Fraser, J:—These are appeals under section 34 of The Succession Duty Act, RSO 1960, c 386, as amended [1970, c 51, s 23; now RSO 1970, c 449, s 33], to which I will refer as the Act, from statements of succession duty served on behalf of the Minister of Revenue for Ontario on the appellants.
Myrtle Louise McCreath, to whom I will refer as the deceased, died domiciled in Ontario on May 21, 1968. Probate of her last will and testament with codicils thereto (Exhibit 1 herein) was issued out of the Surrogate Court of the County of York on November 14, 1968.
The appellant herein is James Scott McCreath, a son of the deceased, born June 8, 1948. In addition to James Scott McCreath, similar appeals have been made by
Martin R McCreath—son—born December 8, 1950.
Paul C McCreath—son—born June 1, 1955.
Michelle A McCreath—daughter—born October 17, 1960. Ralph Scott McCreath—husband.
Annie Franceschini—mother.
No children or other issue predeceased the deceased .
At all relevant times the deceased and all the appellants were domiciled in Ontario. Appropriate steps have been taken by the parties under section 34 and separate records filed on behalf of each of the appellants. All the records are similar and for convenience the record in the appeal of James Scott McCreath is referred to. The Official Guardian represents the two infant appellants and Mr Robinette ail the adult appellants. All the appeals were argued together.
On November 29, 1948, the deceased entered into a trust agreement, to which I will refer as the agreement, with the National Trust Company. In that agreement the deceased was referred to as the settlor and the National Trust Company as the Trustee. The parts of that agreement, which are material for present purposes, are as follows:
WHEREAS the Settlor will be entitled to a voting trust certificate representing 99,986 common shares in the capital stock of Mount Royal Paving & Supplies Limited;
AND WHEREAS the ettior desires to establish a trust respecting the said voting trust certificate as hereinafter set forth;
AND WHEREAS the foregoing recitals are made by the Settior and not by the Trustee;
NOW THEREFORE THIS INDENTURE WITNESSETH that in consideration of the sum of one dollar by each of the parties hereto to the other paid, the receipt whereof by each of the parties is hereby acknowledged, it is agreed by and between the parties hereto as follows:
1. The Settlor shall forthwith after the receipt thereof deliver to the Trustee a voting trust certificate representing 99,986 common shares in the capital Stock of Mount Royal Paving & Supplies Limited and the Trustee shall receive such voting trust certificate to constitute a trust fund to be held, applied and dealt with by the Trustee upon the following trusts:
(a) During the lifetime of the Settlor to pay or apply the whole net income of the trust fund in each year to or for the benefit of the Settlor and her issue from time to time alive or some one or more of the Settlor and her said issue as the Trustee may from time to time in its absolute discretion determine and if paid or applied to or for the benefit of more than one of them to pay or apply the same in such proportions as the Trustee may from time to time in its absolute discretion determine.
(b) On the death of the Settlor, if she shall die leaving issue her surviving, to hold the trust fund in trust for the issue of the Settlor or such one or more of them and in such proportions and subject to such terms and conditions as the Settlor may by will direct and in default of such direction or insofar as the same may be void or shall not extend or take effect to pay or transfer the trust fund to the issue of the Settlor who shall be living at her death and If more than one in equal shares per stirpes.
I will refer to the fund set up under the agreement as the 1948 Trust.
The value of the estate of the deceased passing under will, as determined by the Succession Duty Branch, was large but the corpus of the 1948 Trust at the time of the death of the deceased was much larger. The deceased did not exercise the power of selection given to her under paragraph 1(b) of the agreement. There is no dispute € as to the facts.
The Minister has added the value of the corpus of the Trust to the value of the estate passing under the will and takes the position that that corpus is property passing on the death of the deceased or property deemed to pass on the death of the deceased pursuant to subclause (viii) of clause (p) of section 1 [now subclause 1 (r)(x)] of the Act. The Minister also denied that the disposition under the agreement was exempt under clause 5(1 )(g) of the Act.
The appellants take the position that the corpus of the trust is not taxable as claimed by the Minister. The parties have taken the requisite proceedings and the matter comes before the Court for disposal.
The appellants Ralph Scott McCreath, the husband of the deceased, and Annie Franceschini, the mother of the deceased, have no interest in the corpus of the 1948 Trust but are appellants because the inclusion of the value of that Trust in the assets of the estate would increase the rate of duty payable on other benefits which they take under the will of the deceased.
It is common ground that the settlor Myrtle Louise McCreath received some of the income from the 1948 Trust in the years 1966, 1967 and 1968.
The notice of appeal reads in part as follows:
1. The Statement should not include the value of the MYRTLE LOUISE McCREATH (1948) TRUST.
2. The corpus of the Trust Is not property passing on the death of the deceased within the meaning of The Succession Duty Act and it is not property which is deemed to pass on the death of the deceased under the said Act.
3. The Trust makes a disposition to me of my interest in the corpus of the Trust and to each of the other beneficiaries, among whom the corpus is to be divided, and all of such dispositions are exempt under Section 5(1 )(g) of The Succession Duty Act.
There was also a paragraph numbered 4, setting out an additional ground but this was abandoned at the hearing. We are therefore concerned with the grounds set out in paragraphs 2 and 3. I will refer to them respectively as the first and second grounds.
In. Johnston v MNR, [1948] S.C.R. 486; [1948] 4 DLR 321; [1948] CTC 195, a majority of the Supreme Court of Canada held that in an appeal by a taxpayer as to income tax, in which the proceedings were analogous to those in the instant case, an onus rested on the appellant. In Re Webster Estate, [1949] OWN 581; [1949] CTC 263, Gale, J (as he then was), after referring to Johnston v MNR (supra) and other relevant cases, held that in a taxpayer’s appeal under the Ontario Succession Duty Act, an onus rested on the appellant of showing affirmatively that the assessment made by the Treasurer was erroneous. In Re Taylor and Re Hume, [1958] OR 335; 13 DLR (2d) 470, Spence, J had before him an appeal under The Succession Duty Act. He reviewed the case law and referred to the well-established principle that in the first instance it is for the taxing authority to bring its case within the words of the taxing statute. He then held that where the taxpayer is appealing, after notice of dissatisfaction, reply and confirmation have been served, as was the case in Re Webster Estate (supra), the onus rests on the appellant. At page 338 OR, page 473 DLR, he said:
Therefore, the circumstances would seem to be exactly those considered by Gale, J in Re Webster Estate, [1949] OWN 581, [1949] CTC 263, where he came to the conclusion that the appellant should show, affirmatively, that the assessment made by the Treasurer was one which ought not to have been made, and that if the appellant failed to meet that burden, then the appeal must fail. Gale J’s view seems to be in accordance with Johnston v Minister of National Revenue, [1948] S.C.R. 486, [1948] 4 DLR 321, [1948] CTC 195, and the opposite view as advanced by counsel for the appellant is reflected in the judgment of Lamont, J In that case, in which, however, he was in the dissenting minority. The view of Gale, J was adopted by LeBel J (as he then was) in Re Ross Estate, [1954] OR 778 at 779; I shall therefore proceed to consider these cases upon the basis that the appellants must show that the decisions of the Treasurer are wrong. As I have said, the facts are agreed upon and, therefore, this consideration of onus is reduced to a mere onus to persuade the Court that the interpretation put upon the statutory provisions by the Treasurer is an incorrect one.
