Estate of Alexander Boger v. Minister of National Revenue, [1989] 1 CTC 2110, 89 DTC 15

Rip, T.C.J.:— The Estate of Alexander Boger appeals from a reassessment of income tax dated January 12, 1984, in respect of 1979, the year of death of Alexander Boger, on the basis that certain land used by the deceased immediately before his death in the business of farming ought to be transferred to his children at its adjusted cost base in accordance with subsection 70(9) of the Income Tax Act ('Act").

The Minister of National Revenue, the respondent, assessed on the basis that the deceased was deemed to have disposed of, immediately before his death, property owned by him and to have received proceeds of disposition pursuant to subsection 70(5) of the Act.

Agreed Statement of Facts

The hearing of the appeal proceeded by way of an agreed statement of facts and viva voce evidence. The agreed statement of facts is as follows:

1. Alexander Boger (the "Taxpayer") was a farmer. He died on March 10, 1979, testate.

2. He left surviving him his wife, Olga Boger, (the "Widow") and four daughters, one of whom, Laurie Boger, was under 18 years.

3. In his Will, the Taxpayer named his daughter, Sharon Boechler, as Executrix (the “Executrix”). Letters Probate were granted to her on the 9th day of July, 1979.

4. The Taxpayer’s Will disposed of his property as follows:

Widow: life estate in S.W. /414-38-13-W4 (the "home quarter")

4 daughters: '/4 share of residue each

The Widow and daughters were and are all residents of Canada.

5. The Taxpayer's Estate consisted of: (Probate value shown).

Land

S.W. /414-38-13-W4 (the "home quarter")	$50,000.00
N.E.	47,250.00
N.W. /415-38-13-W4	48,750.00
S.W. /417-38-13-W4	45,700.00
S.E.	47,300.00
S. / 7-38-13-W4	54,300.00
	$293 ,900.00
Cash

Various accounts in the Treasury Branch and the Bank of Montreal and a Guaranteed Investment Certificate with Northwest Trust.

	$47 ,647.49	$ 47,647.49
Shares
United Grain Growers and Alberta Wheat Pool Shares
	$ 1,598.68	$ 1,598.68
Farming Interests
Various items of:
farming equipment	$83,483.00
livestock	18,490.75
grain	860.50	$102,834.25
Personal Effects	200.00	$	200.00
TOTAL VALUE OF ESTATE		$446,180.42
Less debts	$ 1,995.19	$ 1,995.19
NET VALUE OF ESTATE		$444,185.23

6. The Land and Farming Interests were used by the Taxpayer immediately before his death in the business of farming.

7. The Executrix retained professional accountants to prepare the necessary tax returns.

8. A T1 Return to date of death was filed. This claimed a "spousal rollover" of the home quarter, pursuant to Section 70(6) of the Income Tax Act (the "Act"), and a "farm rollover" of the rest of the land and the farming equipment, pursuant to Section 70(9) of the Act. Therefore, no capital gains (or losses) were declared on the deemed disposition of these assets. Tax was assessed and paid in the amount of $4,530.73.

9. The Department of National Revenue ("Revenue") issued a Clearance Certificate to date of death (TX21-A) dated October 14, 1980.

10. The estate land was transmitted to the Executrix in April 1981.

11. In 1979, pursuant to her rights under the Family Relief Act (then R.S.A. 1970, Chapter 134, as amended) the Widow applied for a greater share of the estate than was given to her by the Taxpayer's Will. The litigation was finally determined by Court Order dated August 4th, 1981.

12. Pursuant to the Court Order, the Widow received:

(a) $75,000.00 cash. This (plus interest) was paid to her in November 1981.

(b) absolute title in fee simple to the home quarter (probate value $50,000). The title was transferred to her on January 6th, 1982;

(c) some of the farming equipment which was delivered immediately:

(i) 1976 Chevrolet '/2 ton truck with camper (probate value $4,000.00); and

(ii) six grain bins on S. /2 15-38-13-W4 (probate value $4,200.00).

