Arthur G. Roberts & Richard Britton-Foster,
Executors of the estate of Elizabeth Ann Roberts
(Appellants)
v.
Minister of National Revenue (Respondent)
Trial Division, Heald J.—Toronto, September
14, 15; Ottawa, September 29, 1971.
Estate tax—Transfer of assets to company in trust—
Shares in company given in consideration—Subsequent
issue of additional shares by company—Value of shares in
estate—Whether "a disposition operating as an immediate
gift inter vivos"—Estate Tax Act 1958, c. 29 ,[now R.S.C.
1970, c. E-9], s. 3(1)(c).
Mrs. R died on September 5, 1966. On August 31, 1966,
in pursuance of an estate plan she transferred securities to
the value of $324,484 to the Lillooet company (a private
corporation incorporated by letters patent under the Ontario
Corporations Act) in return for 200 common shares without
par value in that company, and on the same day, settled
those shares on her husband and brother in trust for her
children. On August 31, 1966, the Lillooet company's three
directors (Mrs. R's husband, brother and the latter's wife)
passed resolutions (1) authorizing issue of 200 shares to
Mrs. R, (2) authorizing transfer of these shares by Mrs. R to
the trustees for her children, (3) entitling the company's
shareholders to subscribe for 9 common shares at 10 cents
per share for each share held. The shares were duly allotted
them.
The letters patent of the Lillooet company authorized the
issue of 2,000 common shares without par value, but pro
vided (as permitted by s. 26(4) of the Ontario Corporations
Act) that they should not be issued for a consideration
exceeding $2,000 except upon payment to Ontario of the
fees payable on such greater amount and on the issuance by
the Provincial Secretary of a certificate of such payment.
An agreement signed by Mrs. R on August 31, 1966 as part
of the estate plan specifically provided that the Lillooet
company would take the steps necessary to enable the
company's common shares to be issued for a consideration
equal to the purchase price of her securities and that such
shares should be issued to Mrs. R forthwith upon receipt of
the certificate of payment of the additional fees required. In
furtherance of that object the company's directors on
August 31, 1966, passed a resolution increasing the max
imum consideration for the company's 2,000 authorized
common shares to $350,000. On September 1, 1966, the
Provincial Secretary received a copy of the resolution and a
cheque for the additional fees payable. He did not, how
ever, send out a certificate of payment until September 16,
1966.
Held, payment of the additional fees and issue of a
certificate of payment were by the terms of the letters
patent and s. 26(4) of the Ontario Corporations Act condi
tions precedent to the issuance of common shares for an
increased amount, and it was clear from the agreement
signed by Mrs. R that the shares to be issued to her could
not be legally issued any earlier than the date on which the
Provincial Secretary sent out the certificate of payment of
the additional fees, viz, September 16, 1966. Accordingly,
the shares were not issued prior to Mrs. R's death on
September 5 and were therefore assessable as assets of her
estate. Oakfield Developments (Toronto) Ltd. v. M.N.R.
[1969] 2 Ex.C.R. 149; Deltona Corp. v. M.N.R. [1971]
D.T.C. 5186, applied.
Moreover, the series of transactions by which Mrs. R's
securities were transferred to trustees for her children was
"a disposition operating as an immediate gift inter vivos"
within the meaning of s. 3(1)(c) of the Estate Tax Act and
consequently the securities were assessable as part of the
estate. In tax cases substance rather than form governs.
West Hill v. M.N.R. [1969] 2 Ex.C.R. 441; M.N.R. v. Cox
[1971] D.T.C. 5150, referred to; Att'y Gen. v. Oldham
[1940] 1 K.B. 599, affirmed [1940] 2 K.B. 485,
distinguished.
ESTATE tax appeal.
W. D. Goodman, Q.C., and F. Cappell for
appellants.
G. W. Ainslie, Q.C., and I. H. Pitfield for
respondent.
HEALD J.—This is an appeal from an assess
ment against the estate of Elizabeth Ann Rob-
erts wherein estate tax in the sum of $36,341.07
was assessed against the appellants as execu
tors of the said estate.
