Supreme Court of Canada Gorkin v Minister of National by gabyion

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									Supreme Court of Canada
Gorkin v. Minister of National Revenue, [1962] S.C.R. 363
Date: 1962-03-26
Beulah Gorkin And Jack Adilman, As Administrators With Will Annexed Of The Estate Of
Nathan Adilman, Deceased Appellants;
and
The Minister of National Revenue Respondent.
1961: December 5; 1962: March 26.

Present: Kerwin C.J. and Taschereau, Abbott, Martland and Ritchie JJ.

ON APPEAL FROM THE EXCHEQUER COURT OF CANADA

Succession duties—Transfer of property for legitimate family reasons in consideration of
annuity—Whether transaction a gift or for partial consideration—Dominion Succession
Duty Act, R.S.C. 1952, c. 89, s. 3(1)(d), (k).

     Of the 160 issued shares of A. Ltd., a company carrying on a department store
business, A owned 72 and the appellants, his son and daughter, owned the rest. A was
intending to remarry and in view of that expected event entered into a written agreement
on June 1, 1956, whereby he transferred his 72 shares of A. Ltd., together with three lots
and the building where the company operated its business, to E. Ltd., a corporation of
which the appellants were the only beneficial shareholders. The consideration for the
transfer of this property, which had a fair market value of $344,400, was an annuity having
a value of $148,000, payable to A. The latter died on June 20, 1956.
       The Minister assessed succession duty on the whole of the $344,400, as a gift under
s. 3(1)(d) of the Dominion Succession Duty Act, R.S.C. 1952, c. 89. The appellants,
administrators of A's estate, conceded that the difference between $344,400 and $148,000
was subject to duty, but contended that only that difference was subject to duty under s.
3(1)(k) of the Act. In the Exchequer Court it was held that the transaction in question was a
"gift" with a benefit to the donor provided "by contract", within the meaning of s. 3(1)(d),
and that the property was not "transferred for partial consideration", within the meaning of
s. 3(1)(k), because the obtaining of the consideration was not, in the view of the trial judge,
the real object of the transaction. The administrators of the estate appealed to this Court.
      Held: The appeal should be allowed.
     The transaction fell squarely within the provisions of s. 3(1)(k) of the Dominion
Succession Duty Act. It involved a transfer of property for a partial consideration agreed to
be paid.
      If para. (k) is to have any effect at all, it must apply to transactions in which, while
there is an element of bounty involved, there is also a partial consideration paid or agreed
to be paid for a transfer of property. That was clearly the intention in the circumstances of
the present case. There was certainly an element of bounty involved, but, notwithstanding
that fact, there was an agreement to pay a partial
[Page 364]

     consideration for the transfer of property. It, therefore, fell within para, (k) and, that
being so, it did not constitute a gift within the meaning of s. 3(1) (d) of the Act.
     Attorney General v. Worrall, [1895] 1 Q.B. 99; Attorney-General v. John- son, [1903]
1 K.B. 617, distinguished; In re Baroness Bateman, [1925] 2 K.B. 429; Attorney-General
for Ontario v. Perry, [1934] A.C. 477, referred to.

     APPEAL from a judgment of Thurlow J. of the Excheq- uer Court of Canada1,
dismissing an appeal from an assessment for succession duties. Appeal allowed.
H. H. Btikeman, Q.C., and P. N. Thorsteinsson, for the appellants.
D. S. Maxwell, Q.C., and G. W. Ainslie, for the respondent.

The judgment of the Court was delivered by

MARTLAND J.:—On June 1, 1956, Nathan Adilman, of Saskatoon, then 67 years of age,
entered into a written agreement with Edison Wholesale Ltd., a Saskatchewan corporation
(hereinafter referred to as "Edison"), whereby he transferred to Edison 72 common shares
in the capital stock of a company known as Adilman's Limited and three lots, and the
building situated thereon, in the City of Saskatoon. The consideration for the transfer was
his receiving from Edison a monthly sum of $1,666.66, during his lifetime, payable on the
first of each month, commencing July 1, 1956. It was agreed that, in any event, the
payments should cease after a total of $200,000 had been received.

