Judgments

Decision Information

Decision Content

A-232-73
Reverend Joseph K. Wipf (Appellant)
v.
The Queen (Respondent)
and
Jacob K. Wipf (Appellant)
v.
The Queen (Respondent)
and
Reverend Peter S. Tschetter (Appellant)
v.
The Queen (Respondent)
and
Reverend John K. Hofer (Appellant)
v.
The Queen (Respondent)
and
Reverend John K. Wurz (Appellant)
V.
The Queen (Respondent)
Court of Appeal, Thurlow and Ryan JJ., Smith D.J.—Edmonton, January 30, 31, 1975.
Income tax—Hutterite communities—Income received by trustees for common benefit—Subsistence allowed each mem- ber—Members not assessable for tax on aliquot share of profits—Assessable as to subsistence—Income Tax Act ss. 2, 3, 4—The Companies Act, R.S.A. 1970, c. 60, s. 29.
The appellants, adhering to the tenets of the Hutterite Brethren Church, lived in communities where extensive farm ing operations were carried on by trustees appointed by compa nies formed under The Companies Act (Alberta) or, in the case of unincorporated communities, by trustees appointed under a trust deed. The actual services were performed by the appel lants, by other members and by their families. The appellants covenanted to give their services "without compensation or reward", except for what was allowed them by the trustees, in whom was vested the income from the operations, for the common use and benefit. The allowance included food, cloth ing, lodging, medical and dental care, maintenance in illness or
old age, and education of the children. Assessments of the appellants for the years 1961-66 were affirmed by the Tax Review Board. Affirming the decision, the Trial Division, for reasons reported in [1973] F.C. 1382, held that the appellants were in receipt of income from a business or property within the meaning of section 3 of the Income Tax Act and were therefore liable to assessment for taxation on their aliquot share in the profits therefrom, by virtue of section 4. The appellants appealed further to the Court of Appeal.
Held, the appeal should be allowed. In the case of the unincorporated group, the individual appellants and the mem bers of the community as a whole had no entitlement to a share of the profits from the farming operation. Where the affairs of the community were in the hands of a corporation, the individu al members were denied dividends. The farming operations were those of the trustees and for their account. The profits from the operations were theirs with a view to the purposes for which they were appointed. The members were not entitled to such profits, individually or collectively, but were entitled to subsistence only, and its value represented the full value of the individual member's taxable income. The assessment should be referred back to the Minister for re-assessment on that basis.
Hofer v. Hofer [1970] S.C.R. 958, applied. INCOME tax appeal.
COUNSEL:
J. A. Matheson for appellants.
N. A. Chalmers, Q.C., and R. Pyne for
respondent.
SOLICITORS:
J. A. Matheson, Edmonton, for appellants.
Deputy Attorney General of Canada for respondent.
The following are the reasons for judgment delivered orally in English by
THURLOW J.: This is an appeal from judgments of the Trial Division dismissing appeals from deci sions of the Tax Review Board which had dis missed appeals from assessments of income tax for the years 1961 to 1966 inclusive. The details of the facts are set out in the reasons for judgment of the learned Trial Judge and in those to be delivered by Mr. Justice Ryan.
The appellants are Hutterites, each being a member of a Hutterian colony or community. Two of them are members of an unincorporated com munity the affairs of which are carried out by a group of trustees in their capacity as trustees of the community property. Each of the other three appellants is a member of one of three other communities the affairs of which are carried on in each case by a corporation limited by guarantee, of which the appellant is a member. In all cases farming operations are carried on and the profits therefrom belong to the trustees in their capacity as trustees of the community property or to the corporation, as the case may be. Each appellant devotes his time and efforts to working on the farm of the community of which he is a member, but he owns nothing, he is entitled under the arrange ments to nothing, and he gets nothing beyond such subsistence as the trustees or corporation allow him. This includes food, clothing, lodging, medical and dental care and maintenance when incapacitated by illness or age for the member and his family as well as education for his children.
In the case of the unincorporated group neither the individual appellants nor the members of the community as a whole are the sole beneficiaries of the trust and they have no entitlement to a share of the profits of the farming operation. See Hofer v. Hofer' where Ritchie J. speaking for the majori ty of the Court said at pages 968-9:
It follows in my view that, notwithstanding the fact that the Interlake Colony was a prosperous farming community, it cannot be said to have been a commercial enterprise in the sense that any of its members was entitled to participate in its profits. The Colony was merely an arm of the church and the overriding consideration governing the rights of all the Breth ren was the fulfilment of their concept of Christianity. To the Hutterian Brethren the activities of the community were evi dence of the living church. In this context I find it impossible to view the Interlake Colony as any form of partnership known to the law.
Similarly in the cases where the affairs of the community are in the hands of a corporation the individual members are not entitled to receive dividends.
' [1970] S.C.R. 958.
The assessments in question in each case treat the appellant as having been entitled to a share of the profits of the farming operation and they have been upheld on the view that the individual mem bers of the communities, including the appellant in each of the cases, can be regarded as having been engaged in farming and entitled to an aliquot share of the profits of the operation which, by reason of prior assignment by him on his becoming a member, had become vested in the trustees or corporation after he had become entitled to it.