The deceased was, on Sept. 5, 1966, the date
of her death, a married woman, the wife of
Arthur G. Roberts, one of the appellants herein.
The other appellant is a brother of the
deceased. The deceased was forty-two years of
age at the time of her death. She and the appel
lant Roberts are the parents of four children
ranging in age from eight to fourteen years at
the time of their mother's death. Mrs. Roberts
had enjoyed good health until about February
of 1966. She went into hospital in April of 1966
at which time her doctors concluded that she
was the victim of a terminal disease. There was
no evidence that this disease affected in any
way her mental capacity or her ability to under
stand and execute documents and agreements
so that her legal ability to execute the docu
ments which she did in fact execute shortly
before her death is not in issue.
On May 27, 1966, the deceased executed a
general power of attorney in favour of Richard
Britton-Foster, her brother, and Liselotte Brit-
ton-Foster his wife. There was no evidence
before me that this power of attorney was
revoked at any time prior to her death on Sept.
5, 1966. The appellant Roberts and the
deceased were separated in September of 1965,
at which time the appellant Roberts moved
away from the marital home occupied by his
wife and children. Mr. Roberts returned to live
with his wife and children in July of 1966, and
there remained until his wife's death.
The deceased was possessed of substantial
assets in her own right. Arthur G. Roberts her
husband, testified that she owned a portfolio of
investment securities, said portfolio having a
market value of $324,484 at date of death. This
value is admitted by both parties. Mrs. Roberts
also owned the marital home and a ski cabin as
well as other miscellaneous assets.
This appeal concerns only the above-men
tioned investment portfolio.
Mr. Roberts testified that in the weeks
immediately prior to her death he had many
talks with his wife and much of their dialogue
centred on the children's future and on how
Mrs. Roberts' assets could best be utilized for
the benefit of the children. As a result of these
conversations and discussions it was decided to
obtain advice from Mr. W. D. Goodman, Q.C., a
Toronto solicitor. Accordingly Mr. Roberts first
consulted Mr. Goodman on August 30, 1966,
when Mr. Goodman recommended a specific
programme and course of action concerning
Mrs. Roberts' investment portfolio. During the
afternoon of August 31, 1966, Mr. Roberts dis
cussed Mr. Goodman's proposal in detail with
his wife at their home. During the evening of
August 31, 1966, Mr. Goodman came to the
Roberts home at 55 Castle Frank Road, Toron-
to, and explained to Mr. and Mrs. Roberts the
various steps and procedures implicit in the
proposed plan. The Roberts decided to accept
Mr. Goodman's advice and to proceed with the
programme suggested by him. Accordingly
during that meeting Mrs. Roberts signed a letter
of instructions to her brother Richard Britton-
Foster, the said letter of instructions being
received in evidence as Ex. P.2. In that letter
Mrs. Roberts informed her brother that she
intended to sell her investment portfolio to a
company known as Lillooet Investments Limit
ed (hereinafter referred to as Lillooet) in return
for 200 common shares without par value of the
capital stock of that company representing all
the issued shares in that company at that time;
that she wished to gift the said shares to her
said brother and her husband as trustees of the
Elizabeth Ann Roberts Family Trust. Addition
ally the letter directed her brother to utilize his
power of attorney from her to execute all docu
ments in her name that might be necessary to
effect the said sale of her securities to Lillooet
and to transfer the said 200 shares of Lillooet
to her brother and husband in their capacity as
trustees of the Elizabeth Ann Roberts Family
Trust.
At that same meeting the evening of August
31, 1966, at the Roberts home, Mrs. Roberts
also signed the agreement dated August 31,
1966, between herself and Lillooet covering the
sale of her investment portfolio of "blue chip
stocks" and bonds worth $324,484 to Lillooet
in return for the 200 no par value common
shares of Lillooet (the said agreement was
received in evidence as Ex. P.3). Mrs. Roberts
also executed the said Elizabeth Ann Roberts
Family Trust dated August 31, 1966, at the
same meeting with Mr. Goodman on the even
ing of August 31, 1966. This document was
received in evidence as Ex. P.4. This is a very
lengthy document. Briefly described, it purport
ed to settle the 200 shares of Lillooet on Arthur
George Roberts (husband) and Richard Britton-
Foster (brother) to hold upon certain trusts for
the benefit of the Roberts children and issue.
