Montreal Trust Company, Executor under the
last will and codicil of John Stewart Donald Tory
(Appellant)
v.
Minister of National Revenue (Respondent)
Trial Division, Walsh J.—Toronto, May 27;
Ottawa, June 25, 1971.
Income Tax—Fees owing deceased solicitor transferred by
executor to legatee—Amount in excess of legacy paid by
legatee to estate—Not a transfer or distribution of fees to
beneficiary qua beneficiary—Solicitor's estate taxable on
fees exceeding legacy—Income Tax Act, secs. 64(2), 64(3).
A Toronto solicitor was owed $483,350 in fees by various
clients at the time of his death in August 1965. By his will
his daughter was entitled to a legacy of $90,000 and a share
of the residue. In February 1966, pursuant to an agreement
between the solicitor's executor and his daughter, the $483,-
350 in fees were paid by the clients to the daughter, who
paid $380,000 to the estate. The daughter was not resident
in Canada and accordingly not taxable here. The Minister
relying on s. 64(2) of the Income Tax Act assessed the
solicitor's estate to income tax for 1965 on the $380,000 as
being "rights or things" which "when realized would have
been included in computing" his income for that year. The
estate appealed.
Held, the assessment was properly made. Section 64(3)
which declares s. 64(2) inapplicable to rights or things
"transferred or distributed to beneficiaries" only applies to
transfers or distributions to beneficiaries qua beneficiaries
and not, as in this case, to a purchaser for value who
happens to be a beneficiary. The deceased's daughter was a
purchaser for value of the client's accounts in excess of her
$90,000 legacy.
Fasken's Estate v. M.N.R. [1948] Ex.C.R. 580; Bennett
v. Ogston (1930) 15 T.C. 374; Highway Sawmills Ltd.
v. M.N.R. [1964] S.C.R. 304, applied.
INCOME tax appeal.
F. W. Callaghan, Q.C. and R. J. Gathercole
for appellant.
G. W. Ainslie, Q.C. and M. J. Bonner for
respondent.
WALSH J.—This is an appeal from a notice of
re-assessment in respect of the 1965 taxation
year of the taxpayer wherein $380,000 was
included in his income for that year. The tax
payer died on August 27, 1965 in Ontario where
he had formerly carried on the practice of law
in the City of Toronto and at the date of his
death amounts totalling $483,350 were owed to
him by various clients. His daughter, Mrs. Mary
Virginia Denton, was a beneficiary under the
terms of his last will and codicil, and on or
about February 11, 1966 the right to receive
these amounts was transferred to her under an
arrangement whereby she released the estate of
the taxpayer from its liability to pay her the
$90,000 balance of a legacy payable to her
under his last will and codicil and agreed to pay
the estate the sum of $380,000 Canadian funds
within one year from the date of the transfer.
The appellant did not include in the income of
the taxpayer the amount so transferred to Mrs.
Denton on the basis that the right to receive
same had been transferred to a beneficiary of
the estate of the taxpayer within the time pre
scribed by s. 64(3) of the Income Tax Act.
In making the re-assessment, the Minister did
so on the basis that the amounts totalling $483,-
350 owed to the taxpayer by his clients at the
date of his death were rights or things, the
amount whereof when realized would have
been included in computing his income, that of
this amount an amount of $103,350 was trans
ferred or distributed to Mrs. Mary Virginia
Denton, a beneficiary of his estate prior to the
time for making an election under the provi
sions of s. 64(2) of the Income Tax Act, leaving
a balance of $380,000 of rights or things not so
transferred or distributed.
