Her Majesty the Queen v. Estate of Solomon Weitzman, [1974] CTC 771, 74 DTC 6582

Heald, J:—This is an appeal from a decision of the Tax Review Board allowing defendant’s appeal from an assessment by the Minister of National Revenue with respect to the defendant’s 1969 taxation year. Solomon Weitzman died on December 31, 1968. By his will he bequeathed the whole of his estate unto his trustees and executors for, inter alia, the following purposes:

(a) to pay, at his death, to various charitable institutions, amounts totalling $52,000; and

(b) to pay to his wife, during the balance of her lifetime out of the net income of the trust property the sum of $25,000 per year.

The total value of the estate was $1,627,797.30. There were general estate debts of $32,886.68. Thus, the revised aggregate net value was $1,594,910.62. Federal estate tax assessed under the provisions of the Estate Tax Act was $174,474.72. The aggregate taxable value of the estate was $819,498.87. Pursuant to subsection 2(2) of the Estate Tax Act, the aggregate taxable value is the aggregate net value minus the deductions permitted by Division C of said Act.

Thus, in the present case, the proper calculation is as follows:

During the 1969 taxation year the defendant received as a lump sum receipt from a pension plan the sum of $312,125.61 which was included in the aggregate value of the estate. In preparing its income tax return for the 1969 taxation year, the defendant —

(a) elected to avail itself of the provisions of section 36 of the Income Tax Act; and

(b) claimed, as a deduction from income, under paragraph 11 (1)(v) of the Income Tax Act, the sum of $147,346.05.

However, in assessing the defendant estate, the Minister of National Revenue calculated the deduction to which the defendant was entitled under said paragraph 11 (1)(v) to be $118,607.73. The sole issue in this appeal is whether the Minister’s method of calculation under said section is correct or not.

Paragraph 11 (1)(v) of the Income Tax Act (as applicable to the 1969 taxation year) reads as follows:

11. (1) Notwithstanding paragraphs (a), (b) and (h) of subsection (1) of section 12, the following amounts may be deducted in computing the income of a taxpayer for a taxation year:

(v) that proportion of any superannuation or pension benefit, death benefit, benefit under a registered retirement savings plan (other than a refund of premiums as defined in section 79B) or benefit under a deferred profit sharing plan received by the taxpayer in the year, upon or after the death of a predecessor, in payment of or on account. of property to which the taxpayer is the successor the value of which was required to be included in computing the aggregate net value of the property passing on the death of the predecessor for the purpose of Part I of the Estate Tax Act (or would have been so required to be included if the predecessor had been domiciled in Canada at the time of his death), that

(i) the aggregate of

(A) such part of any tax payable under the Estate Tax Act in respect of the death of the predecessor as is determined under that Act to be the part thereof applicable to the property in payment of or on account of which the benefit was so received, and

(B) such part of any succession duties payable under a law of a province in respect of the death of the predecessor as may reasonably be regarded as attributable to the property in payment of or on account of which the benefit was so received,

is of

(ii) the value of the property in payment of or on account of. which the benefit was so received, computed as provided for the purpose of subsection (4) of section 58 of the Estate Tax Act:

For a proper determination of this matter, subsection 58(4) of the Estate Tax Act must also be taken into account. Said subsection reads as follows:

58. (4) A reference in this Act to the part of any tax payable or tax otherwise payable that is applicable to any property passing on the death of a deceased shall be construed as a reference to that part of that tax that is proportionate to the value of that property computed as of the date of the death of the deceased or as of such other date as is specified in this Act but as though that property were distributed immediately after that date, and, for the purposes of this Act except Part Il, in determining the part of any tax payable or tax otherwise payable that is applicable to any of the property passing on the death of a deceased, where the property so passing includes

(a) any property in respect of which a deduction may, in computing the aggregate taxable value of the property passing on the death of the deceased, be made under any of paragraphs (a) to (h) of subsection (1) of section 7. except paragraph (c) thereof, or

(b) any property described in subparagraph (i) of paragraph (c) of subsection (1) of section 7, to the extent of such part of its value as is equal to the amount deductible under that paragraph in computing the aggregate taxable value of the property passing on the death of the deceased,

no part of that tax shall be considered as applicable to the property so included.