Mr. Roberts' evidence at trial was that Ex.
P.2, P.3 and P.4 were signed by his wife at the
meeting with Mr. Goodman on the evening of
August 31, 1966, at their home 55 Castle Frank
Road. This evidence is not contradicted by any
other evidence and conforms to the answers he
gave on examination for discovery. I according
ly find as a fact that Elizabeth Ann Roberts
signed and executed Ex. P.2, P.3 and P.4 during
the evening of August 31, 1966, at 55 Castle
Frank Road, Toronto. However, considerable
further documentation forms an integral part of
this programme (which for convenience I will
describe as the Goodman plan) and is principal
ly contained in Ex. P.5 which consists of pages
numbered 1 to 36, being resolutions and
minutes of the shareholders and directors of
Lillooet. The dates on which these resolutions
and minutes were signed is not so clear and is in
issue. For the moment in referring to these
minutes I will refer to the date which appears in
them and will have more to say later on con
cerning the date on which they were actually
signed.
Lillooet Investments Limited was duly issued
a charter by letters patent from the Provincial
Secretary of the Province of Ontario dated 6th
day of May 1966, under the authority granted
to him by the Ontario Corporations Act, R.S.O.
1970, c. 89. The authorized capital of the com
pany consisted of: 2000 common shares with
out par value; (the charter provided maximum
consideration of $2000) 2000 Class A prefer
ence shares par value $1.00 each; 34,000 Class
B non-voting preference shares par value $1.00
each; 2000 Class C non-voting preference
shares par value $1.00 each. No evidence was
adduced of any dealings with any of the prefer
ence shares. Thus all the relevant share transac
tions are transactions having to do with the
common shares without par value. The incor-
porators of the company were Herbert A.
Abramson, Sol Shulman and Allen Karp, all
solicitors of the City of Toronto and all mem
bers of Mr. Goodman's firm at that time. After
incorporation the following steps were taken as
appears from a perusal of Ex. P.5. I have set
them out chronologically as they appear in Ex.
P.5.
Step 1. The transfer of one share each by the
incorporators to the appellant Roberts, the
appellant Britton-Foster and Mrs. Britton-Fos
ter, the said three transferees being elected
directors of the company with the appellant
Roberts being elected president and the appel
lant Britton-Foster being elected secretary-
treasurer. The minutes evidencing this step bear
date May 6, 1966.
Step 2. The company directors passed a reso
lution providing for an increase from $2000 to
$350,000 as the maximum consideration for the
issue of the 2000 common shares and further
resolved that the necessary steps be taken to
pay the fee on such greater amount and to
request the Provincial Secretary to issue a cer
tificate that such fee has been paid. The
minutes evidencing this step bear date May 6,
1966.
Step 3. The three shareholders, that is the
appellant Roberts, the appellant Britton-Foster
and Mrs. Britton-Foster each executed declara
tions of trust wherein each of them declared
that he or she held their one share of Lillooet in
trust for Elizabeth Ann Roberts. These declara
tions of trust each bear date August 31, 1966.
Step 4. The company directors passed a reso
lution authorizing the purchase of the invest
ment portfolio of the deceased worth $324,484
in consideration of the allotment and issue of
200 common shares of the company and
authorized the president and secretary-treasurer
to execute the said agreement on behalf of the
company. This is the agreement for sale
received in evidence as Ex. P.3. This resolution
bears date August 31, 1966.
Step 5. The company directors passed a reso
lution providing for. the allotment and issue of a
further 197 common shares of the company to
Elizabeth Ann Roberts and also fixed the con
sideration for the said allotment and issue as
$324,481. This resolution bears date August 31,
1966.
