Blackstien v. R., [1998] 1 CTC 3269

Bowie T . C.J.:

In assessing the Appellant under the Income Tax Act (the Act) for the 1991 taxation year, the Minister of National Revenue (the Minister) included in her income an amount of $3,932. According to the Amended Reply to the Notice of Appeal, this amount was included, pursuant to subsection 105(2) of the Act, on the basis that it was “a personal expense of the Appellant” or “a taxable benefit”, or simply “a benefit”, paid by, or conferred on her by, the estate of her late husband. [1]

In June 1987, Max Blackstien and the Appellant entered into a marriage contract (the contract). Mr. Blackstien owned a condominium residence in Toronto, described as condominium corporation plan 167, level 10, unit 7 (the condominium unit). The Appellant owned a residence in Florida. They provided, by paragraph 14 of their contract, that these residences would continue to be their separate property after their marriage, and that upon the death of the first of them, the other would enjoy a life estate in the residence of the deceased. Max Blackstien died in January 1990, leaving a will, of which his son and daughter-in-law are the executors. There is no mention of the condominium unit in the will, but since the death of her husband the Appellant has enjoyed her life estate, pursuant to the terms of the contract. During the year 1991, the estate paid to the condominium corporation the amount of $3,932 which is in issue. It is not disputed that this was the annual levy made by the condominium corporation in respect of the unit. What is disputed is that it falls to be taxed in the Appellant’s hands pursuant to subsection 105(2) of the Act.

Subsection 105(2) reads as follows:

105(2) Such part of an amount paid by a trust out of income of the trust for the upkeep, maintenance or taxes of or in respect of property that, under the terms of the trust arrangement, is required to be maintained for the use of a tenant for life or a beneficiary as is reasonable in the circumstances shall be included in computing the income of the tenant for life or other beneficiary from the trust for the taxation year for which it was paid.

It is apparent that for the amount to be taxable under this subsection the following requirements must be met:

1. the payment must be made by a trust;

2. the payment must be made out of the income of the trust;

3. the payment must be for the upkeep, maintenance or taxes of or in respect of property; and

4. the property must be one that, under the terms of the trust, is required to be maintained for the use of a tenant for life or a beneficiary;

If all of the above requirements are met, then what is taxable in the hands of the tenant for life, or other beneficiary, is such part of the amount paid as is reasonable in the circumstances.

The following are the assumptions which, according to the Deputy Attorney General’s Amended Reply to the Notice of Appeal, were made by the Minister in assessing the Appellant:

7. In so reassessing the Appellant, the Minister made the following assumptions of fact:

(a) at all material times, the Estate held legal title to a condominium apartment no. 1007 (the “Condominium”) located at 100 Canyon Avenue, Toronto, Ontario;

(b) the Appellant was married to late Max Blackstien who died on January 12, 1990;

(c) during 1991, the Appellant occupied the Condominium;

(d) during the 1991 taxation year, the Estate paid a personal expense of the Appellant in the amount of $3,932.00 representing Condominium maintenance fees;

(e) for the 1991 taxation year, the Estate issued to the Appellant a T3 supplementary slip indicating that the Appellant received a taxable benefit in the amount of $3,932.00 from the use of the Condominium;

(f) in the 1991 taxation year, the Estate conferred a benefit the value of which was not less than $3,932.00 on the Appellant who occupied the Condominium.

There are a number of reasons why the Minister’s assessment in this case cannot stand. The first is that there is no trust to be found under the terms of which the trustee is bound to maintain the condominium unit for the benefit of the Appellant. Ms. Espejo argued for the Crown that a trust arose out of the marriage contract. However, there are no words in that document which could be said to create a trust. Nor could she cite authority for the proposition that a trust arises, at common law or otherwise, simply out of the fact that the marriage contract provides for a life tenancy to pass to the Appellant upon the death of her husband. A trust is created under the will of the late Mr. Blackstien, but there are no words in that will, or elsewhere in the evidence before me, whereby the trustees are obliged to maintain the condominium unit for the use of the life tenant. There may be obligations which arise at common law, as was argued, but they are irrelevant to the issue before me. To satisfy the words of the subsection, the payment must be made to fulfil an obligation arising “under the terms of the trust arrangement”. An examination of the will of the late Mr. Blackstien leaves no doubt that this requirement cannot be satisfied. Indeed, it would appear that the estate simply made the payment to satisfy the obligation imposed on it, as the owner of a freehold interest, by section 32 of the Condominium Act.? [2]

Nor is the second requirement set out above satisfied in this case. There is no evidence before me as to whether or not the payment was made out of the income of the trust. Nor has the Minister, made any assumption in that regard in assessing the Appellant; certainly no such assumption on the Minister’s part has been pleaded by the Deputy Attorney General. Absent either an unrebutted assumption, or some evidence, I cannot find that the payment has been made out of the income of the trust. The Minister has assumed that a T-3 Supplementary form was issued by the executors of the estate to the Appellant, indicating that she had received a taxable benefit in the amount of $3,932 during the 1991 taxation year. However, I am not prepared to infer from the fact that such a form was sent to the Appellant that all the facts required to bring the payment within subsection 105(2) have been established.

It has not been established, nor I think could it be, that it would be reasonable, if all of the other requirements were satisfied, to include the entire $3,932 in the Appellant’s income. The parties are in agreement that the amount of $3,932 was the payment required to be made in respect of the condominium unit to the condominium corporation for the year 1991. However, the Condominium Act requires that some part of that amount, not less than 10%, must be contributed to a reserve fund which is established to provide for major repairs and replacement of common elements and assets of the condominium corporation. [3] It is clear that neither the trustee in issuing the T-3 Supplementary form, nor the Minister in assessing, gave any thought whatsoever to what part of the annual payment it would be reasonable to include in the circumstances. No evidence was led as to how much of the payment was for the reserve fund, and how much for the current expenses of the corporation. In view of my conclusion that the other requirements of subsection 105(2) have not been met, I need not attempt to catalogue all of the relevant circumstances that would otherwise have had to be taken into account.

For all of the above reasons, the appeal is allowed.

Appeal allowed.