Gooderham v. City of Toronto, [1934] SCR 158

Supreme Court of Canada

Gooderham v. City of Toronto, [1934] S.C.R. 158

Date: 1934-01-26

William G. Gooderham, one of the trustees of the estate of the late george gooderham (Plaintiff) Appellant;

and

The Corporation of the City of Toronto (Defendant) Respondent.

1933: November 23, 24; 1934: January 26.

Present: Duff C.J. and Rinfret, Smith, Cannon and Hughes JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO.

Assessment and taxation—Constitutional law—Income received by trustee in Ontario and paid over to persons out of Ontario—Trustee assessed by municipality in 1932 for income so received and paid over in 1931—Assessment Act, R.S.O., 1927, c. 238 (as amended in 1930, c.46), ss. 4, 10, 13 (1) (4) (5) (6)—Nature and validity of the taxation—Direct taxation.

Appellant, a resident of Toronto, Ontario, was a trustee under the will of G. who had died in 1905, a resident of Toronto, Ontario. In 1932 appellant made a return to the assessment commissioner of Toronto shewing income received (in Ontario) during 1931 on a certain trust

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under G.’s will, which income had been paid over in 1931 to the persons entitled under the trust, who were domiciled and resident in the United States. The city assessor, in the assessment roll prepared in 1932 upon which taxes for 1933 would be levied, assessed appellant for the amount of said income.

Held: The assessment was legal under the provisions of ss. 4, 10 and 13 (1) (4) (5) (6) of the Assessment Act, R.S.O. 1927, c. 238 (as amended in 1930, c. 46); which provisions are intra vires.

The legislation discussed with regard to its purpose, construction and effect. It does not offend against the requirement that provincial taxation be “direct taxation”.

APPEAL by William G. Gooderham, one of the trustees of the estate of George Gooderham, deceased, from the judgment of the Court of Appeal for Ontario dismissing the appeal of said appellant from the judgment of His Honour Judge Denton, Senior Judge of the County Court of the County of York, dismissing the appeal of said appellant from the Court of Revision for the City of Toronto confirming the assessment of the appellant in respect of income, amounting to $73,083, received on a certain trust under the said deceased’s will.

The appeal to the Court of Appeal was upon a special case stated by His Honour Judge Denton pursuant to s. 84 of the Assessment Act, R.S.O., 1927, c. 238. The special case was as follows:

1. The late George Gooderham died on or about the first day of May, 1905. He was a resident of the city of Toronto, and he duly made his last will and testament, probate whereof was granted on the second day of October, 1905. A copy of such probate is hereto annexed.

2. By his last will and testament the said George Gooderham set aside a share of his estate for his daughter, Mrs. V.D. Bird, and directed his trustees to pay to her the income arising there from during the term of her natural life, and on her death the said trustees were directed in the events that have happened to pay the income arising from one-half of said share to the husband of the said daughter in equal quarterly payments on the first days of January, April, July and October in each year, and subject thereto that the income from the said share or so much thereof as the trustees of the said will in their discretion should see fit should be applied towards the support, maintenance and education of the child or children of the said daughter until the youngest child shall have attained the age of twenty-one years, and upon the youngest child of such daughter attaining the age of twenty-one years to divide the whole with accumulations in case the husband be dead, or the one-half share in case he be alive among the surviving children of the said daughter and the issue of any children who may have died leaving issue surviving all as set forth in the said will, a copy of which is attached hereto.

3. The said Mrs. V.D. Bird died prior to the year 1931, leaving her surviving her husband and daughters, all of whom are still living. The said daughters are all under the age of twenty-one years.

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4. The said Mrs. V.D. Bird at the time of her death and for a long time prior thereto was domiciled and resident in the state of Massachusetts, one of the United States of America, and her said husband and children were at the time of the death of the said Mrs. V.D. Bird and are still domiciled and resident in the state of Massachusetts, and the income arising from time to time since the death of the said Mrs. V.D. Bird upon one‑half of the share of the estate of the said late George Gooderham set apart for the said Mrs. V.D. Bird, pursuant to the direction of his last will and testament as aforesaid, has been paid quarterly to the husband of the said Mrs. V.D. Bird for his own use, and as to the other one-half thereof has been applied towards the support, maintenance and education of the children of the said Mrs. V.D. Bird by paying the same to the said husband upon vouchers for the proper application thereof by him.

5. The trustees of the will of the said late George Gooderham in the year 1932 made a return to the assessment commissioner showing the receipt by them of income to the amount of $73,083, received by them for the year ending December 31, 1931, upon the share of the estate of the late George Gooderham so set aside for the late Mrs. V.D. Bird under the provisions of the said will hereinbefore in part recited.