Step 6. Elizabeth Ann Roberts transferred by
way of gift to the appellant Roberts and the
appellant Britton-Foster as trustees of the Eliz-
abeth Ann Roberts Family Trust the said 197
common shares of Lillooet. This transfer bears
date August 31, 1966.
Step 7. Step 7 is a separate declaration of
trust of each of Messrs. Roberts and Britton-
Foster and Mrs. Britton-Foster wherein each of
them declared that they held one common share
of Lillooet in trust for the appellant Roberts and
the appellant Britton-Foster as trustees of the
Elizabeth Ann Roberts Family Trust. The decla
rations of trust in Step 7 bear date August 31,
1966.
Step 8. The company directors passed a reso
lution under which each of the existing share
holders was given the right to subscribe for and
have issued nine common shares at ten cents
per share for each common share presently
held. The appellants Roberts and Britton-Foster
in their capacity as trustees of the Elizabeth
Ann Roberts Family Trust were thus allotted
and issued 1800 common shares at a price of
ten cents per share. This allotment and issue
was based on the assumption that the said
appellants as trustees of the Elizabeth Ann
Roberts Family Trust were the owners of all the
previously issued 200 shares.
To summarize, on August 30, 1966, Elizabeth
Ann Roberts owned an investment portfolio
with a market value of $324,484. Had she died
on August 30, 1966, this sum would have been
included in the aggregate net value of her estate
for estate tax purposes. However, on August
31, 1966, the Goodman plan outlined above was
implemented. The appellants submit that the
implementation of this plan has the following
result:
(a) The three original incorporators' shares
belonged beneficially to Elizabeth Ann Roberts
who gifted them to the Elizabeth Ann Roberts
Family Trust before her death.
(b) Under the sale agreement Elizabeth Ann
Roberts was entitled to receive 197 additional
common shares of Lillooet which she also
gifted to the trust before her death.
(c) In the result Elizabeth Ann Roberts had
disposed of her entire interest in Lillooet before
her death.
(d) The directors of Lillooet validly issued
1800 additional common shares at ten cents per
share.
(e) At September 5, 1966, the date of Mrs.
Roberts' death there were 2000 validly issued
common shares of Lillooet. The 200 shares
which Mrs. Roberts had gifted represented only
ten per cent of the net worth of the company.
Therefore appellants argue that only ten per
cent of the value of $324,484 or $32,448 should
be included in the aggregate net value of the
estate. The respondent assessed the estate on
the basis of the full market value of $324,484
and this appeal is from that assessment.
I found as a fact supra that Elizabeth Ann
Roberts signed and executed Ex. P.2, P.3 and
P.4 during the evening of August 31, 1966, at
her home 55 Castle Frank Road, Toronto. I also
said that the date of execution of the further
documentation forming an integral part of this
plan was not so clear and was in issue notwith
standing the dates appearing on them.
Lillooet Investments Limited was incorporat
ed on May 6, 1966, by Messrs. Abramson,
Shulman and Karp but did not become an active
company while they were its sole shareholders.
Mr. Roberts says it was what is known as a
"shelf" company; in other words an existing
company with full legal status but on the
"shelf" in the sense of not being actively
engaged in a business of any kind. His evidence
was that because a private corporation was
essential to the implementation of the plan
recommended by Mr. Goodman and because
this company was available, it was decided to
purchase all of the shares of Lillooet presuma
bly to save the time and possibly some of the
costs involved in incorporating a new company.
This explains why pages 1 to 9 of Ex. P.5 are
dated May 6, 1966. These resolutions were
obviously prepared at the time of incorporation
on May 6, 1966. The names of Messrs. Roberts
and Britton-Foster and Mrs. Britton-Foster
were inserted much later because the decision
to purchase the shares of this company was not
taken until August 31. There was no evidence
as to whether the incorporators signed the reso
lutions on May 6th or at some subsequent date
but in my view the date of signing by the
incorporators is not crucial to the decision in
this case. However, all of the other resolutions,
minutes, declarations and documentation con
tained in pages 10 to 36 inclusive of Ex. P.5 are
dated August 31, 1966.