13. The remaining farm equipment had been sold by auction in September 1979.

14. Although the Clearance Certificate for distribution purposes had been received in October 1980, no distribution could take place then because of the pending litigation by the Widow. Her claim was finally determined 29 months after the date of death.

15. Three quarter sections of land were sold in August 1982.

16. Payments were made from the estate as follows:

A. Capital distributions to the widow:

(pursuant to the settlement)

August 1981: 1) S.W. '/4 14-38-13-W4—in specie

2) 1976 Chevrolet—in specie

3) 6 grain bins—in specie

4) $75,152.55 cash

B. Capital distributions to the residuary beneficiaries:

17. In October 1982, the estate accountants indicated some concern with the 1979 T1 Return as filed by them. After meetings with the accountants and consideration of the concerns raised, the original estate solicitors recommended a change to solicitors who specialised in estate practice. The Executrix agreed and this was done. After consideration of the matter and in view of the Federal Court's decision at trial level in Hillis et al. v. The Queen (82 D.T.C. 6249), the new solicitors requested a meeting with Revenue in February 1983 to discuss the concerns.

September 1981:	$26,000. each	$104,000.
December 1981 :	2,500. each	10,000.
May 1982:	2,000. each	8,000.
September 1982:	47,000. each	188,000.
C. Payments to Revenue Canada:
August 1980:	initial assessment	4,530.73
April 1983:	upon reassessment	45,000.00
March 1987:		6,900.00

18. As a result of this meeting, the Taxpayer's 1979 Terminal Return was reassessed on the following basis:

(a) a spousal rollover was applied to the home quarter;

(b) the rollover with respect to the remaining farm land was disallowed. Instead the Taxpayer was deemed to have disposed of the remaining land at fair market value immediately prior to his death and capital gains were declared;

(c) the rollover with respect to farm machinery was disallowed. The auction proceeds were included as income in the Taxpayer's 1979 Return;

(d) there were certain adjustments concerning interest income.

Tax and interest owing were calculated as:

tax	$56,470.97
interest	26,111.02
	$82,581.99

19. Revenue also agreed that income earned in the 1980 and 1981 estate taxation years (having a fiscal period ending March 10th in each case) should be declared on T3 Returns and be taxable in the hands of the Trustee because the Widow's litigation under the Family Relief Act was still pending in those years. Income and capital gains (losses), if any, in the 1982 estate tax year and in subsequent years were to be allocated out to the residuary beneficiaries.

20. The Notice of Reassessment reflecting the changes as set out in paragraph 18 was mailed August 19th, 1983. No objection was filed.

21. On November 22nd, 1983 (more than 90 days after the date of the Notice of Reassessment) the decision of the Federal Court of Appeal in Hillis et al. v. The Queen (83 D.T.C. 5365) came to the notice of the estate solicitors. This decision reversed the trial judge's decision in part. On November 30th, 1983, the estate solicitors applied for an Order Extending the Time within which a Notice of Objection may be served in order to object to the Notice of Reassessment in light of the Federal Court of Appeal's decision.

22. However, this Application became academic and was withdrawn because Revenue again reassessed the 1979 Terminal Return on January 12th, 1984 and issued a new Notice of Reassessment. A Notice of Objection to this was filed and served on March 14th, 1984. This is the subject matter of the present case.

23. In the meantime, in September 1983, the estate solicitors arranged to meet with Revenue in order to consider the Election which the Executrix had made under subsection 159(5) of the Act to defer immediate payment of tax to payment over a 10 year period and to calculate the installment payments. This Election had been signed in April 1983 but was not given to Revenue until July 1983. The installment amounts were in blank since the tax owing was unknown at that time.

24. Between July 1984 and November 1986, the Parties were engaged in discussions regarding the Federal Court of Appeal's decision in the Hillis case and its applicability to the present case.

25. On February 10th, 1987 Revenue issued a Clearance Certificate to date of death covering the 1979 taxation year which says that:

This is to certify that all amounts for which the taxpayer named below is liable and for the payment of which you may reasonably be expected to become liable in your capacity as the responsible representative of the taxpayer for the period ending with date of death and any preceding taxation year under the provisions of [various Acts including the Income Tax Act] have been paid or that security thereof has been accepted by the Minister.