I respectfully agree with the law as to onus stated in that case and find it applicable to the case at bar. However, I add that I would have reached the same conclusions had ! been of opinion that the onus rested on the respondent. Whether or not this fund is taxable depends on two legal issues, which are succinctly stated in paragraphs 2 and 3 of the notice of appeal set out above. It is common ground that there is no authority binding on this Court with respect to either of them.
Section 6 of the Act reads, in part, as follows:
6. Subject to sections 4 and 5, on the death of any person whether he dies domiciled in Ontario or elsewhere,
(a) where any property situate In Ontario passes on his death, duty shall be levied on such property in accordance with the dutiable value thereof;
(b) where there is any transmission, duty shall be levied on the person to whom there is such transmission, with respect to such transmission, in accordance with the dutiable value thereof;
(c) where any disposition, other than of realty situate outside Ontario, is made in Ontario on or after the 1st day of July, 1892, to any person who is resident in Ontario at the date of death of the deceased, duty shall be levied on such person, with respect to such disposition, in accordance with the dutiable value thereof;
For the moment I will defer any consideration of the opening words “Subject to sections 4 and 5” and will discuss the matter as if those words were omitted. At a later stage it will be necessary to consider them in some detail. Section 1 of the Act reads, in part, as follows:
1. In this Act,
(f) “disposition” means,
(i) any means whereby any property passes or is agreed to be passed, directly or indirectly, from the deceased during his lifetime to any person,
(ii) any means whereby any person is benefited, directly or indirectly,
by any act of the deceased during the lifetime of the deceased,
(ix) any creation of trust, and
(p) “property passing on the death of the deceased” is deemed to include, (viii) any property passing under any past or future settlement, including any trust, whether expressed in writing or otherwise and if contained in a deed or other instrument effecting the settlement, whether such deed or other instrument was made for valuable consideration or not, as between the settlor and any other person, made by deed or other instrument not taking effect as a will, whereby an interest in such property or the proceeds of sale thereof for life, or any other period determinable by reference to death, is reserved either expressly or by implication to the settior, or whereby the settlor may have reserved to himself the right by the exercise of any power to restore to himself, or to reclaim the absolute interest in such property, or the proceeds of the sale thereof, or to otherwise resettle the same or any part thereof,
The first question falling to be decided is whether under paragraphs 1(a) and (b) of the 1948 Trust, the corpus of that trust is to be deemed property passing on the death of the deceased under subclause 1(p) (viii). That question depends on whether or not the provisions of the trust agreement bring the matter within the words “whereby an interest in such property or the proceeds of sale thereof for life, or any other period determinable by reference to death, is reserved either expressly or by implication to the settlor”. It is not suggsted that the property can be brought within the words of that clause which follow those just quoted.
The question of what is an interest under English legislation, similar to subclause 1(p)(viii) has received much judicial consideration.
In Attorney-General v Heywood (1887), 19 QBD 326, a question arose under the Customs and Inland Revenue Act, 1881 (UK), c 12, s 38(2). That Act contained a provision similar to the part I have quoted from subclause 1(p)(viii) of the Act. In that case the settlor had provided that the trustees should apply the income for the benefit of the settlor and his wife and children, or, at their discretion, for the benefit of one or more of such persons to the exclusion of the others, and after the settlor’s death the money was to be held subject to trusts in favour of his widow and children. It was held that notwithstanding the power conferred upon the trustees of depriving the settlor of the benefit of any income from the settled property at their discretion, an interest in such property for life was reserved to him within the meaning of the Act to which I have referred. At page 330 Stephen, J said:
The whole question here is whether by this settlement an interest for life is reserved, either expressly or by implication, to the settlor. The clause on which this question turns ought to be interpreted with reference to the scheme of the Act, and adopting that principle of construction I have come to the conclusion that the word “interest” in the statute ought to be Interpreted so as to include that which was reserved to the settlor in the present case. By the terms of the settlement during the lifetime of the settlor the trustees were to apply the income of the settled property to his use or to that of certain other persons who were specified, but they had a discretion, which would have enabled them, if they had thought fit, to apply the whole for the benefit of such other persons to the exclusion of the settlor. I am clearly of opinion that what was reserved to the settlor was a a life interest, for certain other persons would receive a benefit by his death.
Wills, J said at pages 331-2:
I am of the same opinion. The question is, whether under the settlement of June 15, 1878, any interest was reserved to Edmund Peel, the settior, for if any interest was reserved to him it was clearly a life interest, because it terminated on his death. The word “interest” is capable of different meanings, according to the context in which it is used or the subject-matter to which it is applied. If the contention for the defendants is right nobody has any interest in the property settled, and yet the whole fund was io be held for the benefit of three classes of persons—the husband, the wife, and the children; and the sum of the benefits conferred on all these three classes taken together, being the sum of three nothings amounts to nothing, whereas, on the other hand, it must necessarily comprehend the whole interest in the fund. This is simply a reductio ad absurdum. The application of the word “interest” is not confined to a vested or a necessarily contingent interest. The Act was meant to cast a wider net than such a construction would imply. The settior here could only be deprived of the benefit he would otherwise get under the settlement by the exercise of the power of depriving him of such benefit which was vested in the trustees, and unless the trustees so deprived him he would necessarily get a benefit.
In certain events, also, if a portion of the fund were unappropriated, the decisions shew that the Court might make a division among the members of the class for whose benefit the property was held, of which class the settlor was one, so that in that case he would get a benefit, and this, I think, is an interest.
In Attorney-General v Farrell, [1931] 1 KB 81, the transaction in question was complex but for present purposes it is sufficient to say that there was a settlement by which A and his mother appointed property to trustees upon trust for the mother for life and after her death upon trusts for management during the life of A. and after payment of expenses to apply the net rents and profits for the benefit of any one or more exclusively of the other or others of A and his wife and children or remoter issue as the trustees should in their absolute discretion think fit and (subject to this discretionary trust) to pay or apply the surplus of the rents and profits to the person or for the purposes to or upon which the same would be payable or applicabie if A were dead and after his death and in the events which happened the trustees were directed to hold the trust estate in trust for A’s brother for life with remainders over. The mother died in 1925 and estate duty was paid on her death on the settled property. A died in 1926 having received £50 a month from the trustees under the discretionary trust. The surplus profits which were considerable nad been paid to A’s brother. It was held, following Attorney-General v Heywood, (supra) that by making himself one of the possible objects of the discretionary trust, A had reserved to himself an interest in the property settled within the meaning of paragraph 38(2)(c) of the Act of 1881 as re-enacted in 1894. Lord Hanworth, MR,at pages 95-7, said:
To this extent then the terms of the statute are satisfied, and ! turn back to consider whether or not the last portion has been fulfilled, that is, to ascertain whether or not what has happened falls within s 38 of the Customs and Inland Revenue Act, 1881. Sect 38, sub-s 2, provides: “The personal or movable property to be included in an account shall be property of the following description, viz.: . . . (c) any property passing under any past or future voluntary settlement made by any person dying on or after such day by deed or any other instrument not taking effect as a will, whereby an interest in such property for life or any other period determinable by reference to death is reserved either expressly or by implication to the settlor, or whereby the settlor may have reserved to himself the right, by the exercise of any power, to restore to himself, or to reclaim the absolute interest in such property.”