In the agreed statement of facts the parties
admit, inter alia, that the appellant is executor
of the last will and testament of the taxpayer
and codicil thereto for which letters probate
were duly granted and a true copy filed as an
exhibit; that on or about November 10, 1965,
appellant paid the sum of $10,000 to Mary
Virginia Denton, one of the three children of
the deceased taxpayer, representing part pay
ment of the legacy of $100,000 made to her in
paragraph 3(h) of the will; that the value of the
accounts receivable to the taxpayer at the date
of his death : as reported in his estate tax return
was $483,350; on February 4, 1966, appellant
sent the said Mary Virginia Denton a letter
offering to transfer the accounts to her, which
concluded:
This transfer would be made to you in consideration of
your releasing the Estate from its liability to pay you the
$90,000 balance of the legacy payable to you under your
late father's Will and in consideration of your agreement to
pay the Estate the sum of $380,000 (Canadian funds), such
payment to be made within one year from the effective date
of the transfer of the foregoing amounts to you.
Would you kindly confirm the foregoing arrangement by
signing and returning to us the enclosed copy of this letter.
Mrs. Denton did so on February 5, 1966. She
then, on February 7, 1966, sent letters to the
debtors of the said accounts advising them of
the transfer and requesting that the settlement
cheque be sent to her at the Lucayan Beach
Hotel in Freeport, Bahamas. On February 11,
1966, appellant sent letters to each of the debt
ors advising them of the transfer, enclosing
copies of the probate and Ontario and federal
succession duty and estate tax releases and
authorizing them to make the payments to Mrs.
Denton in Freeport as requested.
It is further agreed that on February 11, 1966
Mrs. Denton left Canada with her children to
join her husband who had accepted employ
ment in the United States of America and that
she has remained a non-resident of Canada
since that date, and that the appellant, in an
endeavour to realize the assets of the estate in a
manner most beneficial thereto discussed with
Mrs. Denton a proposal that the said arrange
ment be entered into, the intention being to
utilize the provisions of s. 64(3) of the Income
Tax Act and to preclude the inclusion under s.
64(2) in the computation of the taxpayer's
income for the taxation year in which he died of
the value of the said accounts receivable at the
time of his death. Mrs. Denton sought the
advice of counsel as to the effect of the said
arrangement on her United States income tax
liability and it was as a result of such advice
that, upon leaving Canada, she went to Free-
port, Bahamas where, between February 18,
1966 and February 21, 1966, she received pay
ment in full of the said accounts receivable. On
February 16, 1967, pursuant to the arrangement
made, Mrs. Denton paid appellant the sum of
$380,000. This payment was included in the
capital account of the estate, the entry being as
follows:
Payment for purchase of $483,350 legal fees receivable
by deceased at date of death—$470,000 less $90,000—
balance of cash legacy payable as per Clause 3(h) of The
Will—$380,000.00
On June 1, 1966, respondent assessed tax for
the 1965 taxation year of the taxpayer on the
basis that the amount properly included, pursu
ant to the provisions of s. 64(2) of the Income
Tax Act, in computing the taxpayer's income
for 1965 in respect of the accounts receivable
was $483,350. Appellant duly objected to the
assessment and served on the respondent a
notice of objection dated August 23, 1966, as a
result of which, on August 7, 1968, pursuant to
s. 58(3) of the Income Tax Act, respondent
re-assessed tax for the 1965 taxation year of
''the taxpayer on the basis that the amount prop
erly included pursuant to the provisions of s.
64(2) of the Income Tax Act in computing the
taxpayer's income for 1965 in respect of the
accounts receivable was $380,000. Appellant
then commenced this appeal.
No witnesses were called by either party and
no explanation was given as to the discrepancy
of $13,350 between the amount of the accounts
collected by Mrs. Denton in the amount of
$483,350 and the amount of $470,000 which
she paid for them, partly by accepting same in
lieu of the balance of $90,000 owing her under
the $100,000 legacy to which she was entitled,
and partly by the cash payment by her of the
sum of $380,000, which is the amount for
which the taxpayer has now been re-assessed,
and counsel for the parties conceded that this
was not an issue in the present appeal.
Three options were open to appellant for
dealing with the deceased taxpayer's income tax
liability in the year 1965 with respect to these
accounts receivable and to avoid having them
included in his taxable income for that year in
which he died.
(a) It could have, within one year from the
date of his death or within 90 days after the
mailing of a notice of assessment in respect
of his tax for the year of his death, whichever
was later, availed itself of the provisions of s.