In their pleadings the appellants state that all
of the pertinent share transactions in Lillooet
occurred on August 31, 1966. I refer to para
graphs 2, 3 and 4 of the notice of appeal in this
regard. This is confirmed by the appellant Rob-
erts in his examination for discovery.
Additionally, Mr. Goodman's firm wrote a
letter bearing date of. October 14, 1966, to the
appellants which can best be described as a
reporting letter. The letter under the signature
of Richard W. J. Posluns, a member of Mr.
Goodman's law firm is some 10 pages in length
and reports in detail the various steps undertak
en and completed under the Goodman plan. On
page 9 of the letter Mr. Posluns says, "Natural-
ly it is most essential that any estate tax and
succession duty returns and any correspond
ence with the respective departments be accu
rate in describing the estate planning proce
dures which we have implemented and which
are reported to you in this letter." Mr. Posluns
wrote this letter when the various steps and
meetings were still fresh in his mind. He real
ized that accuracy was essential in reporting
this plan and every step in it to the Department
because he was well aware that the Department
would scrutinize the plan very closely having
regard to its result which was to substantially
reduce the amount of estate tax payable in Mrs.
Roberts' estate.
On page 4 of this reporting letter Mr. Posluns
says: "On the 31st day of August 1966 (the
italics are mine), the directors passed a resolu
tion of the company alloting and issuing a fur
ther 197 common shares without par value for
the sum of $324,481 to Elizabeth Ann Roberts,
representing the purchase price payable in
respect of the purchase by the company from
Mrs. Roberts of certain shares On the
same day (the italics are mine) a resolution was
passed by the board of directors approving the
transfer of 197 common shares in the capital of
the company from Elizabeth Ann Roberts to
Arthur George Roberts and Richard Britton-
Foster, trustees of the Elizabeth Ann Roberts
Family Trust .... " "At a meeting of the board
of directors of the company held on the 31st
day of August 1966 (the italics are mine), at the
hour of 4 o'clock in the afternoon a resolution
was passed giving the right to each of the pres
ent shareholders of the company to subscribe
for and to be issued nine common shares in the
capital of the company at ten cents per share
for each common share presently held by each
shareholder .... " "As mentioned above, the
directors of the company passed a resolution
approving the purchase of the securities and the
form of agreement of purchase and sale on the
31st day of August 1966" (the italics are mine).
Nevertheless the appellant Arthur G. Roberts
in his evidence at trial swore that all of the
Lillooet resolutions and minutes signed by him
self, the appellant Britton-Foster and Mrs. Brit-
ton-Foster were signed not on August 31 but in
Mr. Goodman's office on the morning of Sep-
tember 1, 1966. He admits that he and Mr.
Britton-Foster did meet with Mr. Goodman in
Mr. Goodman's office on the afternoon of
August 31 from about 3.30 p.m. until about 5
p.m., that Mr. Posluns was also present at this
meeting but denies that this meeting or any
portion of it was the meeting of the directors
described on pages 30 and 31 of Ex. P.5 as
taking place at 4 p.m. on August 31, 1966. (This
was the meeting which declared the stock rights
of nine to one.) Roberts' only explanation of
this direct conflict between his evidence at trial
and his evidence on examination for discovery
was that because all of the resolutions and
documentation were dated August 31, that he
assumed they were actually signed and the
meetings actually held on August 31; that
between the examination for discovery and the
date of trial he discovered his error and was
now correcting his testimony. I do not accept
this explanation. On the one hand the notice of
appeal gives the pertinent dates as August 31;
Roberts in his examination for discovery swears
the pertinent date as August 31; Mr. Posluns in
his reporting letter of October 14, 1966, to the
appellants after stressing to his clients the need
for accuracy and full disclosure, also gives the
pertinent date as August 31; on the other hand
the evidence of the appellant Roberts at trial
that he was previously in error and (a necessary
inference from his evidence) that the pleadings
were in error and Mr. Posluns was in error.