6. The assessor, in the assessment roll prepared in the year 1932 upon which taxes for the year 1933 will be levied, has assessed William G. Gooderham, one of the trustees under the will of the said late George Gooderham, for the said sum of $73,083 (the income shown by the said return). No objection is taken on the ground that only one of the trustees had been assessed.

7. From such assessment the appellant appealed to the Court of Revision and said appeal was dismissed.

8. The appellant then appealed to the County Judge of the County of York from the decision of the Court of Revision and the appeal came on for hearing before me on the 14th day of December, 1932.

9. On the hearing of the said appeal, the appellant requested me to make a note of the questions of law and construction of statutes raised by him and to state the same in the form of a special case for the Court of Appeal should my judgment be adverse to the appellant.

10. After hearing the evidence and argument I delivered judgment dismissing the said appeal.

At the request of the appellant I have granted this special case, pursuant to section 84 of the Assessment Act. The questions of law and construction of statutes, which I now submit to the Court of Appeal, are as follows:

(1) Was I right in holding that section 13 of the Assessment Act as enacted by section 3 of the Assessment Amendment Act, 1930 [c. 46 of 1930] is intra vires of the Legislature of the Province of Ontario?

(2) Was I right in holding that under the provisions of the Assessment Act and the amendments thereto the appellant was properly placed on the assessment roll and assessed in the year 1932 in respect of such income as was received by the said trustees during the year 1931 and paid over in the same year as set forth in paragraph 4, the said assessment being the amount upon which taxes for the year 1933 will be levied?

Dated, January 31, 1933.                                                                     J.H. DENTON

                                                                                                                                     J.

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By the judgment of the Court of Appeal both questions submitted were answered in the affirmative.

It was contended on behalf of the appellant that s. 13 (1) of the Assessment Act (R.S.O. 1927, c. 238, as amended in 1930, c. 46) does not authorize an assessment of the person who receives the income as trustee, but provides for a tax in rem, on the income itself; that the intention of the legislation was to get at the income itself and to assess directly; that it does not authorize an assessment to be made in 1932 for the purpose of taxation in 1933 in respect of income received and paid over in 1931; the income cannot then be assessed “in the hands of the trustees”; that if the assessment is to be treated as a personal assessment of the trustee, then it was beyond the power of the legislature to enact the legislation.

It was contended on behalf of the respondent that s. 13 of the Act authorized the assessment of the appellant in respect of income received by him as trustee, which is payable to persons resident out of Ontario; that the Act authorized the assessment of the appellant in 1932 in respect of such income received in 1931; and that the legislation was intra vires.

The relevant provisions of the Act are set out in the judgment now reported.

D.L. McCarthy, K.C., and J.W. Pickup, K.C., for the appellant.

C.M. Colquhoun, K.C., and J.P. Kent for the respondent.

E. Bayly, K.C., for the Attorney-General of Ontario.

The judgment of the court was delivered by

DUFF C.J.—The facts are set forth in the stated case and it will not be necessary to repeat them. It will be convenient first to consider the question as to the validity of the legislation.

The primary provision of the Assessment Act is s. 4, R.S.O., 1927, c. 238, and it is in these terms:

All real property in Ontario and all income derived either within or out of Ontario by any person resident therein, or received in Ontario by or on behalf of any person resident out of the same shall be liable to taxation * * *

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The purpose of the legislature, clearly expressed in this enactment, is that income received in Ontario by or on behalf of persons not resident in Ontario shall be liable to taxation. The specific provisions dealing with income falling within this rule are to be found in s. 13 of the Act, subsections (1), (4), (5) and (6). But before discussing these provisions we shall first quote s. 10, which is in these words:

10. (1) Subject to the exemptions provided for in sections 4 and 9:

(a) Every person not liable to business assessment under section 9 shall be assessed in respect of income;

* * *

(2) The income to be assessed shall be the amount of the income received during the year ending on the 31st of December then last past.

For the elucidation of this provision, it should be mentioned that s. 1. (l) provides that the word “person” includes “agent” or “trustee”. Where income is received, therefore, in Ontario during a given year by a trustee on behalf of somebody who is resident out of Ontario, that income, by force of the provisions of the Act, is assessable to income tax in the succeeding year. In the ordinary case, as it admittedly was in the present case, the assessment is made upon a return received by the Assessment Department from the trustee after the expiration of the year during which the income was received; and at a time, therefore, when the amount has been definitely ascertained.

We now turn to the provisions specifically dealing with income received in Ontario by trustees for payment to persons not resident in the province. These provisions are as follows:

13. (1) Where a person resident in Ontario creates a trust or agency fund or dies leaving an estate, and income from such fund or estate is payable to a person resident outside of Ontario, the income payable to such non-resident shall be assessed in the hands of the executors, administrators, trustees or agents of such estate or fund, who may pay the amount of taxes out of the income in their hands.