64(2)(a) of the Income Tax Act and included
one-fifth of the value of said accounts in
computing his income for each of his last five
taxation years including the year of death,
and paid the resulting additional tax for any
year other than the year in which he died
within thirty days from the day of mailing of
the notice of assessment for the year in which
he died; or
(b) It could have filed a separate return of the
value of these accounts and paid tax thereon
for the taxation year in which he died as if he
had been another person entitled to the same
deductions to which he was entitled under s.
26 of the Act for that year (that is to say his
deductions for dependants);
(c) The third option and that which it adopted
forms the subject of the present appeal and
results from the wording of s. 64(3) of the
Act, which reads as follows:
64. (3) Where before the time for making an election
under subsection (2) has expired, a right or thing to which
that subsection would otherwise apply has been transferred
or distributed to beneficiaries or other persons beneficially
interested in the estate or trust,
(a) subsection (2) is not applicable to that right or thing,
and
(b) an amount received by one of the beneficiaries or
other such persons upon the realization or disposition of
the right or thing shall be included in computing his
income for the taxation year in which he received it.
By transferring the accounts receivable to a
beneficiary who was not herself taxable for
income in Canada on the realization by her of
these accounts, the appellant was able to
receive from her an amount representing nearly
the full value of them without the estate paying
income tax on behalf of the deceased in the
year 1965 for the amounts received in payment
for this transfer. The fact that Mrs. Denton did
not have to pay income tax on the amount of
the accounts so purchased when she received
payment of them, since she was not at that time
a beneficiary resident in Canada and taxable
therein when these accounts were realized is
not, of course, relevant to the present issue
which merely concerns the applicability of s.
64(3) to the determination of the deceased's
income tax liability.
The whole case turns on the interpretation to
be given to the words "transferred or distribut
ed to beneficiaries or other persons beneficially
interested in the estate or trust". The word
"transferred" used by itself has been dealt with
in several previous decisions. In rendering judg
ment in the case of Fasken Estate v. M.N.R.
[1948] Ex.C.R. 580, Thorson P. referred to two
dictionary definitions of the word "transfer".
The New English Dictionary gives the meaning:
2. Law. To convey or make over (title, right or property)
by deed or legal process.
Webster's New International Dictionary, 2nd
ed., says:
2. To make over the possession or control of, to make
transfer of; to pass; to convey, as a right, from one person
to another; as, title to land is transferred by deed.
At page 592 he states:
In Gathercole v. Smith ((1880-81) 17 Ch.D. 1 at 7) James
L.J. spoke of the word "transfer" as "one of the widest
terms that can be used" and Lush L.J. said, at page 9:
The word "transferable," I agree with Lord Justice
James, is a word of the widest import and includes every
means by which the property may be passed from one
person to another.
The word "transfer" is not a term of art and has not a
technical meaning. It is not necessary to a transfer of
property from a husband to his wife that it should be made
in any particular form or that it should be made directly. All
that is required is that the husband should so deal with the
property as to divest himself of it and vest it in his wife,
that is to say, pass the property from himself to her. The
means by which he accomplishes this result, whether direct
or circuitous, may properly be called a transfer.
He was dealing with s. 32(2) of the Income War
Tax Act and its predecessor s. 7 of the 1926
Act which were somewhat analogous to s. 21(1)
of the present Act dealing with transfers of
property between husband and wife. Further on
he states, at pages 595-96:
If then it was not a condition of liability under section 7
of the 1926 Act that the transfer therein referred to was
made for the purpose of evading taxation there can be no
such condition in section 32(2) of the 1927 Revision. More
over, quite apart from any statutory provisions relating to
the Revised Statutes, it is not permissible, where the words
in a taxing Act are clear, to read into it either conditions of
liability thereunder or exemptions therefrom other than
those that are within its express terms. Full effect must be
given to its words without additions or subtractions. In my
opinion, the words section 32(2) of the 1927 Revision and
the corresponding part of its predecessor, section 7 of the
1926 Act, are free from any ambiguity and liability there-
under is not confined to cases where the transfer of proper
ty was made for the purpose of evading taxation, nor does
the fact that the transfer was made in good faith or for
valuable consideration place it outside the scope of the
sections.
