Helen P Fullerton v. Minister of National Revenue, [1982] CTC 2757, 82 DTC 1790

The Chairman:—The appeal of Helen Fullerton is from reassessments with respect to the 1978 and 1979 taxation years.

On February 2, 1978 the appellant’s father, Mr Archibald T McLachlan, died giving effect to a testamentary trust, the taxation year for which was from February 2, 1978 to February 1, 1979. During the appellant’s 1978 taxation year, the appellant received from the testamentary trust benefits of $3,602.62 as interest, $329.46 as capital gains and $42.55 as eligible dividends. There is no dispute as to the facts or the amounts involved.

The appellant included in her 1978 tax return the benefits she received from the trust in that year. Her income for 1978, including the benefits from the trust, were not sufficient to attract tax. In 1979 the appellant received from the trust benefits in the amount of $651.38 which she included in her 1979 income.

In reassessing the appellant the respondent, on the basis that all the benefits received by the appellant from the trust must be included and taxed as though received in 1979, deleted from the appellant’s 1978 tax return the benefits received in 1978 and included them as part of her 1979 income.

As a result, no tax was assessed for the appellant’s 1978 taxation year and, consequently, no notice of objection was filed by her, as requested by section 165 of the Income Tax Act, S.C. 1970-71-72, c 63, as amended before an appeal can be properly filed. The appellant’s appeal for 1978 is therefore improperly before the Board.

The taxation year in issue is 1979 and the question is whether the respondent properly added to the appellant’s 1979 income benefits actually received from the trust in her 1978 taxation year.

It is the appellant’s submission that the inclusion in her 1979 taxation year of benefits received in 1978 is not mandatory and the additional tax and interest charged to the appellant as a result of the Minister’s reassessment is arbitrary and unjustified.

Counsel for the respondent relies principally on subsection 104(23) of the Act in support of the Minister’s reassessment. Subsection 104(23) deals specifically with testamentary trusts and reads in part as follows:

(23) Testamentary trusts. In the case of a testamentary trust, notwithstanding any other provision of this Act the following rules apply:

(a) the taxation year of the trust is the period for which the accounts of the trust have been ordinarily made up and accepted for purposes of assessment under this Act and, in the absence of an established practice, the period adopted by the trust for that purpose (but no such period may exceed 12 months and a change in a usual and accepted period may not be made for the purpose of this Act without the concurrence of the Minister);

(b) when a taxation year is referred to by reference to a calendar year, the reference is to the taxation year or years coinciding with, or ending in, that year;

(c) the income of a person for a taxation year from the trust shall be deemed to be his benefits from or under the trust for the taxation year or years of the trust that ended in the year determined as provided by this section and section 105.

The appellant cited paragraph 12(1 )(m) and subsection 105(1) of the Act in support of her position.

Paragraph 12(1)(m) reads:

(m) Benefits from estates, etc. — any amount required by subdivision k to be included in computing the income of the taxpayer for the year except any amount deemed by that subdivision to be a taxable capital gain of the taxpayer.

Subsection 105(1) of the Act reads:

Benefits under trust, contract, etc. (1) The value of all benefits (other than a distribution or payment of capital) to a taxpayer during a taxation year from or under a trust, contract, arrangement or power of appointment, irrespective of when made or created, shall, subject to subsection (2), be included in computing his income for the year.

Findings in Law

All types of trusts are subject to income tax in the same manner as are other individual taxpayers. The trust paid benefits to the appellant in its 1979 taxation year. The appellant’s taxation year in which she received the benefits was 1978. Two taxpayers with two different taxation years are therefore involved in the one transaction.

While there apparently is no case law on the point in issue, subsection 104(23) of the Act deals specifically with testamentary trusts which is the source of the appellant’s benefits. Paragraph 104(23)(c) of the Act clearly states and the authorities have confirmed that the section establishes that the taxation year for which the beneficiary of a testamentary trust must include the benefits received will be the taxation year of the trust during which the benefits were paid. In this instance the taxation year of Mr McLachlan’s testamentary trust ending on February 1, 1979, is the taxation year in which the appellant must include the benefits received from that trust.

Subsection 104(23) of the Act is mandatory on the appellant and the Minister did not arbitrarily reassess the appellant for her 1979 taxation year.

Judgment will therefore go quashing the appellant’s appeal for the 1978 taxation year and dismissing the appeal for the 1979 taxation year.

Appeal dismissed.