Mr Spens says, and with force, that although the purposes necessary io bring the case within the statute may so far have been fulfilled that there was a disposition by the deceased, yet there was no interest reserved, either expressly or by implication, to the deceased as setilor. Ail that was reserved to him was a chance of receiving a sum from the trustees, if they should in their discretion think fit to give him something; and more than that, the trust was not simply a discretionary trust for the benefit of a class, but there was an express provision as regards any surplus remaining after the Class had or had not been paid any part of the rents and profits, that the surplus was to be paid or applied to the persons or for the purposes to and upon which the net rents and profits of the trust estate would be payabie or applicable if the deceased were dead, that is to the brother Edward. Therefore we have the case of a discretionary trust for the benefit of a class. with a trust over, and it is not a case where an application could be made to the Court to enforce the trust in favour of the class, because though a discretionary trust, the discretion had to be exercised in favour of some or one of the persons included in that class and nobody else.
We have, therefore, to consider what is the meaning of the word “interest”, in s 38, sub-s 2(c), of the Act of 1881. Does the chance that the deceased had of receiving some money before the trustees paid over the surplus renis and profits to his brother Edward constitute an interest within the meaning of s 38, sub-s 2(c)? I confess the matter is one by no means free from difficulty and doubt, but in Attorney-Genera! v Heywood 19 QBD 326, which was decided forty-three years ago by two distinguished judges, Stephen and Wills, JJ, it was held that where in a settlement a discretionary trust was given to trustees to apply income for the benefit of the settlor, his wife, any future wife and any children, an interest was taken by the settlor which was Sufficient to bring the case within this sub-s 2(c). That case, of course, is not binding upon this Court. An attempt was made by Mr Spens to distinguish it by saying that there was a much larger class indicated in the present case than in that case when the trust was for the benefit of the settlor, his present wife or any future wife and his children. It was said that this was a narrow trust for the family, or one or other of. them, whereas in the present case there was a more numerous class indicated with the trust over. I am not prepared to accept an interpretation of the word “interest” which would vary according to the number of persons who are indicated in a discretionary trust. It cannot be merely a question of degree. One has got to put a definite interpretation on the word “interest” irrespective of whether or not the discretionary trust is given in favour of a larger or a smaller class. I therefore am unable to accept the suggested distinction which Mr Spens has put before us with regard to Heywood's case. Again I am unwilling to indicate dissent from, still less to overrule a case which has stood now for so long a period of time, and must have taken its place as a guide. in a great number of cases, and been acted upon as an integral part of the interpretation to be placed upon this system of statutes.
That case has decided, in such a case as the present, that an interest within the meaning of this very section is reserved to the seitlor.
After some discussion of Drummond v Collins, [1915] AC 1011, he said [at p 98]: • •• -'
However, even without the support which can be gathered from Drummond v Collins [1915] AC 1011, I think it is too late for us to reopen the question which was decided in Attorney-General v Heywood 19-QBD 326: and I think that for the purposes of the interpretation of s 38, sub-s 2(c), it must be held that where there is a discretionary trust, a possible object of that trust holds an interest within sub-s: 2(c).
Greer, LJ came to the same conclusion. Romer, LJ held the same view and expressed the opinion that Attorney-General v Heywood (supra) was rightly decided.
In Re Beckett's Settlement, [1940] 1 Ch 279, it was held that the object of a discretionary trust is not a vested or contingent interest in a trust fund. In the course of his judgment Simonds, J said at page 285:
It is quite true that in one sense the objects of a discretionary trust have an interest in the fund which is being administered for their benefit. It is so far true that if the whole of the fund is applicable for their benefit, and they are of full age, they are together entitled to put an end to the discretionary trust. If authority is needed for that obvious. proposition it is to be found in /n re Smith [1928] Ch 915. Again, if any authority is needed for the proposition that in such circumstances the object of a discretionary trust has an interest in the fund it is to be found in the line of authority of which the Attorney- General v Farrell [1931] 1 KB 81, may be taken as an example, where it was held that for the purpose of the Finance Act, 1894, which was there under consideration, a settlor reserves to himself an interest in a settled fund if he remains under its provisions one of the objects of a discretionary trust.
That, however, is not quite the point which I have to decide. I have to decide whether an object of a discretionary trust is on the true construction of the words “entitled to any prior life or other interest, whether vested or contingent.” I! think, according to the ordinary language of conveyancing, and that is what —I have to bear in mind for the purpose of construing this statute, it would not be right to predicate of a person who is the object of a discretionary trust that he is entitled to a vested or contingent interest in the trust fund. One can only base one’s view on experience of conveyancing practice, and, in my view, although, indeed, the object of a discretionary trust has an interest in equity in the trust fund, yet he would not be appropriately described as a person entitled to an interest, vested or contingent.
In Gartside et al v Inland Revenue Commissioners, [1968] AC 553, the House of Lords considered subsection 43(1) of the Finance Act, 1940 (UK), c 29, and paragraph 2(1)(b) and subsection 7(7) of the Finance Act, 1894 (UK), c 40. The former reads as follows [headnote]:
Subject to the provisions of this section, where an interest limited to cease on a death has been disposed of or has determined, whether by surrender, assurance, divesting, forfeiture or in any other manner (except by the expiration of a fixed period at the expiration of which the interest was limited to cease), whether wholly or partly, and whether for value or not, after becoming an interest in possession, and the disposition or determination {or any of them if there are more than one) is not excepted by subsection
(2) of this section, then—(a) if, had there been no disposition or determination, as aforesaid of that interest and no disposition of any interest expectant upon or subject to that interest, the property in which that interest subsisted would have passed on the death under section 1 of the Finance Act, 1894, that property shall be deemed by virtue of this section to be included as to the whole thereof in the property passing on the death; or (b) if, had there been no disposition or determination as aforesaid of that interest and no disposition of any interest expectant upon or subject to that interest, the property in which the interest subsisted would have been deemed by virtue of paragraph (b) of subsection (1) of section 2 of the said Act to be included to a particular extent in the property passing on the death, the property in which the interest subsisted shall be deemed by virtue of this section to be Included to that extent in the property passing on the death.
Paragraph 2(1)(b) and subsection 7(7) of the Act of 1894 are as follows:
2. (1) Property passing on the death of the deceased shall be deemed to include the property following, that is to say:—
(b) Property in which the deceased or any other person had an interest ceasing on the death of the deceased, to the extent to which a benefit accrues or arises by the cesser of such interest; but exclusive of property the interest in which of the deceased or other person was only an interest as holder of an office, or recipient of the benefits of a charity, cr as a corporation sole;
7. (7) The value of the benefit accruing or arising from the cesser of an interest ceasing on the death of the deceased shall—
(a) if the interest extended to the whole income of the property, be ‘the principal value of that property; and
(b) if the interest extended to less than the whole income of the property, be the principal value of an addition to the property equal to the income to which the interest extended.