This judgment was referred to and followed in
the case of German y. M.N.R. [1957] C.T.C.
291 by Mr. Justice Thurlow who stated at page
295:
In my opinion, the expression "has transferred" in Sec
tion 21(1) of the Income Tax Act has a similar meaning. I
read that expression as referring to an act whereby the
husband has divested himself of property and vested it in
his wife; that is to say, has passed the property from
himself to her. Had the appellant in this case deeded a share
of his homestead property to his wife, whether for consider
ation or not, there would undoubtedly have been a transfer
of such share to her. Had he deeded his property to a
purchaser and directed the purchaser to pay the price to his
wife, again in my opinion there would have been a transfer.
In such a transaction, the property having been his, the
price paid for it would also have been his, but for the
transfer of it to his wife accomplished by his direction to
the purchaser to pay it to her.
The word "transfer" was also discussed in the
Tax Appeal Board case of Campbell v. M.N.R.
(1963) 32 Tax A.B.C. 203 where, at page 204,
the Assistant Chairman, after referring to the
exhaustive examination of the meaning of
"transfer" by Thorson P. in the Fasken Estate
case (supra) stated: "That term embraces any
passing of ownership". In the case of Dunkel-
man v. M.N.R. [1960] Ex.C.R. 73, Thurlow J.,
considering the taxability of income from prop
erty transferred or from property substituted
for property transferred by the appellant to a
person under 19 years of age within the mean
ing of s. 22(1) of the Act again referred to the
Fasken Estate case (supra) and then went on to
say at page 78:
And in St. Aubyn v. Attorney-General ([1952] A.C. 15),
Lord Radcliffe put the matter in almost the same way when
he said at p. 53:
If the word "transfer" is taken in its primary sense, a
person makes a transfer of property to another person if
he does the act or executes the instrument which divests
him of the property and at the same time vests it in that
other person.
The expression "has transferred" in s. 22(1) has, in my
opinion, a similar meaning. All that is necessary is that the
taxpayer shall have so dealt with property belonging to him
as to divest himself of it and vest it in a person under 19
years of age. The means adopted in any particular case to
transfer property are of no importance, as it seems clear
that the intention of the subsection is to hold the transferor
liable for tax on income from property transferred or on
property substituted therefor, no matter what means may
have been adopted to accomplish the transfer.
He concludes that the making of a loan is not a
transaction within the meaning of the expres
sion "has transferred property". With regard to
the question of taxation of income of one
person in the hands of another, he says, at page
77:
... It goes without saying that, if the rule set out in s.
22(1) applies, the appellant will be liable for tax on the
income in question, regardless of how harsh or unjust the
result may appear to be. But, as it is not within the purview
of the general taxing provisions of the statute to tax one
person in respect of the income of another, the subsection
must, in my opinion, be regarded as an exception to the
general rule, and while it must be given its full effect so far
as it goes, it is to be strictly construed and not extended to
anything beyond the scope of the natural meaning of the
language used, regardless again of how much a particular
case may seem to fall within its supposed spirit or
intendment.
All of the above cases dealt with a different
section of the Act where the words "has trans
ferred" were used alone and not in conjunction
with the words "or distributed", but in the case
of Hawk Estate v. M.N.R (1957) 17 Tax A.B.C.
71, it was s. 64(3) itself which was considered.
