Zlot v. R., [1996] 1 CTC 2998

Sarchuk J.T.C.C.: — This is the matter of Susan Zlot. Ms Zlot has appealed from an assessment of tax for the 1990, 1991 and 1992 taxation years. Pursuant to the provisions of section 18.1 of the Tax Court of Canada Act, she has elected to have the informal procedure apply.

In computing income for these taxation years, the Appellant failed to include the amounts of $2,700.00, $3,898.69 and $4,711.35, respectively, as payments made to her by the Estate of Basile George Moulas.

In reassessing the Appellant, the Minister of National Revenue included in her income all payments made by the estate.

The basic facts are not in dispute. The Appellant’s spouse Basile George Moulas died on December 21, 1989. Prior to his death, he drew up a Will, dated November 21, 1989, in paragraph 5 of which he expressly authorized his trustees out of the income and capital of his general estate, to continue to pay his former wife, the Appellant, his support obligations for his daughter pursuant to the terms of a separation agreement between him and the Appellant. The quantum of the child support was determined by reference to paragraph 4 of the separation agreement dated July 28, 1987 and the clause captioned “Child Support” in the Supplementary Separation Agreement dated November 11, 1987. Both agreements were expressly directed to be binding upon the husband and his executors.

All of the amounts paid to the Appellant by the Estate in the taxation years in issue came out of the income of the Estate and were allowed as deductions from income of the Estate in the respective taxation years.

The Appellant’s position is that the child, Leslie Moulas, is the beneficiary and owner of the Estate pursuant to the Will of her father. Accordingly, the payments made for her maintenance and advancement from the Estate should not be taxed in the hands of the Appellant. The basis for this position was submitted to be that the Appellant is not a beneficiary of the Estate. It was contended that any money that she receives from the Estate is impressed with the trust in favour of the daughter for whom that money is received and on whose behalf it is spent in support. The Appellant then becomes nothing more than a conduit for receipt of the money and expenditure of it on behalf of the beneficiary, the child, who is the actual beneficiary.

Counsel further argued that in respect of any person having or obtaining an interest in the Estate prior to attaining 19 years of age (that is, the child in this case) the trustees may fulfil their obligation under the Will by paying the amount to the parent or de facto guardian of the beneficiary. Counsel suggested that this is exactly what occurred in this case.

Conclusion

The statutory provisions relied upon by the Minister are subsections 104(6) and 104(13) of the Income Tax Act. Pursuant to subsection 104(6), the income of a trust is calculated by deducting amounts paid or payable by it to its beneficiaries in the year. According to subsection 104(13), a beneficiary of a trust is required to include in her income for a year any amount payable to her in that year by the trust regardless of whether or not the income is actually received.

The term “beneficiary” is defined in subsection 108(1). It reads:

...beneficiary under a trust includes a person beneficially interested therein;

Subsection 148(25) defines the term “beneficially interested”. The language used by the legislators in this definition is broad and virtually all encompassing. It reads:

For the purposes of this Act, a person or partnership is beneficially interested in a trust if the person or partnership has any right (whether immediate or future, whether absolute or contingent or whether conditional on or subject to the exercise of any discretionary power by any person or persons) to receive any of the income or capital of the trust either directly from the trust or indirectly through one or more other trusts.

I am satisfied on the evidence that the Appellant was a person beneficially interested in the trust created by her former husband and was a beneficiary, as that term is defined in the Income Tax Act. She had a certain and enforceable legal right to payment by the Estate of the amounts in issue. That right is not negated by the purpose to which the payments are directed by the separation agreement.

As to the second argument submitted on behalf of the Appellant, there is no evidence before me that the trustees were doing anything other than fulfilling their obligation towards the beneficiary (that is, the Appellant) in strict compliance with the terms of the Will, the separation agreement and amendment thereto.

The appeal, therefore, is dismissed.

Appeal dismissed.