Adilman's Limited carried on a department store business in the building in question prior
to the transfer. Out of its 160 issued shares, Nathan Adilman owned 72 and the appellants,
his son and daughter, owned the rest. The appellants were the only beneficial
shareholders of Edison.

It was agreed, in an agreed statement of facts, that "the said agreement was entered into
by the deceased and Edison Wholesale Ltd. in good faith, for legitimate family reasons
and in view of the intended remarriage of the deceased, and not in an attempt to avoid the
payment of any Succession Duty."

Nathan Adilman died on June 20, 1956.
[Page 365]


The fair market value of the shares and the land mentioned in the agreement, as of the
date of his death, was $344,400. The annual value of that property, as in June 1956, was
$28,000. The present value of the annuity payable pursuant to the agreement, as of its
date, was $148,000.




1
    [1960] Ex. CR. 531, C.T.C. 238, 60 D.T.C. 1177.
The respondent seeks to charge succession duty on the whole of the $344,400, as a gift
under s. 3(1) (d) of the Dominion Succession Duty Act, R.S.C. 1952, c. 89. The appellants,
who are the administrators of Nathan Adilman's estate, concede that the difference
between $344,400 and $148,000 is subject to duty, but contend that only that difference is
subject to duty under s. 3(1) (k) of the Act.

The learned trial judge2 reached the conclusion that the transaction in question was a "gift"
with a benefit to the donor provided "by contract", within the meaning of s. 3(1) (d) of the
Dominion Succession Duty Act, and that the property was not "transferred for partial
consideration", within the meaning of s. 3(1) (k) of the Act, because the obtaining of the
consideration was not, in his view, the real object of the transaction.

The relevant provisions of the Act are as follows:
          3. (1) A "succession" shall be deemed to include the following dispositions of property
          and the beneficiary and the deceased shall be deemed to be the "successor" and
          "predecessor" respectively in relation to such property:
          (d) property taken under a gift whenever made of which actual and bona fide
          possession and enjoyment has not been assumed by the donee or by a trustee for
          the donee at least three years before the death of the deceased and thenceforward
          retained to the entire exclusion of the donor or of any benefit to him, whether
          voluntary or by contract or otherwise;
          (k) property transferred within three years prior to the death of the deceased for
          partial consideration in money or money's worth paid or agreed to be paid to the
          deceased, to the extent to which the value of the property when transferred exceeds
          the value of the consideration so paid or agreed to be paid;

The words "agreed to be paid", where they appear in para. (k), were added to that
paragraph by an amendment to the Act in 1952.

The learned trial judge reached his conclusion that the transaction fell within s. 3(1) (d) on
the basis that, in sub- stance, the agreement between Nathan Adilman and Edison was
entered into for the purpose of conferring a benefit on
[Page 366]


the appellants and not for the purpose of acquiring the annuity; that the transaction was
not dictated by commercial considerations and that, accordingly, on the authority of certain
English decisions, it was a gift within the meaning of s. 3(1)(d).




2
    [1960] Ex. C.R. 531, C.T.C. 238, 60 D.T.C. 1177.
The relevant English legislation, to which reference is made in those cases, was contained
in the Customs and Inland Revenue Act, 1881, 44 & 45 Vict., c. 12, as amended, and in
the Finance Act, 1894, 57 & 58 Vict., c. 30.

Section 38 of the first-mentioned statute provided, in part, as follows:
     38. (1) Stamp duties at the like rates as are by this Act charged on affidavits and
     inventories shall be charged and paid on accounts delivered of the personal or
     moveable property to be included therein according to the value thereof.
     (2) The personal or moveable property to be included in an account shall be property
     of the following descriptions, viz.:—
         (a) Any property taken as a donatio mortis causa made by any person dying on or
         after the first day of June one thousand eight hundred and eighty-one, or taken
         under a voluntary disposition, made by any person so dying, purporting to operate
         as an immediate gift inter vivos whether by way of transfer, delivery, declaration of
         trust or otherwise, which shall not have been bona fide made three months before
         the death of the deceased.

