Date: 19971217
Docket: 96-4257-IT-I
BETWEEN:
SARAH BLACKSTIEN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Bowie, J.T.C.C.
[1] In assessing the Appellant under the Income Tax Act
(the Act) for the 1991 taxation year, the Minister of
National Revenue (the Minister) included in her income an amount
of $3,932. According to the Amended Reply to the Notice of
Appeal, this amount was included, pursuant to subsection 105(2)
of the Act, on the basis that it was “a personal
expense of the Appellant” or “a taxable
benefit”, or simply “a benefit”, paid by, or
conferred on her by, the estate of her late husband.[1]
[2] In June 1987, Max Blackstien and the Appellant entered
into a marriage contract (the contract). Mr. Blackstien owned a
condominium residence in Toronto, described as condominium
corporation plan 167, level 10, unit 7 (the condominium unit).
The Appellant owned a residence in Florida. They provided, by
paragraph 14 of their contract, that these residences would
continue to be their separate property after their marriage, and
that upon the death of the first of them, the other would enjoy a
life estate in the residence of the deceased. Max Blackstien
died in January 1990, leaving a will, of which his son and
daughter-in-law are the executors. There is no mention of the
condominium unit in the will, but since the death of her husband
the Appellant has enjoyed her life estate, pursuant to the terms
of the contract. During the year 1991, the estate paid to the
condominium corporation the amount of $3,932 which is in issue.
It is not disputed that this was the annual levy made by the
condominium corporation in respect of the unit. What is disputed
is that it falls to be taxed in the Appellant’s hands
pursuant to subsection 105(2) of the Act.
[3] Subsection 105(2) reads as follows:
105(2) Such part of an amount paid by a trust out of income of
the trust for the upkeep, maintenance or taxes of or in respect
of property that, under the terms of the trust arrangement, is
required to be maintained for the use of a tenant for life or a
beneficiary as is reasonable in the circumstances shall be
included in computing the income of the tenant for life or other
beneficiary from the trust for the taxation year for which it was
paid.
[4] It is apparent that for the amount to be taxable under
this subsection the following requirements must be met:
1. the payment must be made by a trust;
2. the payment must be made out of the income of the
trust;
3. the payment must be for the upkeep, maintenance or taxes of
or in respect of property; and
4. the property must be one that, under the terms of the
trust, is required to be maintained for the use of a tenant for
life or a beneficiary;
If all of the above requirements are met, then what is taxable
in the hands of the tenant for life, or other beneficiary, is
such part of the amount paid as is reasonable in the
circumstances.
[5] The following are the assumptions which, according to the
Deputy Attorney General’s Amended Reply to the Notice of
Appeal, were made by the Minister in assessing the Appellant:
7. In so reassessing the Appellant, the Minister made the
following assumptions of fact:
(a) at all material times, the Estate held legal title to a
condominium apartment no. 1007 (the “Condominium”)
located at 100 Canyon Avenue, Toronto, Ontario;
(b) the Appellant was married to late Max Blackstien who died
on January12, 1990;
(c) during 1991, the Appellant occupied the Condominium;
(d) during the 1991 taxation year, the Estate paid a personal
expense of the Appellant in the amount of $3,932.00 representing
Condominium maintenance fees;
(e) for the 1991 taxation year, the Estate issued to the
Appellant a T3 supplementary slip indicating that the Appellant
received a taxable benefit in the amount of $3,932.00 from the
use of the Condominium;
(f) in the 1991 taxation year, the Estate conferred a benefit
the value of which was not less than $3,932.00 on the Appellant
who occupied the Condominum.
[6] There are a number of reasons why the Minister’s
assessment in this case cannot stand. The first is that there is
no trust to be found under the terms of which the trustee is
bound to maintain the condominium unit for the benefit of the
Appellant. Ms. Espejo argued for the Crown that a trust arose out
of the marriage contract. However, there are no words in that
document which could be said to create a trust. Nor could she
cite authority for the proposition that a trust arises, at common
law or otherwise, simply out of the fact that the marriage
contract provides for a life tenancy to pass to the Appellant
upon the death of her husband. A trust is created under the will
of the late Mr. Blackstien, but there are no words in that
will, or elsewhere in the evidence before me, whereby the
trustees are obliged to maintain the condominium unit for the use
of the life tenant. There may be obligations which arise at
common law, as was argued, but they are irrelevant to the issue
before me. To satisfy the words of the subsection, the payment
must be made to fulfil an obligation arising “under the
terms of the trust arrangement”. An examination of the will
of the late Mr. Blackstien leaves no doubt that this
requirement cannot be satisfied. Indeed, it would appear that the
estate simply made the payment to satisfy the obligation imposed
on it, as the owner of a freehold interest, by section 32 of the
Condominium Act.[2]
[7] Nor is the second requirement set out above satisfied in
this case. There is no evidence before me as to whether or not
the payment was made out of the income of the trust. Nor has the
Minister, made any assumption in that regard in assessing the
Appellant; certainly no such assumption on the Minister’s
part has been pleaded by the Deputy Attorney General. Absent
either an unrebutted assumption, or some evidence, I cannot find
that the payment has been made out of the income of the trust.
The Minister has assumed that a T-3 Supplementary form was issued
by the executors of the estate to the Appellant, indicating that
she had received a taxable benefit in the amount of $3,932 during
the 1991 taxation year. However, I am not prepared to infer from
the fact that such a form was sent to the Appellant that all the
facts required to bring the payment within subsection 105(2)
have been established.
[8] It has not been established, nor I think could it be, that
it would be reasonable, if all of the other requirements were
satisfied, to include the entire $3,932 in the Appellant’s
income. The parties are in agreement that the amount of $3,932
was the payment required to be made in respect of the condominium
unit to the condominium corporation for the year 1991. However,
the Condominium Act requires that some part of that
amount, not less than 10%, must be contributed to a reserve fund
which is established to provide for major repairs and replacement
of common elements and assets of the condominium corporation.[3] It is clear that
neither the trustee in issuing the T-3 Supplementary form, nor
the Minister in assessing, gave any thought whatsoever to what
part of the annual payment it would be reasonable to include in
the circumstances. No evidence was led as to how much of the
payment was for the reserve fund, and how much for the current
expenses of the corporation. In view of my conclusion that the
other requirements of subsection 105(2) have not been met, I need
not attempt to catalogue all of the relevant circumstances that
would otherwise have had to be taken into account.
[9] For all of the above reasons, the appeal is allowed.
Signed at Ottawa, Canada, this 17th day of December 1997.
"E.A Bowie"
J.T.C.C.
Email this Content