The testator bequeathed a fourth share of the residue of his estate to trustees to apply the fund at their discretion for the maintenance or benefit of all or any of his son, his son’s wife or children (if any), and to accumulate surplus income as an addition to capital with power at any time to resort to the accumulations and to apply them as current income, and (2) after the son’s death, to hold the capital, income, and accumulations upon trust for such of the son’s children as being maie attained 21 or being female attained that age or married. The trustees were also given power to advance at any time to a grandchild of his sums of up to one-half of the presumptive or vested share of that grandchild in the fund. The son married after the death of his. father and had twin sons. There were no other children. The trustees exercised their power of advancement in favour of the testator’s grandsons. They declared that they held investments and the income thereof on trust for each grandson should he attain 21 years. The testator’s son died shortly after the power of investment was exercised. The Crown claimed estate duty on the two funds. It was disputed by the trustees on the ground that neither the discretionary objects nor the accumulation beneficiaries had an “Interest in possession” or, indeed, any “interest” at all in the trust fund, within the meaning of section 43 of the Finance Act, 1940; and (2) even if there was an interest in possession, it was not of a measurable amount as contemplated by paragraph 2(1)(b) and subsection 7(7) of the Finance Act, 1894.
It was held that the only right of an object of a discretionary trust of income is to require the trustees to consider from time to time whether or not to apply the whole or some part of the income for his benefit, and this right is not an interest in the whole fund or any part of it within the meaning of section 43 of the Finance Act, 1940. It was also held that an interest in possession had to be such an interest that the object could claim whatever might be the subject of the interest and that the right to consideration does not enable the obiect to make such a claim. Lord Reid reviewed the case law and particularly the decision in Attorney-General v Heywood (supra) and agreed with the decision in that case. At page 612 he said:
But then the respondents founded on two decisions on the meaning of the word “interest” in a different provision which was obviously passed to deal with a different problem. The Customs and Inland Revenue Act, 1881, required certain property to be brought in although it had ceased to belong to the deceased at the date of his death. This included the case where a settlor in making a settlement had reserved an Interest in the settled property. In Attorney-General v Heywood the settlor had provided that the trustees had a discretion to apply the trust income for the benefit of himself his wife and children or any one or more of them. It was, i think, rightly decided that he had reserved an interest within the meaning of that provision. It is always proper to construe an ambiguous word or phrase in light of the mischief which the provision is obviously designed to prevent, and in light of the reasonableness of the consequences which follow from giving it a particular construction. Here, if “interest” were given a narrow or technical meaning it would be very easy to defeat the obvious purpose of the provision by setting up a discretionary trust and choosing trustees who might be expected to exercise their discretion in favour of the settlor. And, on the other hand, no unreasonable consequences would follow if the word were given a wider meaning so as to include possible benefit that would come to the settlor in a certain event—in the event of the trustees deciding that ne should have the whole or part of the income.
At 613 Lord Reid said that Attorney-General v Farrell did not appear to throw any additional light on the matter there under consideration. In the result he found that the discretionary object did not have an interest in possession within the meaning of subsection 43(1). At pages 609-10; after reviewing certain of the older cases, he said:
Counsel for the respondents put his case so high as to argue that these cases show that, whenever there Is a primary discretionary trust followed by ..a direction to deal with any surplus not paid to the discretionary objects by accumulation or otherwise, the court must disregard any such direction and treat the case as if the trustees had been directed to divide the whole income among the discretionary objects. I can find no basis and no rational justification for any such artificial rule. The present case must be decided in accordance with the fact that neither individually nor collectively were the objects of this discretionary trust entitled in any year to receive any part of the trust income:* that is shown by the fact that in only one out of twenty years did any of them receive any part of the income.
In this aspect the Gartside case (supra) is clearly distinguishable from the Heywood case (supra) and the Farrell case (supra) which followed it. In the two lasi-mentioned cases the trustees had powers to apportion but were also under a duty to distribute the income. In Gartside they could accumulate. Lord Reid gave judgment and Lord Morris of Borth-y-Gest and Lord Guest agreed with those reasons. Lord Wilberforce and Lord Hodson came to a like conclusion but found ii unnecessary to express any view as to the correctness of the decisions in Heywood (supra) and Farrell (supra). At page 615 Lord Wilberforce said:
I have said that no one of the discretionary beneficiaries had at the relevant time any right to receive any income, but this is not the whole of the matter. It is also necessary to appreciate that the discretionary beneficiaries taken together had no right to receive any or, a fortiori, all of the income. Two of them were infants but even if they had been of age they could not, with their parents, have called upon the trustees to pay them the income of any year; the reason being that the trustees had power to accumulate so much as they did not distribute, which might be the whole, for the possible benefit of persons unborn. To describe them as “the only people who could during the relevant period obtain any benefit from the property or have any beneficial enjoyment of it” may be misleading, unless one bears in mind that, singly or collectively, they had no right in any year to receive a penny.
At pages 616-17, after referring to certain provisions of paragraph 2(1)(b) and subsection 7(7), he went on to Say:
This shows that for the cesser of an interest to give rise to a charge for duty, it must be possible to say of the interest that it extended to the whole Income, or to a definite part of the income, This notion of definite extention is, in my opinion, vital to the understanding and working of section 2(1)(b) and consequently of section 43 of the Act of 1940.
It must follow that the discretionary beneficiaries under the settlement had no “interest” within the meaning of the section: no single member of this class had any right to any income; even if one considers them collectively they had no right to any Income because the trustees could accumulaie the whole of it. This makes it unnecessary, and, indeed, otiose to consider whether the discretionary beneficiaries had “interests in possession”, but the use of these words in the subsection do provide a cross check as to the meaning of “interest”. As is well illustrated by the judgments in the courts below, it is exceedingly difficult to fit the rights of the discretionary beneficiaries either into the category of “interests in possession” or into its statutory counterpart “interests in expectancy”: to say that, as it is not one, it must be the other is not a very satisfactory solution (the categories though mutually exclusive need not be exhaustive) especially if this technique can be used—as it has been used by the courts below—either way. Rather, the difficulty of giving either answer endorses the conclusion that this is not an “interest”, within the meaning of this section at all.
At pages 620-21, reference was made to the Attorney-General v Farrell and Attorney-General v Heywood cases (supra). With respect to these two cases Lord Wilberforce said:
The appellants Invited your Lordships to overrule these cases. The Crown supported them and urged that they should be treated as governing the meaning of “interest” in the present case. I see no need to take either course. Perhaps Attorney-General v Farrel could have been decided the other way on the ground that once section 38(2)(c) had been embodied in the Finance Act, 1894, s 2(1), the word “interest” in the earlier section should be given a meaning similar to that which it bears in paragraphs (b) and (d), each of which involved the conception of extent. But this was not done and one can appreciate why not. For section 38(2)(c) is concerned, broadly, with the case of persons who settle their property, yet wish to benefit from it so long as they live. To tax them in such a case is perfectly understandable, however large or small the reserved benefit may be and whether it is defined in extent or undefined. No definition is necessary, because the measure of the charge is the whole value of the property. So naturally no reference is made to “extent”—the mere fact of reservation is enough. I think, therefore, that the decisions in principle are acceptable. But—this is the other limb—acceptance of them does not carry the present case. In section 2(1 )(b) of the Finance Act, 1894 (and the same is true of section 2(1 )(d)), a duty is imposed the quantum of which is related to the extent of the interest and I see no difficulty in saying that the element of extent is relevant under the two sections but not under the third: the distinction is both made in the language and is necessary if the tax is to work.
