Minister of National Revenue v. The Royal Trust Co.

APPEAL by the Minister of National Revenue from the judgment of the Exchequer Court of Canada (Audette J.)

allowing the present respondent's appeal from the decision of the Minister of National Revenue confirming the assessment levied on income for the year ending 31st December, 1927, received by the present respondent as trustee under a certain deed of donation.

John Day Jackson, a resident of New Haven, in the State of Connecticut, one of the United States of America, executed a deed of donation in trust, before a notary public in Montreal, Province of Quebec, dated 19th February, 1918, in favour of The Royal Trust Company (the present respondent) as Trustee, whereby, in consideration of the love and affection he bore towards his children, he gave as a donation inter vivos and irrevocable, unto the Trustee in trust for the purposes therein mentioned, the Canadian securities described in the schedule to the deed. In the deed it was, among other things, provided, and the Trustee covenanted, that the Trustee should hold the securities upon trust as follows:

The following facts were admitted:

"1. John Day Jackson and his wife are both alive at this, time.

"2. The age of Mrs. Jackson is 42; Mr. Jackson 61. "3. There are eight children by the marriage presentlyliving, all minors.

"4. The capital of the trust fund set forth in Schedule- A is invested in Canadian stocks and bonds, which are held by the trustee in the city of Montreal, where the income therefrom is accumulating and being invested in Canadianstocks and bonds by the trustee, the income from the investments likewise accumulating and subject to the same trusts.

"5. The trustee is a Canadian company incorporated under the Laws of the Province of Quebec, and carrying on business in Canada with power to act as a trustee."

It was admitted in the pleadings that the said John Day Jackson is an American citizen and resides at New Haven, Connecticut, U.S.A.; that his said eight children, all minors, live with him and reside at New Haven aforesaid; that since the receipt by the trustee of the securities mentioned in the deed of donation, the trustee had received the income therefrom and retained the same in accordance with the provisions of the said deed; that from time to time since the execution of the deed, the question of tax payable under the Income War Tax Act on the income received from the trust property had been under discussion with the officers of the Department of National Revenue; that in recent years income tax had been paid under protest and pending a decision of the income tax authorities as to liability; that an assessment covering the 1927 period had been received by the trustee, and a tax levied in the sum of $147.39, which had been paid by the trustee without prejudice to its rights in the appeal; that the trustee, in accordance with the provisions of the Income War Tax Act, gave notice of appeal; that the Minister affirmed the assessment; and that the trustee filed a notice of dissatisfaction with the Minister's decision.

Audette J., in the Exchequer Court (1), decided in favour of the trustee, the present respondent; its appeal from the Minister's decision was allowed, and the assessment set aside. Leave to the Minister to appeal to the Supreme Court of Canada was granted by a judge thereof. The appellant relied on ss. 2, 3 and 4 of the Dominion Income War Tax Act, 1917, c. 28 (as amended), reading in part as follows:

S.C.R.]

and contended that the respondent, in whose hands the income was accumulating in trust for the benefit of unascerfainefdpeisons or persons with contingent' 'iferests, was liable to the tax as a "person" within the meaning of the Act, resident in Canada; that residence of the beneficiaries of a trust for unascertained persons cannot be a factor in determining whether the accumulated income for such unascertained persons in or is not taxable as against the trustee; that s. 3 (6) is a complete taxing measure within itself; that the present case was on all fours with McLeod

C.J.C.-In our opinion this appeal must be alwd.

The Income War Tax Act provides expressly for the taxation of accumulating income held in trust for the benefit of unascertained pe sons, or of persons having contingent interests. The income is made

(Subsection 6 of Section 3 of the Income War Tax Act, 1917, as enacted by section 4 of chapter 49 of the Statutes of 1920; see also section 10 of the Act of 1920).

Whether the word " trust " means a person or body holding the property, or distributing the trust estate, or means the property itself, or means the trust upon which such property is held, is quite immaterial in view of what is said above.

Those who are at the present time probable beneficiaries of the trust, or some of them, it is true, reside in the United States. But that fact does not prevent this case coming within subsection 6 of section 3 above referred to, nor render exempt from taxation in the hands of trustees income accumulated on a trust for unascertained beneficiaries or beneficiaries having contingent interests. On the contrary, in our opinion, such income accumulating in trust is distinctly a subject of taxation under the subsection referred to, regardless.o the

-sidence, if ascertainable, of probable b Heficiaries, whose interest is contingent during the taxation period.

This view accords with that which prevailed in the case of McLeod v. Minister of Customs and Excise (1).

It may be that that decision is not binding upon this court because. there the judgment below was affirmed on an even division of opinion amongst the judges who constituted the Supreme Court.

(See Stanstead Election case, Rider v. Snow (2) ). It is, nevertheless, entitled to great respect. We are, accordingly, of the opinion that this appeal should be allowed and that judgment should be entered for S.C.R.]