Montreal Trust Company, Executor under the
last will and codicil of John Stewart Donald Tory
(Appellant)
v.
Minister of National Revenue (Respondent)
Court of Appeal, Jackett C.J., St.-Germain and
Bastin D.JJ.—Toronto, June 27, 1973.
Income tax—Accounts receivable owing testator trans
ferred to legatee—Accounts receivable exceed amount of
legacy—Whether a transfer of accounts receivable to
beneficiary qua beneficiary—Estate taxable on excess of
accounts receivable—Income Tax Act, section 64(2) and (3).
A Toronto solicitor had accounts receivable of $483,350
when he died in 1965. His daughter, who was bequeathed
$100,000 by his will, was paid $10,000 and under an agree
ment with the executor she released the balance of her
legacy and paid the executor $380,000 in return for an
assignment of the accounts receivable. The daughter was
not resident in Canada.
Held, affirming Walsh J., the solicitor's estate was charge
able to tax under section 64(2) of the Income Tax Act on
$380,000. The accounts receivable were "rights or things"
which "when realized would have been included in comput
ing his income" for 1965 within the meaning of section
64(2). On its proper construction, section 64(3), which
declares section 64(2) inapplicable to rights or things "trans-
ferred or distributed to beneficiaries", did not apply to the
assignment of the accounts receivable to the legatee. The
noscitur a sociis rule governs, and the word "transferred" in
section 64(3) does not apply to property acquired by a
beneficiary not qua beneficiary but as a purchaser for value.
APPEAL from Walsh J. [1971] F.C. 248.
COUNSEL:
H. L. Morphy and D. Andison for
appellant.
G. W. Ainslie, Q.C., and W. J. A. Hobson
for respondent.
SOLICITORS:
Tory, Tory, Deslauriers and Binnington,
Toronto, for appellant.
Deputy Attorney General of Canada for
respondent.
The judgment of the Court was delivered by
BASTIN D.J. (orally)—This is an appeal from a
decision of the Trial Division dismissing the
appeal of the appellant from a notice of re
assessment in respect of the 1965 taxation year.
The appeal involves the interpretation of section
64 of the Income Tax Act and specifically the
interpretation of section 64(3), reading as
follows:
Rights or things transferred to beneficiaries.
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.
The essential facts are that the appellant is
the executor of the estate of John Donald Tory,
a Toronto lawyer, who computed the profits
from his practice on a cash received basis. He
died on August 27, 1965, leaving surviving him
(inter alia) his three children, Mary Virginia
Denton, John Arnold Tory and James Maxwell
Tory. At his death he had accounts receivable
of $483,350. Under the terms of his will Mrs.
Denton received a cash legacy of $100,000 and
was paid $10,000 of this. On February 8, 1966,
she made an agreement with the appellant by
which the accounts receivable of $483,350 were
to be assigned to her in consideration of her
releasing the estate from its liability to pay her
$90,000, the balance of her legacy, and paying
the executor the sum of $380,000 in Canadian
funds within one year.
Mrs. Denton left Canada on February 11,
1966, to join her husband and children in the
United States and she has remained a non-resi
dent of Canada since that date. She collected
the full amount of the accounts receivable
assigned to her and on February 16, 1967, she
paid the appellant the sum of $380,000.
The appellant did not include these accounts
receivable in the income tax return for 1965 of
the estate on the ground that the right to receive
them had been transferred to a beneficiary of
the taxpayer within the time prescribed by sec
tion 64(2) of the Income Tax Act. On June 1,
1966, the respondent assessed tax for the 1965
taxation year on the basis that the sum of $483,-
350 should have been included in computing the
taxpayer's income for 1965. The appellant duly
objected to the assessment and on August 7,
1968, the respondent re-assessed tax for 1965
on the basis that the amount properly included
pursuant to the provisions of section 64(2) of
the Income Tax Act for 1965 in respect of these
accounts receivable was $380,000. The appel
lant then commenced the appeal which came
before the Trial Division for hearing.
The learned Trial Judge in his Reasons for
Judgment, [1971] F.C. 248, at p. 261 dated June
25, 1971 held:
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.
Therefore, 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 applica
tion 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 irrespec
tive of how small his benefit or beneficial interest in same
may be. I therefore find that with respect to the rights or
things so transferred 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.
To interpret the words of a statute, regard must
first be had to the scheme of the legislation. The
object of section 64 was to provide for the
payment of income tax on rights or things
owned by a taxpayer who has died which, when
realized or disposed of, would have been includ
ed in computing his income. The intention of the
section was that the value of such rights or
things would be taxed either in the hands of the
deceased's executor or administrator or in the
hands of the beneficiaries. The appellant sub
mits that the word "transferred" is to be inter
preted quite apart from the context in which it is
used so that a beneficiary of even a trivial
legacy could purchase from the executor rights
or things worth any amount. Such an interpreta
tion is not justified.
What must be considered is the entire clause:
"Where ... a right or thing ... has been trans
ferred or distributed to beneficiaries or other
persons beneficially interested in the estate or
trust ..." The words "distributed to beneficiar
ies" clearly restrict the value of the rights or
things to be conveyed to each beneficiary to the
amount of the bequest to which he is entitled. If
what was contemplated by Parliament was a
sale of accounts receivable or similar things, to
a person who happened to be a beneficiary, the
word distributed would be quite inappropriate.
If that had been the intention the word "dis-
tributed" would not have been inserted in the
clause.
In the case at bar, the assignment to Mrs.
Denton of $90,000 of the accounts receivable
was a distribution pursuant to the terms of the
will but the assignment of the balance of the
accounts receivable was, in fact, a sale to Mrs.
Denton for valuable consideration. To the
extent of $90,000, the assignment was made in
satisfaction of the balance of her bequest. The
word "distributed" is used to cover cases where
the conveyance is to several beneficiaries. The
word "transferred" is inserted to provide for a
case where the conveyance is to only one
person.
The meaning of "transferred" in this clause is
limited by its association with the word dis
tributed. The rule is expressed in the phrase
"noscuntur a sociis". To quote from Maxwell on
Interpretation of 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.
The meaning of both the words "transferred"
and "distributed" is also coloured by their con
junction with the words "beneficiaries or per
sons beneficially interested in the estate or
trust".
The value of the rights or things is therefore
restricted to the amount of the inheritance of
the beneficiary. If he acquires more than that he
takes as a purchaser for value and the estate is
taxable on the amount so transferred.
In the memorandum of fact and law, the
appellant points out that, under the terms of the
testator's will, Mrs. Denton was a beneficiary
not only to the extent of the legacy of $100,000
but also to the extent of her immediate interest
in the residue of the estate as provided for in
paragraph 3(h) of the will and she also enjoyed
a deferred interest in the residue of the funds
set aside under paragraphs 3(f) and (g). It would
appear that this point was not raised in the
appeal argued on an agreed state of facts in the
Trial Division nor was any evidence tendered to
prove the value of her interest in the estate
apart from the bequest of $100,000, so we are
unable to consider these deferred interests of
Mrs. Denton in the appeal. In any event, she did
not acquire these accounts receivable in excess
of $90,000 in discharge of her deferred interest
in the estate but as a purchaser.
The appeal is 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.