Re: Carr, [1948] CTC 15

Barlow, J.:—The appellants, the executors and beneficiaries of the estate of the late Arthur William Carr, appeal from the confirmation by the Treasurer of the Province of Ontario. of the statement submitted, pursuant to the Succession Duty Act, 1959 (Ont. 2nd Sess.), c. 1, of succession duty levied on the estate of the late Arthur William Carr with respect particularly to an alleged non-commutable annuity income or periodic payment effected otherwise than by will or testamentary disposition and paid for by the deceased during his lifetime, and paid to or enjoyed by the wife, children and grandchildren of the deceased after the death of the deceased, to the extent of $1,200 per annum, with respect to any one person, and to the extent of $2,400 per annum in the aggregate.

The appellants claim to be entitled to exemption from succession duty under the Succession Duty Act, 1939, see. 4(1) (j), which is as follows:

"4(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,—

"" (j) any non-commutable annuity, income or periodic payment effected in any manner other than by will or testamentary instrument and paid for by the deceased during his lifetime, and paid to or enjoyed by the wife or dependent father or mother or any dependent brother, sister or child of the deceased after the death of the deceased, to the extent of $1,200 per annum with respect to any one person and to the extent of $2,400 per annum in the aggregate.’’

The solicitor for the appellants and for the Treasurer of Ontario, have agreed upon the following statement of facts:

"The deceased Arthur W. Carr in his lifetime effected a policy of insurance upon his life with the Manufacturers Life Insurance Company in the principal sum of $50,000. This policy was numbered 845033 and was issued on October 8, 1942.

" ‘On December 4, 1942, the said Arthur W. Carr executed a form of designation of beneficiary with respect to the said policy, a copy of which is attached to the notice of dissatisfaction. (Record p. 27). This designation was forwarded to the Manufacturers Life Ins. Co. and was received by the company and recorded in its books on December 9, 1942.

“By this designation the said Arthur W. Carr designated as beneficiaries of the policy his wife, children and grandchildren and directed that the proceeds of the policy should be payable to the National Trust Co., Thomas J. Day and Jane Ripley Carr, or such other persons as should be the executors and trustees of his last will, to be held by them as trustees of his insurance trust in trust for his said wife, children and grandchildren upon such terms, conditions and provisions as by an instrument in writing of even date he was setting forth.

“On December 4, 1942, the said Arthur W. Carr executed the instrument referred to in the designation of beneficiary, a copy of which is attached to the notice of dissatisfaction in this matter (Record p. 24) in which were set out the trusts upon which the proceeds of the said policy were to be held.

“The said Arthur W. Carr died on November 17, 1945, without having altered or revoked the designation of December 4, 1942, or having substituted new beneficiaries, and in due course the proceeds of the policy were paid by the Manufacturers Life to Thomas J. Day, William H. Englebright and Jane Ripley Carr, the executors of the last will and testament of the deceased to whom probate of his last will was issued (National Trust Co. Ltd., one of the executors named in the last will, having renouneed its right to probate). The said executors have received and dealt with the proceeds of the said insurance in accordance with the provisions of the said insurance trust.’‘

The designation of beneficiary filed by the deceased with the insurance company on December 9, 1942, designated his wife Jane Ripley Carr, his children and his grandchildren surviving at his death as preferred beneficiaries of the policy of insurance, He further provided that the proceeds of the policy should be payable and paid to such persons as should be the executors and trustees of his will, to be held by them in trust for his wife, children and grandchildren pursuant to the terms of an instrument of even date.

By this instrument the deceased provided that his trustees should divide the income from the proceeds of the said insurance policy in equal shares amongst his wife, children and grandchildren and pay the same to the said beneficiaries, or in the discretion of the trustees expend the same for the care and maintenance of his wife or for the care, maintenance and education of his children and grandchildren, and upon the death of his wife to divide the corpus amongst the children and grandchildren pursuant to the directions set out in the said instrument.