Said paragraph 11 (1)(v) is designed to mitigate the combined effect of estate tax and income tax payable in respect. of the same property and therefore applies to the lump sum payment received by this defendant estate in 1969 in the sum of $312,125.61.

The amount deductible under said section is that part of said payment that is represented by the fraction of which the numerator is the 9g 9 te of the estate tax and succession duties attributable to the value of subject property at date of death and the denominator is the value of the relevant property at date of death.

The difference of opinion between the plaintiff and defendant arises in the calculation of the numerator above referred to.

The defendant says the numerator should be arrived at as follows:

(adjusted aggregate taxable value of estate)

The plaintiff, on the other hand, says the numerator should be arrived at as follows:

Plaintiff arrives at the figure of $167,326.28 by reducing the total value: of $312,125.61 by a proportion of the amounts deductible under paragraphs 7(1)(a) to (h) of the Estate Tax Act. Plaintiff’s detailed calculation is contained in Exhibit A to the statement of defence.

Plaintiff bases its calculation on the wording of subsection 58(4) of the Estate Tax Act quoted supra and on the provisions of Solomon Weitzman’s will.

Under that will, the testator directed his executors to pay his debts, funeral and testamentary expenses “out of the mass of my Estate” (fourth article of the will). He also expresses a “desire” in said fourth article:

. . . that all succession duties, inheritance and estate taxes that may be payable by reason of my death in respect of my Estate or in respect of any legacy or legacies contained herein or in any Codicil to this my last Will and Testament or in respect of any insurance policy on my life, shall be paid by my Executors and Trustees, hereinafter named, out of the mass of my Estate without recourse against any of my legatees or beneficiaries, it being my Intention that my legatees or beneficiaries shall receive their respective legacies or benefits, free and clear from all payment of such duties and taxes.

In the fifth article, the whole of his estate (including all insurance) which is referred to therein as “The Trust Property” is bequeathed unto his executors and trustees in trust for a number of purposes. Included therein are:

(a) charitable bequests totalling $52,000 exempt under paragraph 7(1 )(d) of the Estate Tax Act:

(b) life insurance proceeds totalling $48,911.75 exempt under paragraph 7(1)(a) of the Estate Tax Act:

(c) assets valued at $49,500 and exempt under clause 7(1)(b)(i)(A) of the Estate Tax Act; and

(d) to pay to his wife for the balance of her lifetime out of the net income of the trust property the sum of $25,000 per year; the capitalized value of said annual payments is $625,000 which is exempt under clause 7(1)(b)(i)(B) of the Estate Tax Act.

In my view, the Minister of National Revenue was correct in making reductions for a proportionate share of the amounts deductible under section 7 of the Estate Tax Act having regard to the provisions of subsection 58(4) of the Estate Tax Act and the provisions of the testator’s will.

In this case, subject pension plan receipt was a part of the “mass” of the estate. The testator directed that the “mass” of the estate be available for payment of the specific legacies. In respect of four of the legacies, the estate was entitled to exemptions under section 7 of the Act. The effect of said exemptions was to reduce the total amount of estate tax payable. In my view, in such a circumstance subsection 58(4) applies to require the Minister to make the reduction which he made in this case. The said lump sum receipt of $312,125.61 was available to finance the payment of at least a proportionate share of the debts and the exempt bequests and such a situation seems to be clearly covered by the provisions of subsection 58(4).

For the foregoing reasons I have concluded that the Minister has correctly applied the provisions of paragraph 11(1)(v) of the Income Tax Act and subsection 58(4) of the Estate Tax Act.

The Minister’s appeal from the decision of the Tax Review Board is accordingly allowed with costs and subject assessment is therefore affirmed.