Estate of William Allison Smellie v. Minister of National Revenue, [1977] CTC 2435, 77 DTC 308

Delmer E Taylor:—This is an appeal from an income tax assessment for the year 1975. In that year the sale of certain real estate provided a gain to the estate, and after making allowances considered appropriate, the Minister of National Revenue assessed the estate on the basis of a taxable capital gain of $7,256.25. The Valuation Day amount attributed by Revenue Canada to the property was $13,600 in the assessment, but at the appeal hearing counsel for the respondent, on behalf of his client, agreed that this amount should be increased to $15,969 and, therefore, to that extent, Revenue Canada was committed to a reconsideration of the mathematics of the assessment. However, the basis of the appeal remained. This basis is that the appellant claims the real estate sold should be considered as a principal residence and the provision of the Income Tax Act applied dealing with a sale under such circumstances. The respondent relied, inter alia, upon section 38 and subsections 39(1), 40(1) and (2) of the Income Tax Act, SC 1970-71-72, c 63 and on subsection 26(3) of the Income Tax Application Rules.

Facts

William Allison Smellie died on or about June 15, 1971, leaving a will dated December 15, 1953. Mr Smellie’s widow, Ida Muriel Smellie, had the use of the home dwelling (the real estate considered to be the subject of this appeal) until her death or remarriage under the terms of the will. She did occupy the home until her death on November 13, 1974.

Contentions

For the appellant:

—Subsections 70(6), 40(4) and 40(5) of the Income Tax Act have no application since they apply to dispositions after 1971. Since the trust herein was set up before the end of 1971 and restrictive definition of a spouse trust was not enacted until the end of 1971, it is submitted that the trust herein should be able to claim the property as its principal residence in the same manner as provided for by the above noted section.

—It is submitted that the intention of the Act in circumstances such as this is that the position of the taxpayer should not be adversely affected by a husband’s desire to provide a residence for his widow after his death.

—It is submitted that Mr Smellie did not otherwise generously provide for his wife in his will. The estate was a small one ($17,122.59). It is probable that an order transferring the residence to Mrs Smellie could have been obtained under The Dependants' Relief Act. She would then have had the residence and no capital gains tax would now be payable. She elected not to do so and it would seem grossly unjust that tax should now be demanded.

For the respondent:

—The dwelling in which Mrs Smellie resided until her death in November of 1974 was not the principal residence of the appellant within the meaning of subsection 40(5) and paragraph 54(g) of the Act.

Evidence

William James Smellie, one of the two executors and trustees of the appellant estate (the other being the late Ida Muriel Smellie), identified and submitted for the Board’s consideration a copy of the will of the late William Allison Smellie and a copy of the purchase and sale agreement for the property. These documents served only to support the facts previously accepted by counsel.

Argument

Essentially the position of counsel for the appellant was that the property in question was by all accepted standards the principal residence of Ida Muriel Smellie after the death of William Allison Smellie up until the date of her death, and that the effect of the changes in the Income Tax Act taking effect as of January 1, 1972 was to retroactively alter this position, at least to the extent of the imposition of tax on the proceeds of an estate already administered before the “new” Income Tax Act. A second argument was that the trust itself should be allowed to claim the property as its principal residence since one of the executors (Ida Muriel Smellie) had used it as her principal residence until her death.

Counsel for the respondent dealt almost exclusively with the portion of the argument for the appellant which related to the capacity of a trust which was not by definition a “testamentary trust” to claim a principal residence. His line of reasoning was that the trust (the Estate of William Allison Smellie, appellant) had never in any of the required estate filing forms declared the property in question as its principal residence and that the provisions of the Income Tax Act with which the Board is dealing at this hearing must be interpreted literally and not given the broad parameters suggested by counsel for the appellant. Counsel recognized that this was an intricate point and one on which there did not appear to be much background decision material. He therefore provided the Board with a detailed review of the relationship between a trust, a person and a taxpayer under the Act, as they should be applied with respect to a principal residence. The understanding of the Board is that counsel conceded that a trust (any trust) could indeed claim a principal residence but that this claim was not automatic merely because one of the executors had inhabited a specific residence. Counsel also noted for the Board that only one, not both, of the executors in the instant appeal had lived in the home residence. The cases cited for the attention of the Board were: Montreal Light, Heat and Power Consolidated v MNR and Montreal Coke and Manufacturing Company v MNR, [1942] CTC 1; 2 DTC 535; Her Majesty the Queen v Adolf Scheller, [1975] CTC 601; 75 DTC 5406.

Findings

In the view of the Board there is really only one point at issue— whether the fact that one of the executors of the estate lived in the property in question during the time material, thereby established such property as the principal residence of the trust itself, as distinct from the living accommodation it provided to the late Ida Muriel Smellie under the will of the late William Allison Smellie. I am satisfied that the property was the principal residence of the late Ida Muriel Smellie, in her own right as a person and/or a taxpayer. I am unable to conclude that either the purpose or the result of that habitation by her was to nominate or dedicate the property as the principal residence of the trust and I have not found any assurance in the Act itself, or in the relevant jurisprudence, that such habitation would bestow particular characteristics on the property itself. At the same time the Board expresses no opinion with regard to the apparent conclusion of counsel for the respondent that a trust could in fact designate a specific property as its principal residence, commenting only that if indeed this state of affairs for purposes of the Income Tax Act could be reached by such an action, then such a designation (which appears to be a minimum requirement) was not made in this case.

Decision

The appeal is dismissed but with the understanding that the commitment of counsel for the respondent to a reassessment, changing the Valuation Day amount used in the calculation of Revenue Canada from $13,600 to $15,969, will be implemented.

Appeal dismissed.