Counsel for the appellant contends that the provisions made by the deceased for his wife, children and grandchildren comes within the exemption granted by sec. 4(1) (j) quoted above and that the income from the said insurance proceeds to the extent of $1,200 for any one person and to the extent of $2,400 in the aggregate is exempt from succession duty. It is not contended or suggested that the capital sum of $50,000 is exempted from duty; it is merely with respect to the income thereon that the appellants claim exemption.

If it were not for sec. (4) (j) quoted above, the income in question would be taxable under the Act. In order for the appellants to sueceed on this appeal, it must be shown that the taxpayer comes within the exempting see. 4(1) (J).

While the onus is upon the Treasurer of Ontario under the taxing sections of the Act, yet when the exempting section is invoked as in this case, it is so invoked by the taxpayer, and the onus shifts to the taxpayer to show that the taxpayer is entitled to the exemption.

In Lumbers v. Minister of Nat f l Revenue [1943] C.T.C. 281 at 290, [1943] D.L.R. 216 at pp. 222-3, Ex. C.R. 202 at p. 211, Thorson, J., the President of the Court, after saying "‘It is a well established rule that the exemption provisions of a taxing Act must be construed strictly’’ puts the point very clearly as follows:

"Just as receipts of money in the hands of a taxpayer are not taxable income unless the Income War Tax Act has clearly made them such, so also, in respect of what would otherwise be taxable income in his hands a taxpayer cannot succeed in claiming an exemption from income tax unless his claim comes clearly within the provisions of some exempting section of the Income War Tax Act : he must show that every constituent element necessary to the exemption is present in his case and that every condition required by the exempting section has been complied with.”

It must be held that the onus is upon the appellants to show that upon a strict construction of the exempting section 4(1) (i), all constituent elements are present and that every condition of the exempting section has been complied with.

Counsel for the appellants contends that the deceased, by effecting the insurance, paying the premiums on the policy of insurance, and providing for the payment of the proceeds to trustees upon his death, with instructions to his trustees to pay the income thereon to his widow and children and grandchildren as above set out, did all that was necessary to bring the same within see. 4(1) (j).

To come within the exempting section, the deceased must have paid within his lifetime for a non-commutable income. This he did not do. He merely paid the premiums on an insurance policy, but counsel for the appellants says that full effect must be given to the words "‘effected in any manner,,’ Are these words sufficiently wide in their application to include what was done in the case at bar? Upon the death of the deceased, the proceeds of the policy of insurance upon which he paid the premium were paid to the trustees who then became in full control of the capital to invest and reinvest the same as they saw fit and to pay the income therefrom, subject to certain terms in the trust document, in their discretion.

The case of Barclays Bk., Ltd, v. Attorney-General, [1944] A.C, 372 at p. 375 is in point. In this case the premiums on a policy of insurance were paid by trustees of a trust set up by the insured, but notwithstanding the fact that the insured, by setting up the trust, provided a method by which the premiums on the insurance policy were paid, yet the Court refused to hold that by so doing the insured kept up the policy. In the case at bar the same position arises. The deceased paid the insurance premiums but how can it be said that in so doing he paid for a non-commutable income? ‘The income is provided, not by the payment of premiums on the insurance policy, but by the administration of the proceeds of the said policy by the trustees.

I cannot find that the income from this capital in the hands of the trustees was income paid for by the deceased. It would, in my opinion, be a very loose construction of the exempting section so to hold. The income in question arises from the investment, the reinvestment and the administration by the trustees of the proceeds of the insurance policy paid to the trustees by the insurance company after the death of the deceased. The income in question was not paid for by the deceased.

I am of opinion, upon a strict construction of the exempting section, that the appellants have not satisfied the onus, and have not brought themselves within the conditions set out in the exempting section.

The appeal will be dismissed. As there has not been any previous interpretation of this section, costs should not be ordered.

Appeal dismissed without costs.