T-218-89
Sharon Boechler, executrix of the estate of
Alexander Boger, deceased (Plaintiff)
v.
Her Majesty the Queen (Defendant)
INDEXED AS: BOGER ESTATE V. CANADA (T.D.)
Trial Division, Jerome A.C.J.—Edmonton, Septem-
ber 13 and November 30, 1990; Ottawa, August 16,
1991.
Income tax — Income calculation — Capital gains — Farm
land "roll-over" provision giving tax relief to surviving mem
bers of family unit by delaying tax consequences of deemed
realization — Meaning of "vested indefeasibly in the child" in
s. 70(9) — Whether Family Relief Act application by surviving
spouse prevents vesting in child — Meaning of "transferred or
distributed" in s. 70(9) — F.C.A. decision in Hillis v. R. con
sidered — Dictionary definitions considered — Whether
estates, real property law concepts, terminology useful in inter
preting Act — Whether sale of land by executrix means no
transfer to children of deceased — Whether formal conveyance
necessary.
Income tax — Practice — Consequences of clearance certit
icate being issued to executor of estate — Executor relieved of
personal liability under Act, s. 159(3)— Executor remains lia
ble as personal representative — Estate not freed from liability
under Act.
Following the death of Alexander Boger, a farmer, in March
1979, the Minister of National Revenue issued a notice of reas
sessment disallowing, pursuant to subsection 70(9) of the
Income Tax Act, a roll-over of farm land and depreciable prop
erty given to his children under his will and used by the tax
payer in the business of farming immediately before his death.
As executrix of her father's estate, plaintiff appealed a decision
of the Tax Court of Canada which confirmed that reassess
ment. According to the deceased's will, his spouse inherited a
life estate in the home quarter and his four children 1/4 share
of the residue each. In 1979, the spouse made an application
under Alberta's Family Relief Act, asking for a greater share of
the estate. In August 1981, the Court of Queen's Bench issued
an order whereby the spouse received cash and some farming
equipment; capital distributions were also made to the children.
As a result of a meeting between the estate accountants and
Revenue Canada in February 1983, the latter reassessed the
taxpayer's 1979 terminal return, applying a spousal roll-over
to the home quarter but disallowing a roll-over with respect to
the remaining farm land and the farm machinery. In February
1987, the Minister issued a clearance certificate to date of
death, stating that all estate's debts have been paid. The plain
tiff argued that the taxpayer's interest in the property was
transferred to and vested indefeasibly in the beneficiaries
under the will, immediately upon his death or, alternatively,
within the time prescribed by subsections 70(6) and 70(9). The
roll-over to the children is being claimed only with respect to
the property passed to them as a result of the will as amended
by the Court order. The spousal roll-over, provided for in sub
section 70(6), is not at issue.
Three main issues had to be addressed: 1) What is the mean
ing of the words "vested indefeasibly in the child" in subsec
tion 70(9) and are they applicable in the present case? Does an
application under Alberta's Family Relief Act by the remaining
spouse prevent the property from being vested indefeasibly in
the child? 2) Has the remaining farmland and depreciable capi
tal property, on or after the death of the taxpayer and as a con
sequence thereof, been "transferred or distributed" to the tax
payer's children? 3) Do the clearance certificates issued by
Revenue Canada prevent it from asserting that the deceased,
the executor/trustee, or the beneficiaries are liable to any tax?
Held, the action should be allowed with respect to the first
and second issues and dismissed with respect to the third.
1) Subsection 70(9), one of the roll-over provisions in the
Income Tax Act, is an exception to subsection 70(5) which
deems that a taxpayer has immediately before death disposed
of his capital property and realized all accrued gains or losses;
it allows a tax-free roll-over of farm land or depreciable prop
erty used in a farming business if it is "transferred or distrib
uted" to the child on or after the death of the deceased and as a
consequence thereof and if it is established within 15 months
of the death of the deceased that it has become "vested inde-
feasibly" in the child not later than 15 months after death. It
was useful to consider dictionary definitions of terms such as
vested interest, defeasible, defeasible title and indefeasible in
interpreting subsection 70(9). Concepts and terminology from
estates and real property law were helpful in the interpretation
of the Income Tax Act, which must take into account the mean
ings ascribed to these terms. In the law of real property, a dis
tinction is drawn between "vested" and "contingent" interests.
An interest is vested if two requirements are satisfied: (i) the
person entitled to it must be ascertained; and (ii) it must be
ready to take effect in possession forthwith, and be prevented
from doing so only by the existence of some prior interest. A
"contingent interest" is one which will give no right of enjoy
ment unless a future event, called a condition precedent,
occurs. A vested interest is liable to be defeated or "defeasible"
if it is subject to a condition subsequent or determinable limita
tion; to be vested "indefeasibly", an interest must not be sub-
ject to such a condition. Here, the interest in the property was
unquestionably vested: there was no condition precedent to be
fulfilled before the gift could take effect; the children, entitled
to it, were ascertained and ready to take possession forthwith,
there being no prior interests in existence. The children's
vested interest was also not defeasible as it was not subject to a
condition subsequent contained in the will. This is consistent
with the decision of Clement D.J. in the case of Hillis v. R.
where the Federal Court of Appeal was called upon to interpret
subsection 70(6) of the Income Tax Act, the "spousal roll-over"
provision, and to consider the effect of an order under the Sas-
katchewan Dependants' Relief Act, increasing a widow's share
of the deceased's estate. If, as held by Clement D.J. and Pratte
J.A. in Hillis, additional property received pursuant to an order
under dependant relief legislation did not vest until the actual
date of the order, it follows here that the children were not
divested of their interest therein until that date as well.