Counsel for the respondent quite properly
pointed out at trial that no effort was made to
explain this discrepancy. No attempt was made
to corroborate Roberts' evidence at trial—for
example—a docket entry or diary entry from
the Goodman office. Messrs. Britton-Foster,
Goodman and Posluns were present when the
documentation was signed and the meetings
were held. It would have been a simple matter
to have one or the other of them give evidence
on this very important part of the case. I do not
accept Mr. Roberts' evidence at trial on this
point. Accordingly I find as a fact that all of the
resolutions, declarations, minutes and documen
tation signed by the appellants and Mrs. Brit-
ton-Foster as contained in Ex. P.5 were in fact
signed and executed by them on August 31,
1966. I find further as a fact that the directors'
meeting recorded as held on August 31, at 4
p.m. was in fact held on that date and at that
hour and transacted the business as reported by
the minutes thereof which are contained on
pages 30 to 32 inclusive of Ex. P.S.
The letters patent of Lillooet provide that the
2000 common shares without par value shall
not be issued for a consideration exceeding two
thousand dollars "or such greater amount as the
Board of Directors of the Company deems
expedient on payment to the Treasurer of
Ontario of the fees payable on such greater
amount and on the issuance by the Provincial
Secretary of a certificate of such payment".
(The italics are mine).
Such a provision in the letters patent is per
mitted pursuant to the provisions of s. 26(4) of
the Ontario Corporations Act, R.S.O. 1970, c.
89'.
The directors of Lillooet proceeded pursuant
to this provision of the letters patent and
accordingly passed a resolution increasing the
maximum consideration from $2,000 to $350,-
000 for the issuance of the 2,000 common
shares without par value. This minute is dated
May 6, 1966, but I held, supra, that it was
signed by the directors on August 31, 1966.
Then on September 1, 1966, a letter was written
by Mr. Posluns of the Goodman firm (Ex. D.4)
and delivered to the office of the Provincial
Secretary the same day, enclosing a certified
copy of the said resolution and a cheque for the
Treasurer's necessary additional fees and
requesting the Provincial Secretary to issue the
certificate of such payment.
The evidence of Mr. McCormack, the Con
troller of Records in the Ontario Companies
Branch, was to the effect that the Provincial
Secretary signed the certificate of payment of
fees (Ex. P.6) on September 15, 1966, and that
it was sent out to the Goodman office on Sep-
tember 16, 1966.
The Lillooet letters patent clearly state that
the common shares can only be issued for an
increased consideration on payment to the
Treasurer of the increased fees and on the
issuance of the certificate by the Provincial
Secretary (the italics are mine). The wording of
the letters patent makes it clear that these two
steps are conditions precedent to the issuance
of common shares for an increased considera
tion. In the case at bar, step 1 occurred on
September 1, 1966, but step 2 did not occur
until September 15, 1966. It should also be
observed that s. 26(4) of the Ontario Corpora
tions Act which permits this type of procedure
to be included in letters patent uses identical
language and it is thus equally clear that the two
above-noted steps are conditions precedent in
the governing statute.
I would also like to refer to the agreement for
sale between Elizabeth Ann Roberts and Lilloo-
et. Paragraph 7 thereof states:
Without restricting the generality of the foregoing, it is
expressly understood between the Parties hereto that the
Purchaser shall forthwith take such steps as are necessary
to enable the common shares to be issued for an aggregate
consideration equal to the purchase price hereunder and
that forthwith upon receiving the required certificate from
the Provincial Secretary of the Province of Ontario entitling
the Purchaser to issue the said shares for the said considera
tion, it will cause the common shares to be issued to the
Vendor in accordance with the terms of this Agreement.
(The italics are mine).
It is clear from paragraph 7 that the shares to
be issued to Mrs. Roberts could not possibly be
legally issued any earlier than September 16,
1966, the date on which the Provincial Secre-
tary's certificate was sent out to the Goodman
office.
I think it is also significant that Mr. Posluns
in his reporting letter to the appellants (D.5)
states on page 6 thereof:
A Certificate of Payment has been obtained dated the 1st
day of September, 1966, and the common shares of the
Company may now be issued for a consideration not in
excess of $350,000. (The italics are mine.)