Alexander Boger

Deceased —March 10, 1979

Mr. Boger left four children on death, one of whom was a minor. His daughter, Sharon Mae Boechler, the executrix of the Estate, has administered the Estate since her father’s death. She testified she agreed to sell three quarter sections of land in May or June of 1982, with the consent of her two sisters of majority age and the Public Trustee of Alberta. The sales took place in 1982. Mrs. Boechler in her capacity as executrix was the registered owner of the land; none of her sisters' names had appeared on title prior to the sale. She indicated the reasons for not transferring title to her sisters included costs, the presence of the Public Trustee, and the action by the Widow under the Family Relief Act which would require court consent for a transfer to take place.

Candace Boger, Mrs. Boechler's sister, corroborated the executrix' evidence that the sisters agreed to sell the land in 1982.

Issues

Counsel for the appellant submitted there are two main questions for the Court to decide. The first is whether the deemed disposition of the land on death was free from tax since the deceased is deemed to have disposed of the land at his adjusted cost base in accordance with subsection 70(9), that is, a "rollover", to use tax jargon, of the deceased's cost base of the land to his children took place on death. To decide this question, she added, the Court must be satisfied that the farm property had become vested indefeasi- bly in the children within 15 months after death; the Estate must establish Within 15 months after death or such longer period as is reasonable that the vesting took place. The Estate must also prove the property was transferred or distributed to the children.

The second question is to determine the effect of the Clearance Certificates dated October 4, 1980 and February 10, 1987 on the reassessment subject to this appeal.

The appeal turns on the interpretation of the portion of subsection 70(9) preceding paragraph (a) with respect to 1979. The portion reads as follows:

Where any land in Canada or depreciable property in Canada of a prescribed class of a taxpayer to which paragraphs (5)(a) and (c) or paragraphs (5)(b) or (d), as the case may be, would otherwise apply was, immediately before his death, used by him, his spouse or any of his children in the business of farming and the property has, on or after the death of the taxpayer and as a consequence thereof, been transferred or distributed to a child of the taxpayer who was resident in Canada immediately before the death of the taxpayer and the property can, within 15 months after the death of the taxpayer or such longer period as is reasonable in the circumstances, be established to have become vested indefeasibly in the child not later than 15 months after the death of the taxpayer, the following rules apply:

In accordance with subsection 70(9) for a "rollover" of land to take place, amongst other things,

(a) the land shall, on or after the death of the deceased and as a consequence thereof, be transferred or distributed to a child of the deceased,

and

(b) the land can, within 15 months after the death of the deceased or such longer period as is reasonable in the circumstances, be established to have become vested indefeasibly in the child not later than 15 months after the death of the deceased.

I must be satisfied that the land was "transferred or distributed” to the children of the deceased.

Appellant's counsel argued that the words “transferred or distributed” in subsection 70(9) are not to be given their technical meaning, in particular they are not to be given the technical meaning of conveyance in the sense of documentation filed in a Land Titles office. In her view the words the lands were "transferred or distributed" at the time the beneficiaries received equitable ownership of the properties and this occurred by operation of the Will. As soon as the beneficiaries could call on the executrix for the properties, they are conveyed the property she said.

Counsel added that in any event a conveyance made to one of the beneficiaries as executrix is sufficient conveyance for her one-quarter undivided interest.

In the appeal to the Federal Court of Montreal Trust Company, Executor of the Will of J.S.D. Tory v. M.N.R., [1973] C.T.C. 434; D.T.C. 5354, usually referred to as the Tory Estate v. M.N.R., Bastin, D.J. discussed the meaning of the words "transferred or distributed to beneficiaries" in subsection 64(3) of the Act, as it read in 1965. He said, on pages 436-7 (D.T.C. 5356-7):

. . . The word "distributed" is used to cover cases where the conveyance is to several beneficiaries. The word "transferred" is inserted to provide for a case where the conveyance is to only one person.