Before leaving the subject of discretionary trusts I must consider one further point. When one object of a discretionary class dies, there is no charge for duty: the same must follow (under section 43 of the Finance Act, 1940), if the interest of one object is disposed of or determined (if that can be done). But there is also the case of a “closed class’’, that is, a class of discretionary objects, no one of whom is entitled to any income, but who between them can claim to be entitled, in each year, to the whole. It may well be possible to apply section 2(1)(b) of the Finance Act, 1894, or section 43 of the Finance Act, 1940 (as the case may be), to such a situation, as some of their Lordships who decided the recent appeal In Re Kirkwood [1966] AC 520 suggest. I do not find it necessary to pursue this particular argument since we are not concerned with a closed class.
The present case in the aspect under discussion is similar to Heywood and Farrell (supra). While Gartside (supra) is readily distinguishable, the reasoning therein and the discussion of Heywood is helpful.
In the case at bar the donees of the income are entitled collectively to the payment of the whole thereof. The seitlor is one of those donees. In the provisions of subclause 1 (p)(viii) the word “interest” is not qualified by “in possession” or words of a like import. I am of opinion that in principle and applying the reasoning in the cases to which I have referred, that the settlor did have an interest in the income from the 1948 Trust and it therefore fails within the definition of property passing on death found in subclause 1 (p)(viii). From this it follows that the property is subject to tax unless it escapes under the exempting or excepting provisions of the Act to which I now turn.
Under the provisions of clauses 6(a) to (c) inclusive, quoted supra, the Act provides for the levying of a duty on property passing on death, on any transmission or on any disposition.
I have already quoted part of section 1 containing certain definitions of property passing on death and have indicated that in my opinion subclause (viii) of clause (p) of section 1 is sufficiently wide to include the corpus of the 1948 Trust. However, section 6, which is the charging section, commences with the words “Subject to sections 4 and 5”. All of the following subsections are qualified by those opening words. From an examination of the section and the defining provisions of section 1, it is clear that it is not intended that the clauses of section 6 are necessarily mutually exclusive. I have already indicated that in my view the property in the 1948 Trust is property passing on death under the provisions of subclause 1(p)(viii). As property passing on death it therefore comes under clause 6(a). It is also a disposition under clause 6(c) as defined in subclauses (i), (ii) and (ix) of clause (f) of section 1. Section 6 is the taxing section. The corpus of the 1948 Trust is not subject to succession duty if it falls within the provisions of clause (g) of subsection 5(1). Those provisions read as follows:
5. (1) No duty shall be levied on any of the following property, nor on any person to whom there are any transmissions of any of the following property, with respect to such transmissions, nor on any person to whom any of the following dispositions are made, with respect to such dispositions, and such property and dispositions shall not be included in the aggregate value nor included for the purpose of determining any rate of duty,
(g) any disposition where actual bona fide enjoyment and possession of the property in respect of which the disposition is made, was assumed more than five years before the date of death of the deceased by the person to whom the disposition is made, or by a trustee for such person, and thenceforward retained to the entire exclusion of the deceased or of any benefit to him whether voluntary or by contract or otherwise;
The disposition in the instant case was made by the creation of the trust more than five years before the date of the death of the settior.
The question remains whether the “actual and bona fide enjoyment and possession of the property in respect of which the disposition is made, was assumed more than five years before the date of death of the deceased . . . and thenceforward retained to the entire exclusion of the deceased or of any benfit to him whether voluntary or by contract or otherwise’. The appellant raises no question with respect to the income but it is argued on behalf of the Crown that for those purposes the corpus and the income are not completely separate or severable.
A similar question has been considered by English and Irish courts on a number of occasions.
In Re Finance Act, 1894, and Cochrane, [1905] 2 IR 626, C had made a settlement more than 12 months before his death, whereby he conveyed a mortgage debt of £15,000 to trustees, upon trust to pay £575 of the income to his daughter S for life, and after her death in trust for her children who should answer a particular description, with power, however, by her will, to appoint to her husband during his life a yearly sum of £300, payable out of the income. Failing any child to answer the specified description after the death of the husband that subject to the annuity to the husband, the property was to be held in trust for the settlor absolutely. Income over and above the £575 was also to be held in trust for the settlor.
The Crown claimed that the whole of the £15,000 was subject to duty as falling within the description of property comprised in clauses
(a) and (c) of subsection 38(2) of the Customs and Inland Revenue Act, 1881, as amended. The relevant parts of these clauses were [at p 628, footnote]:
(a) . . . property taken under any gift, whenever made, of which bona fide possession and enjoyment shail not have been assumed by the donee immediately upon the gift, and thenceforward retained, to the entire exclusion of the donor, or of any benefit to him by contract or otherwise.
(c) Any property passing under . . . settlement . . . made by any person . . . by deed or any other instrument not taking effect as a will, whereby an interest in such property, or the proceeds thereof, for life, or any other period determinable by reference to death, is reserved, either expressly or by implication, to the settior ....
The King’s Bench Division had no difficulty in deciding that even if an interest in a trust fund could be deemed io be reserved to the settlor, it would not be an interest for the life of the settlor or for any period determinable by reference to his death within the meaning of clause (c) (supra).
All three Judges of the King’s Bench Division concluded that the fact that the settlor had the right to surplus income and would also be the beneficiary of the corpus of the trust, in the event specified in the settlement, did not bring the subject-matter of the gift within clause (a). All of them concluded that the subject-matters of the gift were equitable interests which were given and that “bona fide enjoyment and possession” had been assumed immediately after the gift to the exclusion of the donor as required under clause (a). What the settlor had after making the settlement was outside the gift as it was never given.
The Court of Appeal unanimously affirmed the decision of the King’s Bench Division [[1906] 2 IR 200]. Each of the Judges of that Court gave short reasons substantially in agreement with those given in the King’s Bench.
In Commissioner for Stamp Duties of New South Wales v Perpetual Trustee Co, Ltd, [1943] AC 425, by an indeniure of settlement made in 1917 between the settlor and five trustees, of whom the settlor himself was one, it was declared that the trustees should hold certain company shares of which the settlor was the owner and registered holder, and which were transferred into and registered in the names of the trustees, in trust, to apply during the minority of his son the whole or any part of the income or corpus as the trustees should think fit for the maintenance, advancement or benefit of the son, and on his attaining the age of 21 years to transfer to him as his absolute property all the assets and property whatsoever, including accumulations of income. From the date of the settlement the settlor never exercised any voting power in respect of the shares. With the exception of premiums paid in respect of a policy of insurance on the life of the son taken out by the trustees, no part of the dividends and income was paid or applied towards the infant’s maintenance, advancement or benefit, any balance which might have been so applied being accumulated and invested. The son attained the age of 21 years in 1931, when the assets comprised in the settlement were transferred to him. The revenue authorities claimed that on the death in 1921 of the settlor the shares, the subject of the settlement, had formed part of the settlor’s dutiable estate. The taxing statute contained a provision similar to that in clause 5(1)(g).