In that case the deceased and his three sons
operated their own farms under an arrangement
whereby grain and livestock were sold under a
partnership name and the proceeds divided
amongst them in certain proportions. After the
deceased's death an agreement was reached by
his widow and sons, although never put in writ
ing, whereby all the interests of the deceased in
grain or livestock became the property of the
sons in return for which certain payments were
to be made to the widow. It was held that the
cattle and grain which formed part of the
deceased's estate were "transferred or distribut
ed" to his sons as beneficiaries, within the
meaning of s. 64(3), and therefore their value
was not taxable in the hands of the executors
under s. 64(2). In his judgment, W. S. Fisher,
Q.C., after referring to the meaning of the word
"transfer" as defined in the case of Gathercole
v. Smith (supra) and the quotation from the
judgment of Thorson P. in the Fasken Estate
case (supra), concluded that as the three sons
were beneficiaries of their father's estate,
together with their mother, transfer, even
though de facto in nature, was sufficient to
bring it within the provisions of s. 64(3) of the
Act. In another Tax Appeal Board case dealing
with s. 64(3), namely that of Willis Estate v.
M.N.R. (1968) Tax A.B.C. 177, a contrary con
clusion was reached. In that case the finding
was based on the fact, however, that the com
pany which had acquired assets of the deceased
in exchange for paid up shares pursuant to a
court order following his death to give effect to
an arrangement he had made during his lifetime
but had not carried into effect, was not a person
beneficially interested in the estate merely
because it had paid the estate tax assessed
against the estate, but was merely a creditor of
the estate. This decision of W. O. Davis refers,
at page 185, to the argument of counsel for the
Minister, which is similar to the argument made
in the present case, as follows:
Counsel for the respondent urged that, inasmuch as the
word "transfer" is used in conjunction with the word "dis-
tributed" in Section 64(3), it was evidently intended to
connote something in the nature of a bequest as opposed to
a sale such as had occurred in the instant matter, the word
"distributed" carrying with it no element of payment for
value received but suggesting a distribution of something to
someone who was already entitled to that something as, for
example, a beneficiary under a will.
It also refers, at page 184, to a definition of
"beneficial interest" taken from Black's Law
Dictionary as "profit, benefit, or advantage
resulting from a contract", pointing out, how
ever, that the definition goes on to say:
When considered as designation of character of an estate,
is such an interest as a devisee, legatee, or donee takes
solely for his own use or benefit, and not as holder of title
for use and benefit of another. People v. Northern Trust
Co., 330 I11. 238, 161 N.E. 525, 528.
In conclusion, at page 187, he states:
Having given careful consideration to all the facts and
circumstances involved herein and to the authorities
referred to by counsel, II have reached the conclusion that
the said rights and things were not transferred or distributed
within the terms of Section 64(3) but were sold by the
executor of the estate to Princeton Stock Ranch Ltd. for
good and valuable consideration, namely, 98 shares of the
company stock.
Respondent's contention in the present case
is that the transaction in form and substance
really breaks down into two separate
transactions:
(a) a transfer by consent of book debts having
a value of at least $90,000 in satisfaction of
the balance of the legacy payable to Mrs.
Denton under the will of her late father; and
(b) a sale of book debts having a value of at
least $380,000 for full and valuable consider
ation made by the executor in the course of
the administration of the estate to Mrs.
Denton, whose title thereto was acquired not
as a legatee or beneficiary under the will of
her father but rather as a purchaser for value.
Respondent's counsel argued that the use of the
word "distributed" in connection with the word
"transferred" in s. 64(3) in a cognate sense has
the effect of narrowing the meaning of the word
"transferred", quoting as authority for this
Maxwell on Statutes, 12th ed., at page 289:
Where two or more words which are susceptible of analo
gous meaning are coupled together, noscuntur a sociis, they
are understood to be used in their cognate sense. They take,
as it were, their colour from each other, the meaning of the
more general being restricted to a sense analogous to that of
the less general.
He contended that both words had to be used
because, while the word "transfer" would apply
to the distribution of a specific asset to a
beneficiary who had an equitable interest in the
asset transferred, "distributed" has reference to
a distribution of the assets of the estate of the
deceased to those who are entitled thereto but
who during the course of the administration
thereof do not have any equitable interest in
any specific asset. In this connection he
referred to the case of Commissioner of Stamp
Duties (Queensland) v. Livingston [1965] A.C.