With respect, I am unable to share this view.
In my opinion neither the farming operations nor the profits therefrom are, in any relevant sense, those of the individual members of the communities. The operations in each community are those of the trustees or the corporation, as the case may be, and for their account. The profits, as well, of such operations are theirs for the purposes for which they have been established. The individual members are not entitled to such profits at any stage either in individual shares or collec tively. When becoming members they engage to devote their time and effort to the operation with out wages or reward and without entitlement to any form of return save the subsistence to be provided by the trustees or corporation for them and their families. Such subsistence, as I see it, is all that the individual members are ever entitled to under the arrangements and, in my opinion, its value represents the full extent of the individual member's income for the purposes of the Income Tax Act.
I would allow the appeal and refer the assess ments back to the Minister for re-assessment on that basis. The appellants are entitled to their costs of the appeal and in the Trial Division.
* * *
The following are the reasons for judgment delivered orally in English by
RYAN J.: This is an appeal from judgments of the Trial Division dismissing appeals from deci-
sions of the Tax Review Board affirming assess ments made against the appellants in respect of income allegedly earned by them in the taxation years 1961 to 1966 inclusive.
The appellants, who are Hutterites, are mem bers of Hutterian colonies in Alberta. Three of the appellants are members of corporations incorpo rated under The Companies Act of Alberta' as companies limited by guarantee. The others are members of an unincorporated community.
The objects of one of the companies, with the name "Hutterian Brethren of Mixburn", are set out in clause 3 of its Memorandum of Association. There are minor differences between this Memo randum and the Memoranda of the other two companies, but in my view the differences are without significance to this case. Clause 3 provides:
3. The objects for which the Company is established are:
(a) To promote, engage in and carry on the Christian reli gion and religious teachings, and connected therewith and as part thereof, the religion and religious teachings of the Hutterian Brethren Church, being the belief of the members of said Company; to engage in, carry on, and conduct farming, agriculture, milling, manufacturing of flour and other articles from agricultural products, and mechanics and mechanical arts, necessary thereto, and to buy and sell and deal in said agricultural products and products made and manufactured therefrom, and other articles, material, ma chinery, implements and things belonging to, or necessary to engage in, carry on and conduct said farming, agriculture, milling, manufacturing, mechanics and mechanical arts necessary thereto, and as a part of and connected with the religion and religious teachings of said Company and mem bers thereof.
(b) That all the property, real and personal, of said Com pany, howsoever it may have been obtained, shall forever be owned, used, occupied and possessed by said Company for the common use, interest and benefit of each and all mem bers thereof, for the purposes of said Company during the time, and so long as they remain members thereof.
(c) That all the property, both real and personal, that each and every member of said Company have, or may have, own, possess or be entitled to at the time that they join such Company, or become members thereof, and all the property both real and personal, that each and every member of said Company may have, obtain, inherit, possess or be entitled to, after they become members of said Company, shall be owned, used, occupied and possessed by said Company for the common use, interest and benefit of each and all of the
z R.S.A. 1970, c. 60, as amended.
members thereof as aforesaid.
(d) That none of the property, either real or personal, of said Company shall ever be taken, held, owned removed, or withdrawn from said Company, or be granted, sold, trans ferred or conveyed by any member or members thereof; and if any member of said Company shall be expelled therefrom or cease to be a member thereof, he or she shall not have, take, withdraw from, grant, sell, transfer or convey, or be entitled to any of the property of said Company or any interest therein; and if any member of said Company shall die, be expelled from or cease to be a member thereof, then his or her personal representatives, heirs at law, legatees or devisees or creditors or any other person shall not be entitled to, or have any of the property of said Company, or interest therein, whether or not he or she owned, possessed or had any interest in or to any of the property of said Company at the time he or she became a member thereof, or at any time before or thereafter, or had given, granted, conveyed or transferred any property or property interest to said Com pany at any time.
(e) That each and every member of said Company shall give and devote all his or her time, labor, services, earnings and energies to the said Company, and the purposes for which it is formed, freely, voluntarily and without compensation or reward of any kind whatsoever other than hereinafter expressed.
(f) That the members of said Company shall be entitled to and have their husbands, wives and children who are not members thereof, reside with them and be supported, main tained, instructed and educated by said Company, according to the rules, regulations, requirements and by-laws of said Company, and the Christian religion, religious teachings and belief promoted, engaged in and carried on by said Company, during the time and so long as they obey, abide by and conform to the rules, regulations, instructions, requirements and by-laws of said Company, but not otherwise howsoever.
(g) Whenever any member of said Company shall die, then his or her husband, wife and children who are not members thereof, shall have the right to remain with, and be support ed, instructed and educated by said Company during the time and as long as they give and devote all of their time, labor, services, earnings and energies to the said Company, and the purposes thereof and obey and conform to the rules, regulations, requirements and by-laws of said Company, the same as if the said member had lived, but not otherwise howsoever.
