Mr. Frances O’rourke, Co-Executor of the Estate of Mrs. Dorothy Coleman v. Minister of National Revenue, [1988] 1 CTC 2010, 87 DTC 664

Taylor, T.C.J.: —This is an appeal heard in London, Ontario on October 16, 1987 against an income tax assessment for the year 1982, in which the Minister of National Revenue taxed on a “capital gain” basis certain proceeds realized by the Estate from a farm which was part of the assets. The notice of appeal set out in certain sections, the position of the appellant:

4. The Last Will and Testament of Dorothy Coleman, executed by Dorothy Coleman May 11, 1982, provided, inter alia, as follows:

3. I give, devise and bequeath all my property of every nature and kind and wheresoever situate, including any property over which I may have a general power of appointment, to my said Trustees upon the following trusts, namely:. . .

(c) to sell and transfer absolutely to my son, Frances O’Rourke, the property located in the Township of Raleigh, in the County of Kent, containing approximately 75 acres known legally as Lot 15, Concession 6, for total consideration of $60,000.00 payable to my Estate.

9. The beneficiaries of the Estate of Dorothy Coleman, being Joyce Turkington, Nancy Ramboer, Robert O'Rourke, and Joyce Turkington and Nancy Ramboer as joint tenants, and the said Frances O'Rourke, agreed with the said Dorothy Coleman and as between themselves that the assets of the Estate of Dorothy Coleman would be divided on the following basis:

(i) Frances O'Rourke would receive the farm property owned by Dorothy Coleman;

(ii) Frances O'Rourke would compensate the three other beneficiaries in the amount of $60,000.00 being the estimated value of the farm as at June 18th, 1971 or 'V-day';

(iii) Frances O'Rourke would pay to the other beneficiaries the sum of

$20,000.00 each, for total compensation in the amount of $60,000.00.

14. It is respectfully submitted that the use of the words "to sell and transfer absolutely to my son, Frances O'Rourke" in paragraph 3(c) of the Last Will and Testament of the said Dorothy Coleman must be read in light of the agreement existing between the said Dorothy Coleman and the beneficiaries of her Estate and the intent to comply with the provisions of the Income Tax Act and in particular Section 70(9) thereof. The word “sell” was used only to indicate that the said Frances O'Rourke would be compensating the other beneficiaries of the Estate for his having inherited the major asset of the Estate.

20. It is respectfully submitted that the case at bar is distinguishable from those cases where the beneficiary has an option to purchase property from the Estate. In those cases, the property is not transferred to a beneficiary qua beneficiary but to a purchaser for valuable consideration. The beneficiary is a “favoured purchaser” but nonetheless a purchaser upon the beneficiary’s choosing to exercise the option provided for in the Will. In the case at bar, the said Frances O'Rourke had no option concerning the transfer of the farm property owned by Dorothy Coleman at her death. His choice was to accept the farm in accordance with the Will or to decline his inheritance.

21. It is further respectfully submitted that the transfer of the farm property from Dorothy Coleman to Frances O'Rourke occurred as a direct consequence of the death of Dorothy Coleman rather than by way of a choice made by the said Frances O’Rourke to exercise an option to purchase the farm. If he was to inherit, the said Frances O'Rourke had no alternative but to act in accordance with the agreement between Dorothy Coleman and her beneficiaries as incorporated into her Last Will and Testament.

For the Minister, the matter was more straightforward:

. . .the will contained specific provision for the farm to be sold to Frances O’Rourke for valuable consideration of $60,000;

. . .the farm was transferred or distributed to Frances O'Rourke as a consequence of a sale, not as a consequence of the death of Dorothy Coleman;

The Respondent respectfully submits that as the farm was not on or after the death of Dorothy Coleman and as a consequence thereof, transferred or distributed to Frances O'Rourke within the meaning of subsection 70(9) of the Act that the Appellant realized a taxable capital gain of $38,500 within the meaning of paragraph 70(5)(c) of the Act.

There was agreement between the parties that there was no issue regarding the mathematics of the assessment, just the principle involved; that Frances O'Rourke had indeed purchased the farm; and that the Will had been probated in about September 1982.