694 which held that in the case of an unadmin-
istered estate the assets as a whole were in the
hands of the executor, his property, and until
administration was completed, it could not be
said of what the residue, when ascertained,
would consist or what its value would be. It was
further held that what the widow was entitled to
in respect of her rights under the testator's will
was a chose in action, capable of being invoked
for any purpose connected with the proper
administration of her husband's estate. A simi
lar finding was made by the Supreme Court in
the case of M.N.R. v. Fitzgerald (Steed Estate)
[1949] S.C.R. 453, in which Kerwin J. at page
460 refers to a proprietary interest either legal
or such an equitable interest as is recognized by
our courts, which Steed did not have, stating:
... All that devolved upon his death was a right to have
the estate of Bonnie Steed administered; and that right was
a chose in action properly enforceable .. .
In the present case, while Mrs. Denton had an
equitable interest in the legacy left her in her
father's will, she only had an eventual interest
in her share of the residue of the estate when
same would be distributed on the death or
remarriage of certain of the income beneficiar
ies. He contended, therefore, that Mrs. Denton
was not "a beneficiary or other person benefi
cially interested" in the estate or trust save to
the extent of the balance due her under the
legacy, and that beyond this her right only con
sisted in a right to have the estate administered
so ultimately she would obtain her proper share
in the residue when same was distributed. With
respect to the sum of $380,000, therefore, she
was simply a purchaser for value from the
trustees of the accounts due to the estate, and
to this extent the accounts could not be consid
ered as having been transferred to her qua
beneficiary or person beneficially interested.
He contended that this interpretation con
forms to the apparent scheme of Parliament in
enacting s. 64(3). Section 85F gives a special
privilege to taxpayers who carry on a profes
sion or the business of farming by permitting
them to compute their income on a cash basis
rather than a current earnings basis. As a conse
quence of this, if there had not been any specif
ic statutory provision, then on the cessation of
business, the amounts subsequently received
would not be subject to tax since they would no
longer be income from a source. In support of
his contention he quoted the British case of
Bennett v. Ogston (1930) 15 Tax Cas. 374 at p.
378, approved by Lord Simonds L.C. in Gospel
v. Purchase [1951] 2 All E.R. 1071 at 1074D, in
which Rowlatt J. stated:
When a trader or a follower of a profession or vocation
dies or goes out of business ... and there remain to be
collected sums owing for goods supplied during the exist
ence of the business or for services rendered by the profes
sional man during the course of his life or his business,
there is no question of assessing those receipts to income
tax; they are the receipts of the business while it lasted,
they are arrears of that business, they represent money
which was earned during the life of the business and are
taken to be covered by the assessment made during the life
of the business, whether that assessment was made on the
basis of bookings or on the basis of receipts.
Similarly, in the case of Frankel Corp. v.
M.N.R. [1959] S.C.R. 713, where a profit made
on the sale of a business operation, including
inventory, was held to be not taxable, it was
found that the sale of the inventory was not a
sale in the business of the appellant but was
made as a part of a sale of a business of the
appellant and consequently the proceeds of the
sale were not income from a business within the
meaning of s. 4 of the Income Tax Act. A
similar finding was made in the case of Cromp-
ton (Inspector of Taxes) v. Reynolds and Gibson
[1952] 1 All E.R. 888, where a firm purchased a
business, including a book debt which was
acquired at a written-down figure but which
was later collected in full and a profit of £50,-
000 thereby being made by the new firm. It was
held that although the debt was a trading debt in
the hands of the old firm its acquisition by the
new firm and its subsequent collection was not
a transaction within the scope of its business
but produced an accretion of value analogous to
the profit made by the sale of a fixed asset and
this was therefore not taxable. In line with this
reasoning he argued, therefore, that s. 64 was
necessary to provide for the taxation of income
from book debts which, on the death of the
deceased, had never entered into his computa
tion of profit. The scheme of the legislation is
that these debts are then to be taxed either in
the hands of the deceased or of the beneficiary.