The meaning of "transferred" in this clause is limited by its association with the word distributed. The rule is expressed in the phrase "noscuntur a sociis”. To quote from Maxwell on Interpretation of Statutes, Twelfth Edition, at page 289:

Where two or more words which are susceptible to analogous meaning are coupled together, noscuntur a sociis. They are understood to be used in their cognate sense. They take, as it were, their colour from each other, the meaning of the more general being restricted to a sense analogous to that of the less general.

The Supreme Court of Canada dismissed the appeal of the Minister ([1976] C.T.C. 415; 76 D.T.C. 6312).

It is not necessary, in my view, that formal conveyancing always take place for there to be a transfer or a distribution of property, as contemplated by subsection 70(9). What is necessary, however, is that when the legal representative of the deceased has the power to act, she does so to divest herself of her rights and obligations in the property as legal representative of the deceased and the rights and obligations devolve to the beneficiaries of the deceased. Mrs. Boger [sic] acknowledged no transfer or distribution to the children could have taken place prior to August 4, 1981 without the Court's direction or consent because of the pending litigation between the executrix and the deceased's widow.

Subsection 70(9) requires something more than a transfer of mere equitable ownership in the property. Otherwise the words "transferred or distributed" would be meaningless since equitable ownership of property is transferred on death to a beneficiary. The words "transferred or distributed" are used in the subsection to distinguish between a transfer and vesting. “Vesting indefeasibly” in subsection 70(9) refers to absolute transfer of equitable interest; something more than this obviously is required for there to have been a transfer or distribution of the property. The transfer and distribution of the property to, and the vesting of the property in, a beneficiary are mutually exclusive.

In the appeal of Hrycej Estate v. M.N.R., [1984] C.T.C. 2115; 84 D.T.C. 1090, this Court held that the appellant essentially left all of his property to his wife. The will, however, provided his daughter with an option to purchase certain farm equipment from the estate, which she exercised. Notwithstanding this, the appellant's wife maintained that she was entitled to a rollover of the farm property. In essence, she argued that the will gave her an absolute interest in the entire estate and the sale was executed by the executors as trustees for her.

This Court rejected the taxpayer's argument. While the decision rested principally on the question of vesting, the Court also held that:

the farm equipment remained in the possession of the executors and was not transferred or distributed to Mrs. Hrycej.

And further on:

That Mrs. Hrycej received the cash proceeds of the sale of the farm equipment as part of the residue does not, in my view, alter the fact that the farm equipment was never transferred or distributed to her and that the farm equipment was not vested in her.

The executrix had one year from the termination of the litigation with the deceased's wife to the sale of the land in August 1982 to effect a transfer and distribution of the land to the beneficiaries; there was no convincing reason why the land could not have been transferred or distributed once the litigation was over. Thus, in the case at bar, the fact that the property was sold directly by the executrix, in her capacity as executrix, would seem to preclude the appellant from taking advantage of subsection 70(9).

Counsel for the appellant's argument that the conveyance made to the executrix is sufficient transfer to her of her one-quarter interest has no merit. The land conveyed to Sharon Boechler was transferred to her in her capacity as executrix of her late father's estate and not in her personal capacity.

I find there was no transfer or distribution of the land to the children of the deceased; accordingly there is no need for me to consider the question of whether the property vested indefeasibly in the children.

Clearance Certificate

The certificate contemplated by subsection 159(2), [2] referred to as a clearance certificate, may be issued to a person who is an assignee, liquidator, receiver, receiver-manager, administrator, executor or any like person (referred to as the "responsible representative") administering, winding up, controlling or otherwise dealing with a property, business or estate of another person prior to its distribution. The certificate is not issued to the estate, for example. The issuance of the clearance certificate to a responsible representative does not free the estate, business or property of its obligation under the Act; if a clearance certificate is not obtained by the responsible representative and he distributes property to one or more persons under his control as responsible representative, he becomes personally liable for the payments of amounts of tax to the extent of the value of the property distributed (vide subsection 159(3)).