Mr. Frances O'Rourke, an Executor, Mr. Lome Coleman (Accountant) and Mr. Kenneth Rhodes (Solicitor) testified for the Estate — the thrust of that testimony being that it had been Mrs. Coleman's desire to have Frances O'Rourke own the farm property after her death. Each one related his own interest and involvement in the preparation of the Will, which was filed with the Court. Essentially, counsel for the appellant put forward that the critical paragraph in the Will (supra) did not reflect the "agreement" between the deceased Mrs. Coleman and the beneficiaries (see above) and that therefore this Court could quite reasonably ignore the word “sell” and the fact that the property had in fact been sold. The question of any lack of competence of the deceased Mrs. Coleman on May 11, 1982, the date Mr. Rhodes read the Will to her completely and personally was not raised. The beneficiaries were not present when Mr. Rhodes went over the Will with Mrs. Coleman.

Counsel for the Minister simply pointed out that the Will before the Court was the last document reflecting the wishes of the deceased, and that it had not been varied or changed. There was no adequate proof before the Court of any "agreement" between the various parties which would conflict with the Will, and accordingly the interpretations and explanations of that Will presented to the Court could not serve to overturn the written document. The Will had not been varied or changed by any other Court; it had been probated in the normal manner; and Mr. Frances O'Rourke had indeed purchased the farm for $60,000.

Analysis

First — The basic thrust of the proposition put forward by counsel for the appellant is that the Will, particularly in the phrase “sell and transfer” did not reflect the wishes of the deceased Mrs. Coleman. And it might be argued — as was done at the hearing — that Mrs. Coleman would not have left a Will in the form exhibited, if she had been aware of the possible tax consequences. From my observation however, I am not at all sure that either of these propositions is the case. Even under the critical health circumstances for Mrs. Coleman which existed on May 11, 1982 (the date of the Will), there is nothing to indicate that she was unaware, or uninformed about the results of that phrase.

Ample opportunity existed between about February 1982, when the question of disposition of assets was first raised by Mr. Frances O'Rourke and Mrs. Coleman with the two advisers Mr. Lome Coleman and Mr. Kenneth Rhodes, and May 1982 the month of Mrs. Coleman's death, during which time the deceased or her advisers, or the beneficiaries could have reviewed, even rewritten any proposed Will on a different basis — if indeed everyone (including Mrs. Coleman) was of the view that a different basis should be exhibited. I am quite certain that Mr. Rhodes did not come up with the words "sell and transfer . . . for a total consideration of $60,000 payable to my Estate,” all on his own. (Emphasis mine.) It seems quite clear that she intended the farm to go to Mr. Frances O'Rourke, but only after he had made available to the estate sufficient funds ($60,000) to carry out her wishes with regard to the other beneficiaries. I am not convinced that anything other than the sale to Mr. Frances O'Rourke would have fulfilled the terms of the Will, and it is difficult for me to conceive of a process whereby Mr. Frances O'Rourke could obtain the farm, without payment of some kind to the other beneficiaries (which would be very similar to a sale). As I see it Mr. Frances O'Rourke may have had an option under the Will — but that option would have been not to pay the $60,000 and as a consequence thereof not own the farm.

Even assuming, (for purposes of argument) that the Will did not reflect the position of the appellant there was ample opportunity even after the death of Mrs. Coleman for the beneficiaries to have it clarified and not to leave as the only issue, the one before the Court today — the taxation results. Whether any formal or official clarification could have been obtained which in effect deleted the words “sell and transfer . . . for a total consideration of $60,000.00 payable to my Estate" may be a moot question — but again it is not necessary for this Court to decide that point. It simply was not attempted, let alone done.

Therefore there is no reason known to this Court, which should impede the right of the Minister of National Revenue to assess tax on the basis of the Will and the transactions which flowed therefrom. The appellant is not entitled to the preferred treatment for a transfer of farm property dealt with under subsection 70(9) of the Act.

The appeal is dismissed.

Appeal dismissed.