It was held that the settlement was a disposition without full consideration and that the interest of the son was not an absolute vested interest but was contingent on his attaining 21 years of age, that the property comprised in the gift was the equitable interest in the shares, and that bona fide possession and enjoyment of the property comprised in the gift was assumed by the donee, the son, immediately upon the gift and thenceforth retained to the entire exclusion of the deceased or of any benefit to him of whatsoever kind or in any way whatsoever, and accordingly the shares did not form part of the settlor’s dutiable estate.
At pages 439-40, after discussing the disposition of the case in the Australian Court, Lord Russell of Killowen said:
For the reasons hereinafter appearing their Lordships are in agreement with the decision of the High Court in this case. In their opinion the property comprised in the gift was the equitable interest in the eight hundred and fifty shares, which was given by the settlor to his son. The disposition of that interest was effected by the creation of a trust, ie, by transferring the legal ownership of the shares to trustees, and declaring such trusts in favour of the son as were co-extensive with the gift which the settlor desired to give.
The donee was the recipient of the gift; whether the son alone was the donee (as their Lordships think) or whether the son and the body of trustees together constituted the donee, seems immaterial. The trustees alone were not the donee. They were in no sense the object of the setilor’s bounty. Did the donee assume bona fide possession and enjoyment immediately upon the gift? The linking of possession with enjoyment as a composite object which has to be assumed by the donee indicates that the possession and enjoyment contemplated is beneficial possession ‘and enjoyment by the object of the donor’s bounty. This question therefore must be answered in the affirmative, because the son was (through the medium of the irusiees) immediately put in such bona fide beneficial possession and enjoyment of the property comprised in the gift as the nature of the gift and the circumstances permitted. Did he assume it, and thenceforth retain it to the entire exclusion of the donor? The answer, their Lordships think, must be in the affirmative, and for two reasons: namely, (1) the settlor had no enjoyment and possession such as is contemplated by the section; and (2) such possession and enjoyment as he had from the fact that the legal ownership of the shares vested in him and his co-trustees. as joint tenants, was had by him solely on behalf of the donee. In his capacity as donor he was entirely excluded from possession and enjoyment of what he had given to his son. Did the donee retain the possession and enjoyment to the entire exclusion of any benefit to the settlor of whatsoever kind or in any way whatsoever? Clearly, yes. In the interval between the gift and his death, the seitlor received no benefit of any kind or in any way from the shares, nor did he receive any benefit whatsoever which was in any way attributable to the gift. Indeed, this was ultimately conceded by the appellant. ./
There followed a discussion of the Cochrane case (supra). He then examined the case of Grey (Earl) v Attorney-General, [1900] AC 124, where it was apparently argued that this overruled the decision in Cochrane. He then said [at pp 445-6]:
The learned judges who decided /n re Cochrane, [1906] 2 IR 200 all thought that Grey (Earl) v Attorney-General [1900] AC 124 was clearly distinguishable, and their Lordships agree that it was. There is nothing laid down as law in that case which conflicts with the view that the entire exclusion of the donor from possession and enjoyment which is contemplated by s 11, sub-s 1, of the Act of 1889 is entire exclusion from possession and enjoyment of the beneficial interest in property which has been given by the gift, and that possession and enjoyment by the donor of some beneficial interest therein which he has not included in the gift is not inconsistent with the entire exclusion from possession and enjoyment which the subsection requires. With the suggestion that /n re Cochrane is inconsistent with the decision in Attorney-General v Worrall [1895] 1 QB 99 their Lordships cannot agree. That was simply a case in which the Court of Appeal held on the facts and documents there disclosed that the donor had obtained a collateral benefit in reference to the gift which he had made. Possession and enjoyment of the property taken under the gift had not been assumed and retained to the exclusion of any benefit to the donor by contract or otherwise.
lt was decided that bona fide possession of the property comprising in the gift had been assumed by the donee and thenceforward retained to the entire exclusion of the deceased.
In MNR v National Trust Co Ltd, [1949] S.C.R. 127;.[1948] CTC 339: [1948] 4 DLR 529, by a deed of settlement the settior transferred to trustees certain securities in trust to pay the annual income arising therefrom to his daughter during the lifetime of the settlor, and upon his death to transfer the said securities and the accumulated income therefrom to the daughter for her absolute use, provided that shoula the daughter die before the settlor the trustees should transfer the securities and the accumulated income therefrom to the settlor for his aboslute use. By the terms of the settlement the settlor retained wide powers to vary the investments but did not retain any beneficial inerest in the trust property except as stated above .
The matter came up on an appeal under the Dominion Succession Duty Act then in force which contained a provision as to possession and enjoyment similar to that contained in clause 5(1)(g). At pages 131-3 [350-52, 534-5] Kerwin, J (as he then was), speaking for himself and the Chief Justice, said:
That there was a gift by E R Wood to his daughter is indisputable, and the gift, in addition to that of the income from the securities to be paid quarterly, is an equitable interest in the corpus and accumulated income contingent upon the daughter surviving her father. So far as the father is concerned the principle is well understood that a contingent reversion reserved to the donor of the property is not reserved out of the gift but is something not comprised in it. “The property, the subject matter of the gift”, to use the phraseology of clause (g), is the daughter’s equitable interest and the daughter assumed such bona fide possession and enjoyment of the property immediately upon the making of the gift as the nature of the gift and the circumstances permitted. In similar circumstances it has been held to be so by the Judicial Committee in Commissioner for Stamp Duties of New South Wales v Perpetual Trustee Co, [1943] AC 425 and that decision should be followed. It is true that the word “actual” does not appear in the statute there under review but I am satisfied that, here, the daughter, through the trustees, had actual as well as bona fide possession and enjoyment of the property. In view of the reference to “a trustee for the donee” in clause (g), the argument that clause (g) applies only to corporeal property capable of manual or physical possession falls to the ground. Furthermore, this reference and the other references in the Act to equitable interests compel me to disagree with the view presently held by the Supreme Court of the United States as set forth in its decision in Helvering v Hallock (1940), 309 US 106.