If they have been transferred or distributed to a
beneficiary in this quality then they will be
included in the beneficiary's income if and
when realized. If the extent to which the pur
chaser for value is also beneficiary is not to be
taken into consideration in the interpretation of
s. 64(3), this would lead to some peculiar
results. For example, a professional man might
leave a substantial sum of accounts receivable,
as in the present case, and a token legacy of
perhaps only $1,000 to a trusted servant or
friend who would then be a beneficiary,
although only to this extent. By arranging for
the sale of the receivables to such a beneficiary
(which sale could readily be financed by a short
term loan when the accounts are as readily
collectable as in the present case) then even if
the sale were made at a discount, taking into
consideration the taxation which the purchaser
would have to pay on collection of these
accounts, the estate might nevertheless save
substantial sums if the recipient were in a much
lower tax bracket than the deceased. The appel
lant's attorney was very frank in the present
case in admitting that after payment of 50%
estate tax on these accounts and income tax at
the rate of approximately 70% on the balance,
the total sum paid in taxation would have
amounted to 85% of the value of the accounts
and the arrangement worked out with Mrs.
Denton was an attempt to avoid this. Avoidance
of taxation that can be done within the provi
sions of the governing statute is perfectly per
missible and respectable as has frequently been
stated by courts both in England and Canada.
However, when the interpretation of the mean
ing of the words used in a section of the Income
Tax Act is in doubt, it is preferable to adopt an
interpretation which brings a result which con
forms to the apparent scheme of the legislation,
rather than one which will defeat it. In the case
of Highway Sawmills Ltd. v. M.N.R. [1966]
S.C.R. 384, Cartwright J. stated at page 393:
The answer to the question what tax is payable in any
given circumstances depends, of course, upon the words of
the legislation imposing it. Where the meaning of those
words is difficult to ascertain it may be of assistance to
consider which of two constructions contended for brings
about a result which conforms to the apparent scheme of
the legislation.
The case of M.N.R. v. Pillsbury Holdings Ltd.
[1965] 1 Ex.C.R. 676, in interpreting s. 8(1)(c)
of the Act, held that it was intended to sweep
into income, payments, distributions, benefits
and advantages that flow from a corporation to
a shareholder by some route other than the
dividend route, which payments might be
expected to reach the shareholder by the more
orthodox dividend route if the corporation and
the shareholder were dealing at arm's length,
but that there could be no question of confer
ring a benefit or advantage within the meaning
of s. 8(1)(c) on a shareholder where the corpo
ration enters into a bona fide transaction with
him. In rendering judgment, Cattanach J. stated
at page 687:
... To come within that paragraph, it must be an arrange
ment or device whereby a corporation confers a benefit or
advantage on a shareholder qua shareholder.
I believe a similar distinction should be made
in the present case. Section 64(3) applies to
transfers or distributions of the right or thing to
a beneficiary or other person beneficially inter
ested in the estate or trust only when such
transfer or distribution has been made to him
qua beneficiary, and not to the extent that he
has acquired it as a purchaser for value. There
fore, had Mrs. Denton been a legatee of an
amount equal to or in excess of $483,350 and
had accepted the accounts in satisfaction of this
legacy, no tax would have been collectable from
the estate of the deceased when these accounts
were paid, and since Mrs. Denton herself was
not taxable in Canada, the accounts would have
been collected without payment of income tax
on them by anyone, and this would have been a
perfectly proper and legitimate application of s.
64(3) of the Act. I cannot interpret this section,
however, as applying to all rights or things
which may be transferred or distributed by way
of a sale for value to a purchaser who also
happens to be a beneficiary or other person
beneficially interested in an estate or trust irre
spective of how small his benefit or beneficial
interest in same may be. I therefore find that
with respect to the rights or things so trans
ferred which are in excess of the amount for
which the purchaser is a beneficiary or person
beneficially interested in the estate he is simply
a purchaser for value and the estate or trust is
taxable under the provisions of s. 64(2) on the
amounts so transferred. The appeal is therefore
dismissed, with costs.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.