(h) That the husbands, wives and children of each and all of the members of said Company, who are not members there of, shall give and devote all their time, labor, services, earnings and energies to the said Company and purposes for which it is formed, freely, voluntarily and without compensa tion of any kind whatsoever, other than herein provided, and obey and conform to all the rules, requirements, regulations and by-laws of said Company while they remain at or with the said Company.
(i) That the said Company shall not be dissolved without the consent of a three-fourths vote of all its members; PROVIDED THAT nothing herein contained shall be deemed to confer upon the said Company any powers to which the jurisdiction of the Legislature of the Province of Alberta does not extend,
and particularly shall not be deemed to confer the right to issue promissory notes in the nature of bank notes; and all the powers in the said memorandum of association contained shall be exercisable subject to the provisions of the laws in force in Alberta and regulations made thereunder in respect of the matters therein referred to, and especially with respect to the construction and operation of railways, telegraph and telephone lines, the business of insurance, and any other business with respect to which special law and regulations may now be or may hereafter be put in force.
The Memorandum also declares in Clause 4:
...that this Company has been formed solely for the purpose of promoting its objects, and that all of its profits, if any, or any other income, or receipts, will be applied in promoting its objects, and that no dividends shall be paid to any of its members.
Clause 7 of the Articles of Association vests in trustees power to conduct the business and manage the property of the company. The clause reads:
7. All the powers, privileges, business and property of said Company shall be exercised, transacted, conducted and con trolled by the three Trustees hereinafter named as Kirche Altester, Kirche Gehulfe Altester and the Householder, who shall be male members of the Company, the other Trustees merely acting in an advisory capacity notwithstanding anything to the contrary contained in these Articles of Association.
Clause 9 of the Articles provides:
9. The three Trustees of the Company mentioned in paragraph 7 hereof shall have charge, management and control of, and exercise, conduct and transact all the affairs, property, business and transactions of the Company as hereinafter provided.
Clause 16 of the Articles states:
16. The officers of the Company shall consist of the Trustees as aforesaid.
The Memorandum of Association and the Articles of Association constitute a contract be tween the company and each of its members.'
Extensive farming operations were conducted during the taxation years in question in each of the colonies. The actual services were performed by the appellants who are members of the companies and other members of the companies and by mem bers of their families. In my opinion, however, the farming was done by the companies acting pursu ant to the power conferred on them by clause 3 of
The Companies Act, R.S.A. 1970, c. 60, s. 29. See L.C.B. Gower, Principles of Modern Company Law (3d ed. 1969) at pp. 261-265.
the Memorandum of Association to engage in farming and related undertakings. The services provided by the appellants were provided under their covenants with the companies as set out in the Memorandum of Association.
Two of the appellants, Joseph Wipf and Jacob Wipf, are members of the "Hutterian Brethren of Lakeside", which is not incorporated. The objects of this community are set out in clause 2 of a deed executed in July, 1948. These objects, stated with slight differences in wording, are the same as those quoted above in subclause 3(a) of the Memoran dum of Association. All of the subclauses, except subclause 3(i), quoted from clause 3 of the Memo randum appear as terms in the deed establishing the Lakeside community. The property of the Lakeside community is vested in the trustees appointed by or under the deed of trust. Just as the farming was conducted by the companies in the case of the corporate communities, so was it con ducted by the trustees in the case of the unincorpo- rated community.
The terms under which services were provided to the companies and to the unincorporated commu nity are clearly defined in identical terms in clause 3(e) of the Memorandum of Association and in clause 6 of the deed of trust. The appellants cove nanted that they would give and devote their "time, labor, services, earnings and energies" to the companies and to the community "freely, voluntarily and without compensation or reward of any kind whatsoever other than hereinafter expressed." The appellants and their families were to receive support, maintenance and other stipulat ed benefits. The income of the appellants in respect of the services provided to the companies and to the trust community was the value of the support, maintenance and other benefits received by them and their families from the companies or the trustees of the unincorporated community.
The learned Trial Judge appears to have placed a different construction on the terms of the Memo randum of Association and of the trust deed. As I read his reasons for judgment [1973] F.C. 1382,
he construed these terms as including an assign ment or disposition, by members of the companies and of the trust community of the right to their future earnings derived from what he regarded as their farming activities, to the companies or the trustees as depositories to hold these earnings for the use and benefit in common of all the members. He accordingly concluded that these were earnings of the members which were properly included in their income on an aliquot basis. With respect, I am not in accord with this interpretation. The terms on which the services were provided were settled by the Memorandum of Association and the trust deed. Apart from the support, mainte nance and other benefits they were to receive under the relevant clauses of the Memorandum and the deed, the appellants agreed not to charge for their services; in other words, for these services they were to receive the stipulated benefits, noth ing else. I therefore do not see what they had to assign either to the companies or the community.
I would allow the appeal and refer the assess ments back to the Minister for re-assessment on the terms stated by my brother, Thurlow J.
I agree that the appellants are entitled to their costs of the appeal and in the Trial Division.
* * *
SMITH D.J. concurred.
 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.