the 1993, 1994 and 1995 taxation years were properly disallowed by the Minister of National Revenue.

DECISION

[21] The appeals are dismissed.

Signed at Ottawa, Canada, this 24th day of September 1998.

"D. Hamlyn"

J.T.C.C.