It will be recalled that this letter was written on
October 14, 1966.
The appellants submit that all of the steps
necessary to complete the Goodman plan were
completed prior to September 5, 1966, the time
of death. I cannot agree. In my opinion, the
allotment and issue of the further 197 shares to
Elizabeth Ann Roberts was inoperative prior to
September 5, 1966, because no authority to
allot and issue was issued until September 15,
1966.
I have read the judgment of my brother Cat-
tanach J. in Oakfield Developments (Toronto)
Ltd. v. M.N.R. [1969] 2 Ex.C.R. 149. In that
case, Cattanach J. held that the Minister was
not precluded from establishing that supplemen
tary letters patent bore a date antecedent to
their actual issuance. There the supplementary
letters patent authorizing the issue of prefer
ence shares were dated December 20, 1960, but
they were not in fact issued until February 15,
1961. It followed that no preference shares
were validly issued on December 21, 1960, as
the company's capital stock did not include
such stock at that time. The decision of Cat-
tanach J. was appealed to the Supreme Court of
Canada. The judgment of the Supreme Court
was delivered by Mr. Justice Judson [1971]
D.T.C. 5175.
The appeal was dismissed on other grounds
and the rationale of Cattanach J. was not dealt
with by the Supreme Court.
I agree with the reasoning of my brother
Cattanach J. in the Oakfield case and in the case
of The Deltona Corp. v. M.N.R. [1971_ ] D.T.C.
5186 at page 5201.
In the case at bar the facts are, in my opinion,
even stronger than in the Oakfield case, supra.
Here, the purported issue of the additional 197
shares to Mrs. Roberts took place on August
31, 1966—the subsequent gift to the trust of the
200 common shares and the directors' meeting
allotting and issuing the 1800 common shares—
all took place on August 31, 1966, one day
before the date of issue of the Provincial Secre-
tary's certificate. Putting the appellants' case at
its highest and disregarding the Oakfield and
Deltona cases, the appellants' right to transfer
the 200 shares and to issue the additional 1800
shares dates from September 1, 1966, and yet
all of these steps occurred on August 31, 1966.
It follows therefore that at September 5,
1966, the date of death, the transfer and dispo
sition of Mrs. Roberts' investment portfolio had
not taken place and said portfolio was properly
included by the Minister in computing the
aggregate net value of her estate.
I was invited by counsel for the respondent,
if I found that the Goodman plan was com
pleted, to find further that there was here in
form and in substance an interrelated and inter
connected series of transactions, wherein the
deceased's investment portfolio was transferred
to a corporation controlled by the deceased at
the time of transfer in consideration for the
allotment and issue of all its issued share capital
to trustees to hold on trust for the transferor's
children and that these transactions are, there
fore, in form and substance a disposition oper
ating as an immediate gift inter vivos and
accordingly the full market value of the securi
ties must be included in the aggregate net value
of the estate pursuant to s. 3(1)(c) of the Estate
Tax Act. 2
Having found that the Goodman plan was not
completed and that the transfer and disposition
of Mrs. Roberts' investment portfolio had not
taken place before her death it is unnecessary
for me to deal with this submission. However, I
have no hesitation in expressing the opinion
that when you look at the programme, the plan
and at all of the evidence, there would have
been a disposition of the marketable securities
which would have operated by way of gift
within the meaning of s. 3(1)(c) if the plan had
been completed. It seems to be well settled in
tax cases that the substance, rather than the
form be regarded and also that the intention
with which a transaction is entered into is an
important matter and the whole sum of the
relevant circumstances must be taken into
account. (West Hill Redevelopment Co. v.
M.N.R. [1969] 2 Ex.C.R. 441 at 455.)
I believe that the plan implemented in this
case was merely the machinery used to effect a
gift of the investment portfolio for the benefit
of the children and that accordingly, the deci
sion of the Supreme Court in M.N.R. v. Cox
[1971] D.T.C. 5150 at page 5151 (Judson J.)
applies to this case as well.