The clearance certificate is addressed to the responsible representative and any statement by the Minister contained in the certificate is made to the responsible representative with respect to his liability in his personal capacity under the Act. The issue of a clearance certificate does not preclude the Minister from going against a beneficiary to whom property of the estate, for example, was distributed, or if property remains in the hands of the responsible representative, against the responsible representative in such capacity. The obtention of a clearance certificate by a legal representative does not free the Estate from its liability under the Act.

Consent Judgment

There is one other matter that must be dealt with. Counsel for the parties filed with the Court a “Partial Consent to Judgment" allowing the appeal of the appellant and referring the matter back to the respondent for reconsideration and reassessment on the basis that "one-quarter ( A) of the rent and residue, as determined upon the conclusion of the Family Releif [sic] Act application, in respect of the infant beneficiary, of the Appellant's estate was eligible for rollover under subsection 70(9) of the Income Tax Act".

Counsel for the Minister advised the Court that her client consented to the judgment, in part, as a matter of administrative policy publicized in paragraph 7(d) of the Minister's Interpretation Bulletin IT 449 dated June 13, 1980. Counsel also explained that as a result of the subsequent decision in Hillis (op cit) the respondent was of the view that because the minor child had a right available to her under the Family Relief Act, her interest to the land was indefeasibly vested on the death of Mr. Boger.

The Hillis case did not deal with whether a property was transferred or distributed to a minor child. We have found that in the case at bar the property was not transferred or distributed to the beneficiaries. Is it proper for this Court, then, to grant judgment in accordance with the Partial Consent to Judgment?

Without question courts encourage litigants to settle their differences; a trial takes place only when all efforts to settle the dispute have failed. It is beneficial to all concerned when the parties can resolve a problem themselves. However, the Chief Justice of the Federal Court stated in In re Galway v. M.N.R., [1974] C.T.C. 454 at 456; 74 D.T.C. 6355 at 6357 that:

In ordinary litigation between private persons of full age and mentally sound, the Court has not, in normal circumstances, any duty to question a consent by the parties to judgment. We should have thought that the same statement applies where the Crown, represented by its statutory legal advisors, is one of the parties. There is, however, at least one exception to the unquestioning granting of consent judgments, regardless of who the parties are, namely, that the Court cannot grant a judgment on consent that it could not grant after the trial of an action or the hearing of an appeal. It follows that, as the Court cannot, after a trial or hearing, refer a matter back for assessment except for assessment in the manner provided by the statute and cannot therefore, at such a stage, refer a matter back for reassessment to implement a compromise settlement, the Court cannot refer a matter back by way of a consent judgment for re-assessment for such a purpose.

In a footnote to the reasons of the Federal Court of Appeal (quorum consisting of Jackett, C.J., Le Dain, J. and MacKay, D.J.) in The Clarkson Company Limited, the Receiver and Manager of the property and undertaking of Rapid Data Systems & Equipment Limited v. The Queen, [1979] C.T.C. 96; 79 D.T.C. 5150, the Chief Justice wrote at page 97 (D.T.C. 5151):

I doubt whether the Trial Division should give a “consent” of judgment against the Crown for the payment of money on admitted facts that do not, in law, create a right against the Crown. A judgment creates a right to payment out of the Consolidated Revenue Fund even though Parliament has not otherwise authorized the expenditure (section 57(3) of the Federal Court Act). To give a consent judgment without adjudication would defeat section 106 of the British North America Act, 1867— one of the planks of our system of democratic government. This is particularly objectionable if the established facts do not support the judgment. I do not question the authority of the Attorney General of Canada to admit facts (by virtue of the authority vested in him by the Department of Justice Act to conduct litigation on behalf of the Crown) in the course of litigation to which the Crown is a party. I do raise a question as to whether he can consent to judgment not supported in law by the established facts and, also, whether there should ever be a consent judgment for the payment of money by the Crown.

In my view the “Partial Consent to Judgment" is not supported in law by the established facts: the land was not transferred to the minor child or distributed to the other beneficiaries. The facts before me do not create a right against the Crown. Accordingly, this Court cannot give a "consent" judgment in this appeal.

The appeal is dismissed.

Appeal dismissed.