The only other condition to be met under clause (g) is that the actual possession and enjoyment should be assumed and retained by the daughter “to the entire exclusion of the donor or of any benefit to him.” It logically follows from the principle set forth above, that is, that the reversion of the father is something not comprised in the gift to the daughter, that the former was excluded from any benefit in the subject matter of the gift. This was decided by three Judges in the King’s Bench Division in the Irish case of In re Cochrane, [1905] IR 626 and by the three Judges in the Court of Appeal, [1906] IR 200, where there was an express reversion, and that decision was approved by the Judicial Committee in the Perpetual Trustee case, although in the latter there was no express reversion. The judgment of Lord Russell of Killowen on behalf of the Judicial Committee, after referring to the argument that the Cochrane case was in conflict with the decision of the House of Lords in Grey (Earl) v Attorney-General, [1900] AC 124, proceeds at pages 445-6:
“There is nothing laid down as law in that case which conflicts with the view that the entire exclusion of the donor from possession and enjoyment which is contemplated by s 11, sub-s 1, of the Act of 1889 is entire exclusion from possession and enjoyment of the beneficial interest in property which has been given by the gift, and that possession and enjoyment by the donor of some beneficial interest therein which he has not included in the gift is not inconsistent with the entire exclusion from possession and enjoyment which the subsection requires.”
Finally, on this branch of the case it is contended that there was no entire exclusion of Mr Wood or of any benefit to him because of the power of substitution of securities in the trust fund. The evidence discloses that what was actually done in this respect certainly did not inure to Mr Wood’s benefit and in any event it cannot be said that the mere power, hedged about as it was, in itself takes the matter outside the provisions of clause
(g) of subsection 1 of section 7. The argument based on the suggestion that the trustees might be under the control of the settlor since they were either his employees or employees of a company dominated by him, is even weaker and cannot be upheld.
Rand, J delivered a short judgment at page 134 [347, 541]:
But “any gift” in section 7(1 )(g) must be interpreted to embrace ail contingencies: Commissioner for Stamps, New South Wales v Perpetual Trustee Company Limited, [1943] 1 All ER 525, and the same case decides that bona fide possession and enjoyment by the donee to the entire exclusion of the donor is satisfied by a conveyance in trust to vest the corpus in the cestui que trust upon the happening of the contingency. That is the situation here and it is unaffected by the word “actual”; there is in this case as in the other, to use the words of Lord Russell, such “beneficial possession and enjoyment of the property comprised in the gift as the nature of the gift and the circumstances” permit.
Kellock, J delivered reasons for himself and Taschereau, J to the same effect. He referred to Commissioner for Stamp Duties of New South Wales v Perpetual Trustee Co, Ltd (supra) at some length, and quoted from page 439 of that judgment, including the excerpt I have quoted (supra). He concluded his judgment by saying [at p 138 [346, 540]]:
I find it impossible to distinguish this decision in its application to the proper construction of section 3(1)(d) and section 7(1)(g) of the Canadian statute. The only distinction suggested by Mr Pickup is that in New South Wales legislation the word “actual” was not used and he contended that the presence of that word in the Dominion statute indicates that neither. section 3(1)(d) nor 7(1)(g) can be applied to equitable interests but only to corporeal property capable of manual or physical possession. I find it impossible to accept this contention in view of the definition of “property” itself in section 2(k) quoted above. In the language of Lord Russell in the New South Wales case, already quoted, the beneficiary “was (through the medium of the trustees) immediately put in such bona fide beneficial possession and enjoyment of the property comprised in the gift as the nature of the gift and the circumstances permitted.” In my opinion this language is as apt in ‘relation to actual possession of property included in the wide definition of the Act in question as it was to the legislation before the Judicial Committee in that case.
St Aubyn et al v Attorney-General, [1952] AC 15. This case arose from a complex series of corporate and settlement transactions. However, for present purposes the only relevant part is when the settlor surrendered his life interest in 50,000 ordinary shares of the company. He retained an interest in other parts of the settled property and also in other shares of the company.
It was held by the House of Lords that the surrender of his entire interest in 50,000 shares was not subject to a statutory provision similar to clause 5(1)(g). At pages 28-9 Lord Simonds said:
It appears to me, my Lords, that this is nothing but the logical application to a more complex situation of the proposition which I venture to think was self evident viz, that the life tenant of two separate pieces of property can surrender his life interest in one and retain it in the other without duty becoming exigible in respect of the former. The question is what he has given: It may be a life interest in part of the settled property; it may be a part of the income of settled funds and that part may be a fixed sum which is payable in priority or the residue after the prior payment of a fixed sum thereout. I venture to think that much of the argument that was addressed to the House in this case and much of the confusion that has arisen in the past on this admittedly difficult branch of the. law have been due to the failure to bear in mind that that of which enjoyment is to be assumed and retained and from which there is to be exclusion of the donor and any benefit to him by contract or otherwise is that which is truly given, a proposition which is obvious enough in the case of two separate estates but more difficult to follow and apply where trusts are declared of a single property which are not completely exhaustive in favour of a donee. it should at least be clear from the judgment of Lord Russell of Killowen that by retaining something which he has never given a donor does not bring himself within the mischief of the section. I venture to repeat in other words what I have already said when dealing with section 43 alone. for its underlying principle is not altered by an alliance with section 56. In the simplest analysis, if A gives to B all his estates in Wiltshire except Blackacre, he does not except Blackacre out of what he has given: he just does not give Blackacre. And if it can be regarded as a “benefit” to him that he does not give but keeps Blackacre, it is a benefit which is in no relevant sense (to use the language of Lord Tomlin) “referable” or (to use that of Lord Russel! of Killowen) “attributable” to the gift that he made of the rest of the Wiltshire estate. Applying this principle to the artificial situation created by the statutory hypothesis, I see no reason for saying that that which Lord St Levan gave was not retained by the donee to the entire exclusion of him and of any benefit to him by contract or otherwise.
There was no dissent with respect io the issue discussed in the foregoing excerpt.
In Oakes v Commissioner of Stamp Duties of New South Wales, [1954] AC 57, the testator owned grazing property in New South Wales and he executed a deed poll under which he held property upon trust for himself and his four children as tenants in common. The deed gave him wide powers of management and in particular provided that, in addition to reimbursing himself all expenses incurred in the administration of the trust, he was entitled to remuneration for all work done as manager. He continued in this fashion until his death. A dispute arose as to whether on his death over 20 years after the settlement referred to, the whole property was subject to death duty or only one-fifth thereof. The relevant statutory provisions, on which the dispute centred, were similar to clause 5(1 )(g) of the Ontario Act. The appellant claimed that only a one-fifth share of the property was subject to death duty. At pages 72-3 Lord Reid delivered the judgment of the Privy Council. After noting that the difference in" wording between. the English Act, similar to our clause 5(1)(g) and the Australian Act of New South Wales were not material, he said:
In St Aubyn v Attorney-General [1952] AC 15 the earlier cases, including the Australian cases, were fully considered. In their Lordships’ judgment it is now clear that it is not sufficient to bring a case within the scope of these sections to take the situation as a whole and find that the settlor has continued to enjoy substantial advantages which have some relation to the settled property; it is necessary to consider the nature and source of each of these advantages and determine whether or not it is a benefit of such a kind as to come within the scope of the section.
