John
B
Goetz:—The
appellants’
appeal
relates
to
the
1976
taxation
year.
Counsel
for
the
appellants
and
for
the
respondent
filed
an
Agreed
Statement
of
Facts,
which
reads
as
follows,
and
appended
thereto
was
the
last
will
and
testament
of
Gray
Henry
Johnson
(hereinafter
referred
to
as
“the
deceased”)
The
parties
to
this
action
by
their
solicitors
agree
that
the
following
paragraphs
accurately
set
out
the
facts
relevant
to
this
action:
1.
Gray
Henry
Johnson
(hereinafter
referred
to
as
the
“Deceased”)
died
on
December
30,
1976.
2.
Immediately
prior
to
his
death,
the
Deceased
was
resident
in
Canada.
3.
A
copy
of
the
Deceased’s
Last
Will
and
Testament
and
Codicil
(hereinafter
referred
to
as
the
“Will”)
both
dated
June
9,
1975,
are
attached
to
this
Agreed
Statement
of
Facts.
4.
Immediately
prior
to
his
death,
the
Deceased
was
married
to
Evelyn
Johnson
of
Ottawa;
there
were
6
children
of
this
marriage
and
at
the
date
of
death
of
the
Deceased
all
of
these
children
were
of
legal
age;
Michael
Johnson
and
Joseph
Johnson,
mentioned
in
the
Will,
were
aged
22
and
21
respectively
at
the
date
of
death
of
the
Deceased.
5.
For
a
period
of
approximately
eight
years
prior
to
his
death,
the
Deceased
was
living
common
law
with
Patricia
Lavoie
of
the
City
of
Ottawa;
there
were
three
children
born
to
the
Deceased
and
Miss
Lavoie;
at
the
date
of
death
of
the
Deceased
these
children
were
all
minors.
6.
The
trusts
created
by
the
Deceased’s
Will
were
resident
in
Canada
immediately
after
the
time
the
properties
of
the
trusts
vested
indefeasibly
in
the
respective
trusts.
7.
Immediately
prior
to
the
Deceased’s
death
and
at
all
other
material
times,
Evelyn
Mary
Johnson,
the
wife
of
the
Deceased,
was
resident
in
Canada.
8.
The
assets
of
the
Deceased
included
“inter
alia’,
residential
property
situated
in
Ottawa
at
85
Southern
Drive
where
Evelyn
Mary
Johnson
resides,
and
1,000
common
and
72,664
preferred
shares
of
G
H
Johnson’s
Furniture
Ltd.
9.
Within
15
months
of
the
death
of
the
taxpayer
the
properties
of
the
trusts
were
vested
indefeasibly
in
the
trusts.
The
will
appoints
James
Henry
Johnson,
son
of
the
deceased,
and
the
Guarantee
Trust
Company
of
Canada
to
be
the
trustees
of
the
deceased’s
will.
Paragraph
3,
of
the
said
will,
in
part,
reads
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:
The
above
paragraph
is
followed
by
clauses
(a),
(b)
and
(c)
which
are
the
usual
provisions
in
a
will,
authorizing
the
trustees
to
do
certain
things.
Then,
in
particular,
the
following
portions
of
paragraph
3
are
what
are
relevant
to
this
appeal:
(d)
TO
allow
my
wife,
EVELYN
MARY
JOHNSON,
during
her
lifetime,
the
full
use,
occupation,
enjoyment
and
benefit
of
the
residence
at
85
Southern
Drive
in
the
City
of
Ottawa,
together
with
the
contents
thereof,
for
as
long
as
she
wishes.
On
the
death
of
my
said
wife
or
when
she
ceases
using
the
said
contents,
they
shall
fall
into
and
form
part
of
the
residue
of
my
estate.
(e)
TO
set
aside
a
sum
sufficient
to
establish
a
fund
(hereinafter
referred
to
as
Fund
No
1)
out
of
which
my
Trustees
are
directed
to
pay
the
following:
(i)
All
taxes,
fire
insurance,
mortgage
principal
and
interest
and
all
repairs
in
respect
of
85
Southern
Drive,
Ottawa.
(ii)
The
sum
of
SIX
HUNDRED
DOLLARS
($600)
per
month
to
my
wife,
the
said
EVELYN
MARY
JOHNSON,
the
first
of
such
payments
to
be
made
on
the
15th
day
of
the
month
following
my
decease
and
all
subsequent
monthly
payments
to
be
made
on
the
15th
day
of
each
and
every
month
thereafter.