This provision was amended in 1889, by c. 7, 52 & 53 Vict., by s. 11 thereof, which
provided:
     11. (1) Sub-section two of section thirty-eight of the Customs and Inland Revenue
     Act, 1881, is hereby amended as follows:—
         The description of property marked (a) shall be read as if the word "twelve" were
         substituted for the word "three" therein, and the said description of property shall
         include property taken under any gift, whenever made, of which property bona
         fide possession and enjoyment shall not have been assumed by the donee
         immediately upon the gift and thenceforward retained, to the entire exclusion of
         the donor, or of any benefit to him by contract or otherwise:
                                            *    *    *

The Finance Act, 1894 provided for the imposition of estate duty, which, in respect of
property falling within its terms, replaced the duties payable under the Customs and Inland
Revenue Act, 1881. Section 2(1)(c) of the Finance Act, 1894 provided:
     2. (1) Property passing on the death of the deceased shall be deemed to include the
     property following, that is to say:—
                                            *    *    *
         (c) Property which would be required on the death of the deceased to be included
         in an account under section thirty-eight of the Customs and Inland Revenue Act,
         1881, as amended by section
[Page 367]
         eleven of the Customs and Inland Revenue Act, 1889, if those sections were
         herein enacted and extended to real property as well as personal property, and
         the words "voluntary" and "voluntarily" and a reference to a "volunteer" were
         omitted therefrom;
In addition, s. 3 of this Act provided for an exception, regarding the payment of estate duty,
in the following terms:
          3. (1) Estate duty shall not be payable in respect of property passing on the death of
          the deceased by reason only of a bona fide purchase from the person under whose
          disposition the property passes, nor in respect of the falling into possession of the
          reversion on any lease for lives, nor in respect of the determination of any annuity for
          lives, where such purchase was made, or such lease or annuity granted, for full
          consideration in money or money's worth paid to the vendor or grantor for his own
          use or benefit, or in the case of a lease for the use or benefit of any person for whom
          the grantor was a trustee.
          (2) Where any such purchase was made, or lease or annuity granted, for partial
          consideration in money or money's worth paid to the vendor or grantor for his own
          use or benefit, or in the case of a lease for the use or benefit of any person for whom
          the grantor was a trustee, the value of the consideration shall be allowed as a
          deduction from the value of the property for the purpose of Estate duty.

Attorney General v. Worrall3, one of the cases mentioned by the learned trial judge, arose
prior to the enactment of the Finance Act, 1894. In that case, Lopes L.J., at p. 105, said:
          One question is whether in this case there was a "gift" of property at all. It is
          suggested that there was not, because there was a collateral covenant by the son to
          pay to the father an annuity. It appears to me that there was not the less a gift within
          the meaning of the Act on that account.

A. L. Smith L.J., at p. 107, said:
          The next point is this. It is said that the transaction is not a gift within the meaning of
          the statute because a consideration was given. On reading s. 11, sub-s. 1, it seems
          clear that the legislature in using the word "gift" in that section contemplated cases
          where the donee enters into a covenant such as this.

Attorney-General v. Johnson4, was concerned with the application of the Finance Act,
1894. In that case 500 pounds was paid to the directors of an unincorporated charitable
society in lieu of a legacy, the trustees of the society to pay to the donor and to his wife, if
she survived him, an annuity of 25 pounds. The Crown claimed that, on the donor's death,
estate duty became payable by the society
[Page 368]


on the 500 pounds. Phillimore J., at the trial, held that the 500 pounds was, in the first
instance, taxable, but further held that there should be deducted from that amount the
value of the annuity of 25 pounds. This view was overruled by the Court of Appeal, which
held that this was not a case of a bona fide purchase of an annuity at all and that it was a
case of a testamentary gift effected by the machinery of a present donation subject to a

3
    [1895] 1 Q.B. 99.
4
    [1903] 1 K.B. 617, 72 L.J.K.B. 323.
reservation of something intended to be the equivalent of a life interest in the subject-
matter of the donation.

It will be noted that the first of these cases, having arisen prior to the enactment of the
Finance Act, 1894, was not concerned with the possible application of s. 3(2) of that Act.
The second case did deal with that provision and, as pointed out, the Court of Appeal
disagreed with Phillimore J., who would have applied it.