Their Lordships will first consider whether the use of the income which accrued to the settlor’s children from the settled estate was such as to bring the case within the section. If property comprised in a gift is to be excluded from the estate of the deceased donor the statute requires that bona fide possession and enjoyment of the property shall have been assumed and retained by the donee to the entire exclusion of the donor. !f property is held in trust for the donee, then the trustee’s possession is the donee’s possession for this purpose, and it matters not that the trustee is the donor himself. The donor is entirely excluded if he only holds the property in a fiduciary capacity and deals with it in accordance with his fiduciary duty. But the statute requires not only exclusion of the donor but also exclusion of any benefit to him, and it was on that matter that the argument turned. lt appears from the case that after the children came of age they received payment of their shares of the income; it is not said that that involved any benefit to the deceased. But before they came of age their shares of income were used to pay for their maintenance and education, and it was said that this afforded some relief to the deceased, who would otherwise have had to pay out of his own money. Two arguments were submitted. In the first place it was said that spending the children’s money in this way was improper or at least disadvantageous to them, and that this combination of advantage to the donor with disadvantage to the donee brought the case within the statute. Their Lordships do not find any sufficient basis in fact for this argument. There is nothing in the case from which it can be inferred that the deceased acted at all improperly in this matter. At least after 1925 this money could properly be spent on the children’s maintenance under Statutory powers if that was in the best interests of the children. In the absence of anything to Indicate the contrary it must be taken that the deceased acted properly in so applying his children’s income, that this was In the best interest of the children, and therefore the children must be held to have had full benefit and enjoyment of their money. The case might have been very different if it had appeared that the deceased had so spent his children’s shares of the income from the trust not entirely in their interests but wholly or partly for his own benefit in order to relieve himself from expense of maintaining his children.
The Privy Council also held that the provisions for remuneration to the settlor for managing the property, although entirely reasonable in amount, came out of the trust property and diminished the beneficial interest of the donees and was a benefit to the testator. The death duty was therefore payable on the whole of the estate.
Chick et al v Commissioner of Stamp Duties, [1958] AC 435, was an appeal from New Zealand. A father transferred by way of gift to one of his sons a pastoral property and some 17 months after entered into a partnership with his donee son. The father was given power over the management of the partnership. It was held by the Privy Council that the property given to the son was subject to death duty as the son had not retained the possession and enjoyment to the entire exclusion of the father as under the partnership agreement the father had some possession and enjoyment of the partnership property.
The cases I have cited on this branch of the instant case can be distinguished from the one at bar and from each other on their facts and on the precise wording of the relevant enactments. However, the reasoning in them is applicable.
In the case at bar the settlor, by the agreement, in 1(a) disposed of the whole of the income and in 1(b) disposed of the whole of the corpus. It was argued on behalf of the Crown that this was a case in which the disposition of the corpus could not be brought under the words of clause 5(1 )(g) because the settlor could share in the income from the 1948 Trust during her lifetime. I do not agree. In the agreement the gift of the corpus in 1(b) is clearly severable from the gift of the income in 1(a). The subject-matter of this gift was the equitable remainder in the corpus and not the income. Each of these dispositions has a different subject and a different object. With respect to the gift of the corpus it cannot be said that the donees did not have possession and enjoyment to the exclusion of the settlor after the making of the agreement. By the transfer of the corpus to the trustee under the settlement the donees, to use the already quoted words of Lord Russell of Killowen in Commissioner for Stamp Duties of New South Wales v Perpetual Trust Co (supra) at page 440, “were (through the medium of the trustees) immediately put in such bona fide beneficial possession and enjoyment of the property comprised in the gift as the nature of the gift and the circumstances permitted”. I find that by reason of the provisions of clause 5(1 )(g) the gift of the corpus is not subject to succession duty.
On behalf of the Crown it was submitted that because, in the opening part of subsection 5(1), no specific mention is made to “property passing on the death’, it followed that the exemption or exception provided for in that section did not apply to exempt property or a disposition, falling squarely within the words of one of the exempting provisions of section 5, if such property or disposition could also be brought within any of the definitions of “property passing on the death of the deceased” contained in clause (p) of section 1. It was argued that the opening words of section 6, which is the charging section, ie “Subject to sections 4 and 5” have no application to any property or disposition which, although it falls squarely within the definition of the exemption therein, also falls within the definition of “property passing on the death” of the deceased as defined in one of the subclauses of section 1.
No authority was cited for that proposition except Re Chodikoff, [1971] CTC 1; [1971] 1 OR 321; 15 DLR (3d) 275, to which I will presently refer. I have already found that the property comprised in the 1948 Trust falls within the definition of property passing on death contained in subclause (viii) of clause (p) of section 1. The settlement of the property in the 1948 Trust was also a disposition within the meaning of clause (g) of subsection (1) of section 5. In that connection I need only refer to the definitions of disposition contained in subclauses (I), (ii) and (ix) of clause (f) of section 1.
There is a wide overlap between the subject-matter for the levy of duty defined in clauses (f) and (p) of section 1. Obviously they are not intended to be mutually exclusive. However, as the whole of section 6 is expressly made subject to sections 4 and 5 a disposition as defined in the latter section is exempt even if it can be brought within another clause of section 1. This is the meaning of the words taken in their ordinary, literal and grammatical sense. The words are clear and unambiguous. So construing them leads to no absurdity or repugnancy. There is therefore no need to refer to any of the many rules to which resort may be had in a case where an ambiguous or literal construction would lead to an obviously absurd result. Moreover, this construction would give effect to the general scheme of the Act which seems to define the subject-matter of taxation in the widest terms and then to grant certain exemptions in narrower and more precise terms.
In Re Chodikoff (supra) it was held by the Court of Appeal that where succession duty could be levied under either of two sections the Crown could elect which to apply. That decision was supported by the cases cited therein. However, neither Re Chodikoff nor any of the cases cited therein are decisive of the present case, where the provisions for levying the duty are made expressly subject to the sections giving exemptions.
In MNR v National Trust Co Ltd, [1949] S.C.R. 127; [1948] CTC 339; [1948] 4 DLR 529, the exempting section (section 7), of the then Dominion Succession Duty Act was relied on. Subsection (1), paragraph (g) of that section exempted certain gifts described in a similar fashion to clause (g) subsection 5(1) of the Ontario Act. Under the Dominion Act “successions” were taxed and were defined in wide terms. It was held that if the settlement in question fell within the exempting provisions of paragraph 7(1 )(g) that it was immaterial whether or not it fell within the description of something included in a succession under some subsection other than the one defining gifts. I refer to Kellock, J, for the majority, at pages 135-6 [343, 537-8] where he refers to paragraph 7(1)(g) as an ‘overriding exemption”.
Counsel for the Crown submitted this case was distinguishable as under the Dominion Act what was taxed was a succession as defined in that Act and that under the Ontario Act a distinction is made between property passing on death, transmission on death and dispositions. For present purposes that is immaterial as the express exemption under section 5 of the Ontario Act applies. It is an overriding section in the same sense as that referred to in MNR v National Trust Co Ltd (supra).
For the reasons indicated I am of the opinion that although apart from section 5 the corpus of the 1948 Trust would be taxable as property passing on death as defined in subclause (viii) of clause (p) of section 1, it is exempt as a disposition under clause (g) of subsection 5(1). Judgment may issue accordingly allowing the appeal with costs. Similar judgments may issue in the other appeals to which I have referred. I have endorsed all six records accordingly.
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