Counsel for the appellants relied heavily on
the Oldham case. (Att'y.-Gen. v. Oldham [1940]
1 K.B. 599 at pages 606, 7, 8; aff'd [1940] 2
K.B. 485). In that case one Tate, in January
1934, gave to his daughter Mrs. Oldham, the
defendant, 25,000 ordinary shares in a compa
ny. In May 1935, the company increased its
capital by the issue to its ordinary shareholders
of bonus shares, fully paid out of the company's
general reserve, in the ratio of two bonus shares
for every five existing shares which resulted in
the defendant receiving 10,000 bonus shares.
Tate died in April 1936 and the Crown claimed
estate duty on the value of the 10,000 bonus
shares as well as on the 25,000 original shares.
(The defendant admitted that duty was chargea
ble on the original 25,000 shares because it was
a voluntary disposition made by Tate less than
three years before his death.)
Mr. Justice Wrottesley held that the bonus
shares were not property passing under the
disposition made by Tate and, therefore, estate
duty was not chargeable on their value.
I would observe that while the operative
words in the governing English statute in the
Oldham case are similar to the wording of s.
3(1)(c) of our statute, there is no definition of
"disposition" in the English statute. "Disposi-
tion" is defined in our statute by s. 58(1)(e)
thereof.' The Oldham facts are entirely differ
ent from the case at bar and the relevant statute
is significantly different. I am therefore of the
opinion that the Oldham case cannot be applied
to this case. It is interesting however, to read on
page 606 of the Oldham judgment the following
statement of the law by the learned Justice. "If
what is contended for is that the Court must not
close its eyes to what a transaction really pro
vides, should that be different from what the
form of the transaction appears to provide,
there is no doubt that that is the duty of the
Court." This statement of the law by Wrottes-
ley J. is not at variance in any way with the
West Hill decision or the Cox decision earlier
referred to.
After a careful consideration of the provi
sions of secs. 3(1)(c) and 58(1)(e) of the Estate
Tax Act, 1958, c. 29, I have concluded that the
plan herein is clearly a disposition of securities
within the ordinary meaning of the word "dis-
position" and within the extended meaning set
out in s. 58 (1)(e).
I have read the English cases cited by counsel
for the respondent on the proper interpretation
to be given this word in their taxing statutes and
am of the opinion that the plan in the case at
bar would most certainly be "a disposition"
within the meaning of those cases. See Duke of
Northumberland v. Att'y-Gen. [1905] A.C. 406
per Lord Macnaghten at pp. 410-412; Parr v.
Att'y-Gen. [1926] A.C. 239 per Lord Carson at
pp. 267, 268; Grey v. LR.C. [1959] 3 All E.R.
603—(H.L.) per Viscount Simonds at p. 605.
The appeal is dismissed with costs.
26. (4) Where the shares of a company are without par
value or where part of its shares are with par value and part
are without par value, the letters patent or supplementary
letters patent may provide that each share without par value
or the shares of each class of shares without par value are
not to be issued for a consideration exceeding in amount or -
value a stated amount in dollars, pounds, francs or other
currency, and the letters patent or supplementary letters
patent may provide, in addition, that such share or shares
may be issued for such greater amount as the board of
directors of the company considers expedient on payment
to the Treasurer of Ontario of the fees payable on such
greater amount and on the issuance by the Minister of a
certificate of such payment.
2 3. (1) There shall be included in computing the aggre
gate net value of the property passing on the death of a
person the value of all property, wherever situated, passing
on the death of such person, including, without restricting
the generality of the foregoing,
(c) property disposed of by the deceased under a dispo
sition operating or purporting to operate as an immediate
gift inter vivos, whether by transfer, delivery, declaration
of trust or otherwise, made within three years prior to his
death;
58. (1) In this Act,
(e) "disposition" includes any arrangement or ordering in
the nature of a disposition, whether by one transaction or
a number of transactions effected for the purpose or in
any other manner whatever;
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.