A-724-76
The Queen (Appellant)
v.
Mary Mastronardi, Deanna Louise Bucko and
Armando Mastronardi, Executors of the Estate of
Umberto Mastronardi, Deceased (Respondents)
Court of Appeal, Heald and Urie JJ. and MacKay
D.J.—Toronto, June 7; Ottawa, June 14, 1977.
Income tax — Subject matter deemed realization of capital
gain — Meaning of "immediately before his death" re valua
tion of property — Income Tax Act, S.C. 1970-71-72, c. 63, s.
70(5), as amended.
The deceased, on his death in 1973, was the majority share
holder of an Ontario corporation and was deemed, by the
Income Tax Act, to dispose of his shares and to reacquire them
at fair market value immediately before his death. In 1972, his
company bought a five-year term life insurance policy, with a
$500,000 face value reducing at $100,000 per year. The appel
lant argued that the proceeds of this policy should be included
in a determination of the shares' fair market value: "immedi-
ately before ... death" was to be interpreted as the instant of
death. The respondent, however, maintained that the proceeds
only became available after death—not immediately before
death—and therefore should be disregarded in any valuation of
the shares.
Held, the appeal is dismissed. To ignore the plain meaning of
a statute in the context of a given set of facts and to substitute
a strained and unnatural interpretation to prevent an
apprehended injustice in the future on an entirely different set
of facts does not accord with the principles of good statutory
interpretation. This case is easily capable of rational resolution
by simply interpreting the plain words as they appear in the
statute without speculating as to possible results in future cases.
APPEAL.
COUNSEL:
G. W. Ainslie, Q.C., W. Lefebvre and C. Fien
for appellant.
D. Ward, Q.C., and J. Ball for respondents.
SOLICITORS:
Deputy Attorney General of Canada for
appellant.
Thomas C. Odette, Q.C., Leamington, for
respondents.
The following are the reasons for judgment of
the Court rendered in English by
HEALD J.: This is an appeal by the Crown from
a judgment of the Trial Division in which the
learned Trial Judge allowed the respondents'
appeal from the reassessment for income tax for
the 1973 taxation year in the estate of Umberto
Mastronardi, deceased.
The respondents are the executors and trustees
of that estate.
At the time of his death, the deceased was the
owner of the majority common shares of Mas-
tronardi Produce Ltd., (an Ontario Corporation),
and by virtue of section 70(5) of the Income Tax
Act, R.S.C. 1952, c. 148 (as amended by section 1,
S.C. 1970-71-72, c. 63 and by section 19(1), S.C.
1973-74, c. 14) he was deemed to have disposed of
those shares immediately prior to his death and to
have received as proceeds of disposition an amount
equal to their fair market value'. At the time of
the death of the deceased, Mastronardi Produce
Ltd. was the owner of a term life insurance policy
which provided for the payment to the company of
the sum of $500,000 on the death of the deceased.
This policy was dated September 25, 1972 and was
for a term of five years, with the face amount
reducing by $100,000 on each anniversary date.
The policy was non-convertible and non-participat
ing. The policy had no cash surrender or other
value prior to death. The deceased was required by
the insurance company to have two independent
physical examinations which he had on August 28,
' 70. (5) ...
(a) the taxpayer shall be deemed to have disposed, immedi
ately before his death, of each property owned by him at that
time that was a capital property of the taxpayer (other than
depreciable property of a prescribed class) and to have
received proceeds of disposition therefor equal to the fair
market value of the property at that time;
(c) any person who, by virtue of the death of the taxpayer,
has acquired any particular capital property of the taxpayer
(other than depreciable property of a prescribed class) that is
deemed by paragraph (a) to have been disposed of by him at
any time shall be deemed to have acquired it immediately
after that time at a cost equal to its fair market value
immediately before the death of the taxpayer;
(See memorandum of Attorney General—p. 12, Appendix
"A".)
1972. The deceased died suddenly and without
warning of cardiac arrest on February 20, 1973 at
the age of 51 years. Neither the deceased nor his
immediate family were aware prior to his death
that he was a likely or suspected candidate for the
heart attack brought on by arteriosclerotic cardi
ovascular disease and from which he died.
The parties agree that the fair market value of
the shares of Mastronardi Produce Ltd. would be
$323.58 per share, if no account was taken of the
insurance policy, which is the value used by the
respondents in calculating the taxable capital gain
arising on the deemed disposition of the shares of
Mastronardi Produce Ltd. The parties also agree
that if the shares were to be valued on the basis of
taking into account the policy at the instant of
death, the value would be $778.59 per share which
is the figure used by the Minister of National
Revenue in calculating the deceased's income for
his 1973 taxation year.
In my view, the learned Trial Judge correctly
stated the problem facing him in interpreting sec
tion 70(5) (supra) when he said [[1977] 1 F.C.
234 at p. 238]:
... it is apparent that there is a two step fiction enacted by
section 70 subsection (5) of the Act.
The first fiction is that the taxpayer after he dies is deemed
to have disposed of the subject property "immediately before
his death".
The second fiction is that he is deemed "to have received
proceeds of disposition therefor equal to the fair market value
of the property at that time".
The problem is to determine what was the legislative concept
of section 70 subsection (5) of the Act and apply such to the
facts of this case.
After summarizing the submissions of the parties,
the Trial Judge then reached the following conclu
sions [at page 239]:
The words "immediately before his death" in section 70
subsection (5) of the Income Tax Act should not be construed
as meaning the equivalent of the instant of death; and also
those words do not import a necessity of valuing capital prop
erty taking into account the imminence of death.
And, in conclusion, he stated [at page 239]:
In my view, therefore, in this case, both such valuations 2
must be considered as having taken place at some other time
rather than at the instant of death of the deceased and no
premise of imminence of death of the deceased should form any
part of such valuations.
We have carefully reviewed all of the authorities
to which reference was made by counsel during the
course of argument and can find nothing therein
which has persuaded us that the learned Trial
Judge erred either in the conclusions which he
reached or the reasoning which he followed in
arriving at those conclusions. To ignore the plain
meaning of a statute in the context of a given set
of facts and to substitute therefor a strained and
unnatural interpretation, to prevent an apprehend
ed injustice in the future on an entirely different
set of facts, as counsel for the appellant most
eloquently urged us to do, does not accord with the
principles of good statutory interpretation. Specu
lation as to the possible results in a future case
assists not at all in deciding what the result should
be in a case such as this which, on its facts, is so
easily capable of rational resolution by simply
interpreting the plain words as they appear in the
statute without indulging in such speculation.
Accordingly, the appeal will be dismissed with
costs.
* * *
URIE J.: I concur.
* * *
MACKAY D.J.: I concur.
2 The Trial Judge is here referring to the valuations required
under section 70, subsection (5), paragraphs (a) and (c) of the
Income Tax Act.
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.