Section 3 of the Finance Act, 1894 was not a definition of a certain kind of property which
was deemed to pass on the death of the deceased. It created an exception to the
obligation to pay estate duty, an exception which, in both its subsections, was limited to "a
bona fide purchase". Consequently, in deciding whether or not s. 3(2) was applicable in
Attorney-General v. Johnson, the issue before the Court was as to whether or not the
transaction in question was a bona fide purchase. On the other hand, para. (k) of s. 3(1) of
the Dominion Succession Duty Act does not define an exception to the obligation to pay
duty. It defines a certain kind of transaction which shall be deemed to be a succession
under the Act. I agree with the contention of the appellants that when that definition was
included in s. 3(1) it must be assumed that it was placed there so as to include, as a
succession, a certain type of transaction which would not otherwise have been included
under any of the other paragraphs of that subsection.

Furthermore, para. (k) is in terms substantially different from those of s. 3 of the Finance
Act, 1894. Paragraph (k) does not refer to "a bona fide purchase". It refers to "property
transferred for partial consideration in money or money's worth paid or agreed to be paid".
I accept the view
[Page 369]


of Rowlatt J., in In re Baroness Bateman5, when, in interpreting the English provision, he
construed the words "partial consideration" as meaning something less than the full and
fair value of the property.

In my opinion, the transaction in question here fell squarely within the provisions of para.
(k). It involved a transfer of property for a partial consideration agreed to be paid. With
respect, I cannot agree with the view of the learned trial judge that, in applying this
definition, it must be determined that the obtaining of the partial consideration was "the



5
    [1925] 2 K.B. 429, 95 L.J.K.B. 199.
real object of the transaction". It seems to me that para. (k) defines a certain kind of
situation which, on the facts of the present case, existed here.

As we are called on, in the present case, to deal with a provision which did not exist in the
English statute, it is necessary to construe s. 3(1)(d) of the Dominion Succession Duty Act
in the light of the existence, in the same subsection, of para. (k). The English cases cited
do not assist us in this matter. Whatever the word "gift" might mean within s. 2(1)(c) of the
Finance Act, 1894, standing by itself, it is necessary, in construing the present Act, to
construe s. 3(1)(d) in the light of the existence of para. (k) and, in my view, a transaction
which falls within para. (k) cannot be regarded as being a gift within the meaning of
s.3(1)(d).

My view as to the proper method of construing these provisions of our own statute is, I
think, reinforced by what was said by Lord Blanesburgh, in Attorney-General for Ontario v.
Perry6, when he said, with respect to the construction of the Ontario Succession Duty Act:
          First then, is the Ontario sub-section, unlike the corresponding British enactment, an
          "original" section? In their Lordships' judgment it undoubtedly is, and must be so
          construed. It contains on its face no reference to any origin. It comes into Ontario
          legislation full grown and without ancestry. It would, in their Lordships' judgment, be
          contrary to all principle, for the purpose of construing it, to look at the evolution even
          of the same enactment under some other system of law.

I do not agree, therefore; with the submission of the respondent that the question before
us is as to whether or not the agreement in question can be fairly considered to have been
merely a commercial agreement, or whether, looking at the substance of it and the
circumstances in which
[Page 370]


it was entered into, one may regard it as a gift. In my opinion, if para. (k) is to have any
effect at all, it must apply to transactions in which, while there is an element of bounty
involved, there is also a partial consideration paid or agreed to be paid for a transfer of
property. That was clearly the intention in the circumstances of the present case. There
was certainly an element of bounty involved, but, notwithstanding that fact, there was an
agreement to pay a partial consideration for the transfer of property. It, therefore, fell within
para. (k) and, that being so, in my opinion it does not constitute a gift within the meaning of
s. 3(1)(d) of the Dominion Succession Duty Act.



6
    [1934] A.C. 477 at p. 487.
In my opinion, therefore, the appeal should be allowed, with costs throughout, on the basis
that, pursuant to s. 3(1)(k) of the Dominion Succession Duty Act, only the difference
between $148,000 and $344,400, i.e., $196,400, was dutiable as a succession to Edison
Wholesale Ltd. from the estate of Nathan Adilman, deceased, and the matter should,
therefore, be referred back to the respondent for reassessment accordingly.

Appeal allowed with costs.

Solicitors for the appellants: Stikeman & Elliott, Montreal.
Solicitor for the respondent: E. S. MacLatchy, Ottawa.
Ottawa.

								
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