(iii)
In
setting
up
the
capital
for
the
establishment
of
Fund
No.
1
there
shall
be
added
thereto
a
sufficient
sum
to
provide
for
education
at
a
university
or
school
of
post-secondary
education
for
MICHAEL
JOHNSON
and
JOSEPH
JOHNSON,
in
a
sum
of
SEVEN
THOUSAND
DOLLARS
($7,000)
for
each
such
child.
Pending
the
utilization
of
such
monies
same
shall
be
invested
and
reinvested
and
the
income
shall
be
added
to
the
capital
of
the
said
Fund.
If
either
the
said
MICHAEL
JOHNSON
or
JOSEPH
JOHNSON
does
not
attend
a
university
or
school
of
post-secondary
education,
then
the
amount
set
aside
for
such
child
shall
fall
into
and
form
part
of
the
residue
of
my
estate
and
be
distributed
in
accordance
with
the
provisions
of
subparagraph
(p)
of
paragraph
3
of
this
my
Will.
(f)
IF
my
wife
shall
at
any
time
in
writing
advise
my
Trustees
that
she
no
longer
desires
to
reside
in
the
residence
known
for
municipal
purposes
of
the
City
of
Ottawa
as
85
Southern
Drive,
I
DIRECT
my
Trustees
to
sell
the
said
lands
and
premises
and
the
proceeds
thereof
shall
be
added
to
Fund
No
1
and
invested
and
reinvested
and
out
of
the
income
my
Trustees
shall
pay
for
alternate
accommodation
for
my
said
wife.
If
the
said
income
is
insufficient
to
pay
for
the
alternate
accommodation
I
authorize
my
Trustees,
in
their
sole
discretion
to
encroach
upon
the
capital
of
the
fund
for
this
purpose.
(g)
UPON
the
death
of
my
said
wife
the
residence
at
85
Southern
Drive
in
the
City
of
Ottawa
shall
be
sold
and
the
proceeds
of
such
sale,
together
with
the
balance
of
Fund
No
1,
shall
be
dealt
with
in
the
same
manner
as
the
residue
of
my
estate
as
hereinafter
provided
for
in
sub-paragraph
(p)
of
paragraph
(3)
of
this
my
Will.
The
balance
of
the
will
sets
up
another
Fund
for
the
deceased’s
common
law
wife,
Patricia
Lavoie,
and
for
the
children
born
to
the
deceased
and
Miss
Lavoie.
The
appellant
relies
upon
the
provisions
of
subsection
70(6)
of
the
Income
Tax
Act,
SC
1970-71-72,
c
63,
as
amended,
asserting
that
from
the
facts
as
stated
above
a
“spouse
trust”
had
been
set
up.
The
respondent,
on
the
other
hand,
asserts
in
his
assessment.
i)
a
deemed
disposition
of
Real
Estate
is
located
at
85
Southern
Drive,
Ottawa,
Ontario,
and
li)
a
deemed
disposition
of
shares
of
G.
H.
Johnson’s
Furniture
Ltd.
and
relies,
inter
alia,
on
sections
3,
70
and
248
of
the
Income
Tax
Act.
The
concept
of
the
spouse
trust
is
similar
to
that
contained
in
paragraph
7(1)(b)
of
the
old
Estate
Tax
Act.
The
only
jurisprudence
available
to
assist
me
in
determining
the
existence
of
a
“spouse
trust”
are
cases
dealing
with
paragraph
7(1
)(b)
of
the
Estate
Tax
Act.
The
relevant
portion
of
subsection
70(6)
reads
as
follows:
70.
(6)
Where
any
property
of
a
taxpayer
who
was
resident
in
Canada
immediately
before
his
death
that
is
a
property
to
which
paragraphs
5(a)
and
(c)
or
paragraphs
5(b)
and
(d),
as
the
case
may
be,
would
otherwise
apply
has,
on
or
after
his
death
and
as
a
consequence
thereof,
been
transferred
or
distributed
to
(a)
his
spouse
who
was
resident
in
Canada
immediately
before
the
taxpayer’s
death,
or
(b)
a
trust,
created
by
the
taxpayer’s
will,
that
was
resident
in
Canada
immediately
after
the
time
the
property
vested
indefeasibly
in
the
trust
and
under
which
(ii)
NO
person
except
the
spouse
may,
before
the
spouse’s
death,
receive
or
otherwise
obtain
the
use
of
any
of
the
income
or
capital
of
the
trust,
if
the
property
can,
within
15
months
after
the
death
of
the
taxpayer
or
such
larger
period
as
is
reasonable
in
the
circumstances,
be
established
to
have
become
vested
indefeasibly
in
the
spouse
or
trust,
as
the
case
may
be,
not
later
than
15
months
after
the
death
of
the
taxpayer,
the
following
rules
apply
From
the
Statement
of
Facts
filed,
it
would
appear
that
the
provisions
of
subsection
70(6)
of
the
Act
have
been
met
without
any
dispute,
excepting
for
subparagraph
(ii)
of
paragraph
(b)
quoted
above.