(4) Any executor, administrator, trustee or agent failing to pay the income tax levied upon any assessment made under this section out of the fund or estate shall be personally liable there for.

(5) The municipality entitled to assess shall be the municipality in which the testator resided at the time of his death, or in which the settlor or principal resided at the date of the creation of the trust or agency fund, or, if the testator, settlor or principal did not reside in Ontario, at such time or date, the municipality where the trustee or agent resides, or if there be more than one, where the chief business of the trust or agency fund is carried on.

(6) Where the person in receipt of income assessable under this section resides or carries on business within the municipality entitled to assess,

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the assessment shall be made either at his place of business or residence; and where such person does not reside or carry on business in the municipality entitled to assess, the assessment shall be made at the office of the clerk of such municipality.

In conformity with the general enactment of s. 4, such income is assessable, and it is not disputed that s. 10 (2) governs the procedure. The income described in s. 13 (1), therefore, is to be assessed “in the hands of” the executors, administrators or trustees in the year succeeding the receipt of it. It is assessable because, in the language of s. 4, it is “liable to taxation”. By that section, it is placed in precisely the same category purposes as income derived by “a person resident” in Ontario.

There can be no possible question that such income is taxable by the province. It is property in the province and subject to the control of the provincial legislature. Moreover, it belongs to a class of subjects to which Lord Hobhouse, in Bank of Toronto v. Lambe [1], refers to in these words:

[It] is always spoken of as [a direct tax], and is generally looked upon as a direct tax of the most obvious kind;

(See also the judgment of the Judicial Committee in Attorney-General for British Columbia v. Kingcome Navigation Co.[2]).

The legislature having determined to do what it was entitled to do, that is to say, to provide for the assessment of such income for the purposes of income tax, might have proceeded in various ways. The legislation intending to carry out this design might have enacted that the executor, administrator or trustee should hold the income in trust, primarily to pay the tax, and, thereafter, to pay over the residue in accordance with the trusts declared by the instrument creating the trust. The legislature adopted a somewhat different course. The statute first declares that income shall be assessed in the hands of the trustees; and then proceeds to empower the trustees to pay the tax “out of the income in their hands”, and then (subs. 4) to enact that the trustee “failing to pay the income tax levied upon any assessment made under this section out of the fund or estate shall be personally liable therefor.” The intention of the statute appears to be unmistakeable. The income is to be assessed in the hands of the trustees. The

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trustees may pay the tax out of the income in their hands, and, failing to do so, they shall be personally liable. In substance, there appears to be little difference between authorizing the trustee to pay out of the income and penalizing him by making him personally liable if he fails to do so, and constituting him a trustee of the income for the purpose of paying the tax, or requiring him to pay the tax out of the income.

The purpose of the legislature being to levy a tax in respect of income received by the trustee in Ontario, (the trustee being, it may be added, as appears from subs. 5, resident in Ontario) I can see no reason why any one of these methods might not lawfully be adopted.

I do not think such legislation offends against the condition requiring provincial taxation to be “direct taxation”. The statute plainly contemplates, as already indicated, the residence of the trustee within the province, and the machinery provided is intended to prevent the frustration of the purpose of the statute by the transfer of the income beyond the boundaries of the province by the trustee without making provision for payment of the tax. The intent is to levy the tax pursuant to the assessment, that is to say, pursuant to the assessment in the hands of the trustee. The machinery is provided for the purpose of giving effect to this intention. It is to be paid out of the property of the person who is ultimately to bear the burden.

There remains a question as to the form of the assessment. The statute directs that the income shall be assessed “in the hands of the trustee”. The municipality has acted upon the view that, in compliance with this requirement, the trustee in his representative capacity should be assessed in respect of the income. We think this is a reasonable construction of the statute. The sections immediately under consideration, whatever else may be said about them, do undoubtedly contemplate an assessment of such a character as under the provisions of the municipal law will enable the municipality to levy and collect the tax; but they do not contemplate that the tax shall be levied and collected except in a manner consistent with the specific provisions of the statute dealing with the assessment of such incomes as we have cited above. The form of the assessment, it would appear, can be of little importance.

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The liability of the trustee is defined in explicit terms by the statute. The form of the assessment cannot, under the general provisions of the municipal law or the taxation law, either cut down or enlarge that liability. The appeal should be dismissed with costs.

Appeal dismissed with costs.

Solicitors for the appellant: Fasken, Robertson, Aitchison, Pickup & Calvin.

Solicitor for the respondent: C.M. Colquhoun.