In
that
subsection
70(6)
provides
an
exception
to
the
rules
set
out
in
subsection
70(5),
I
must
strictly
construe
the
criteria
to
be
met
by
this
exception
by
a
perusal
of
the
provisions
of
the
will
as
cited
above.
Evelyn
Mary
Johnson,
the
legal
wife
of
the
deceased,
pursuant
to
the
terms
of
the
will,
was
given
the
use,
occupation
and
enjoyment
of
a
residence
at
85
Southern
Drive,
so
long
as
she
wished
to
live
there.
Clause
3(f)
provided
however,
that
should
she
decide
to
leave
that
residence,
and
go
to
another,
the
trustees
were
directed
to
sell
85
Southern
Drive,
and
“the
proceeds
thereof
shall
be
added
to
Fund
No
1
and
invested
and
reinvested
and
out
of
the
income
my
Trustees
shall
pay
for
alternate
accommodation
for
my
said
wife.
If
the
said
income
is
insufficient
to
pay
for
the
alternate
accommodation
I
authorize
my
Trustees,
in
their
sole
discretion
to
encroach
upon
the
capital
of
the
fund
for
this
purpose.”
It
is
clause
(iii)
of
subparagraph
3(e)
of
the
will
that
poses
the
problem
for
me
to
determine
whether,
in
fact,
there
was
a
“spouse
trust”.
In
setting
up
Fund
No
1,
which
is
the
so-called
spouse
trust,
the
testator
directed
that
there
shall
be
added
thereto
the
sum
of
$14,000
for
the
postsecondary
education
of
Michael
Johnson
and
Joseph
Johnson,
two
of
his
children.
This
portion
of
the
will
provides
further:
Pending
the
utilization
of
such
monies
same
shall
be
invested
and
reinvested
and
the
income
shall
be
added
to
the
capital
of
the
said
Fund.
The
issue
then
is
simply
whether
clause
(iii)
of
paragraph
3(e)
of
the
will
destroys
the
concept
of
the
spouse
trust
because
of
the
wording
of
subparagraph
(ii)
of
subsection
70(6)
of
the
Act
which
reads:
(ii)
No
person
except
the
spouse
may,
before
the
spouse’s
death,
receive
or
otherwise
obtain
the
use
of
any
of
the
income
or
capital
of
the
trust.
The
good
intentions
of
the
testator
to
assist
his
two
sons
in
carrying
on
their
post-secondary
education
are
quite
clear,
but
unfortunately
they
were
inserted
in
a
portion
of
the
will
that
colours
the
true
nature
of
the
“spouse
trust”.
Trust
Fund
No
1
for
Evelyn
Mary
Johnson
was
subject,
unfortunately,
to
other
persons,
namely
Michael
Johnson
and
Joseph
Johnson,
to
make
claims
against
the
Fund
during
Evelyn
Mary
Johnson’s
lifetime
and
during
the
life
of
Fund
No
1.
The
trust,
then,
is
subject
to
that
encumbrance
which
allows
others
than
the
spouse
to
obtain,
before
the
death
of
the
spouse,
a
portion
of
the
capital
or
income
from
the
Fund.
That
being
so,
all
of
the
criteria
of
section
70(6)
which
must
necessarily
be
met
have
not
been
complied
with
as
a
result
of
paragraph
3(e)(iii).
See:
Estate
of
Donald
Murdoch
Clouston
v
MNR,
[1974]
CTC
2163;
74
DTC
1176;
and
Estate
of
Herbert
Turner
Matson
v
MNR,
[1971]
Tax
ABC
708;
71
DTC
504.
For
the
above
reasons,
I
must
dismiss
the
appeal.
Appeal
dismissed.
Email this Content