Although their interests were adversely affected by the order,
they nevertheless were vested indefeasibly in accordance with
subsection 70(9), at least to the extent that they were not
affected by the order.
2) It would appear that some Federal Court cases have rec
ognized that a formal conveyance of property may not be nec
essary before there can be a "transfer" or "distribution". The
dictionary definitions are broad enough to include the act of
giving property under a will. Here, the creation of a valid will
passing the taxpayer's property to his spouse and children was
a sufficient "transfer" for purposes of subsection 70(9). The
fact that the "residue" of the estate was left to the children did
not change the character of the property entitled to the roll-
over. A "farm roll-over" does not require a specific bequest of
each item of farmland and depreciable property, the object of
subsection 70(9) being to provide a measure of tax relief when
transferring these assets from one generation to another. When
the trustee sold the farm land to a third party, it was upon the
direction and consent of the children as owners of the land.
The fact that the property was sold within the I5-month period
was not detrimental to the plaintiff's case. Subsection 70(9)
does not say that the property must remain in the hands of the
children for the roll-over to apply. So long as the property is
transferred to the beneficiaries, the estate may claim a roll-over
under subsection 70(9).
3) The fact that a clearance certificate has been issued to an
estate's executor, the "personal representative", does not free
the estate from its tax liability. Subsection 159(3) provides that
the personal representative becomes personally liable for the
unpaid taxes, interest and penalties if he, does not obtain a cer
tificate before the distribution of property over which he had
control. The estate is not relieved of its liability for tax. In
other words, the personal representative remains liable as such,
but is relieved of the personal liability under subsection 159(3).
STATUTES AND REGULATIONS JUDICIALLY
CONSIDERED
Dependants' Relief Act, R.S.S. 1978, c. D-25, s. 14.
Devolution of Real Property Act, R.S.A. 1980, e. D-34, ss.
3, 9, 10(1).
Estate Tax Act, S.C. 1958, c. 29, s. 7(1).
Family Relief Act, R.S.A. 1980, c. F-2, ss. 5(1),(4), 11(1),
17(1), 18(1).
Income Tax Act, S.C. 1970-71-72, c. 63, ss. 70(5),(6),(9)
(as enacted by S.C. 1973-74, c. 14, s. 19; 1976-77, c. 4,
s. 27(4)), 159(2),(3).
CASES JUDICIALLY CONSIDERED
APPLIED:
Hillis v. R., [1982] CTC 293; (1982), 82 DTC 6249
(F.C.T.D.); Hillis v. R., [1983] 6 W.W.R. 577; [1983]
CTC 348; (1983), 83 DTC 5365; 15 E.T.R. 156; 49 N.R.
1 (F.C.A.); Tory Estate v. Minister of National Revenue,
[1973] F.C. 820; [1973] CTC 434; (1973), 73 DTC 5354
(C.A.); appeal dismissed sub nom. Montreal Trust Co. v.
M.N.R., [1976] 1 S.C.R. x; [1976] CTC 415; (1976), 76
DTC 6312; 9 N.R. 394; Fasken, David v. Minister of
National Revenue, [1948] Ex.C.R. 580; [1948] C.T.C.
265; (1948), 49 DTC 491.
CONSIDERED:
Dontigny Estate v. The Queen, [1974] 1 F.C. 418; [1974]
CTC 532; (1974), 74 DTC 6437 (C.A.); Lucky, Mr v
MNR, [1972] C.T.C. 2412 (T.R.B.); Greenwood Estate v.
The Queen (1990), 90 DTC 6690; 39 F.T.R. 234
(F.C.T.D.).
REFERRED TO:
Willis Estate v. M.N.R. (1968), 68 DTC 204 (T.A.B.);
Hrycej (A) Estate v MNR, [1984] CTC 2115; (1984), 84
DTC 1089; 17 E.T.R. 183 (T.C.C.); Gathercole v. Smith
(1880-81), 17 Ch.D. 1 (C.A.); Boger (A.) Estate v.
M.N.R., [1989] 1 C.T.C. 2110; (1988), 89 DTC 15
(T.C.C.).
AUTHORS CITED
Anger and Honsberger: The Law of Real Property, Vol. 1,
2nd ed., Oosterhoff, A. H. and Rayner, W. B. Aurora
(Ont.): Canada Law Book Inc., 1985.
Black's Law Dictionary, 5th ed., St. Paul, Minn.: West
Publishing Co., 1979, "vested interest", "defeasible",
"defeasible title", "indefeasible", "transfer".
Feeney, Thomas G. The Canadian Law of Wills, Vol. 2,
Toronto: Butterworths, 1987.
Jowitt's Dictionary of English Law, Vol. 1, 2nd ed.,
London: Sweet & Maxwell Ltd., 1977, "indefeasible".
Megarry, Robert and Wade, H.W.R. The Law of Real
Property, 5th ed., London: Stevens & Sons Ltd., 1984.
Osborn's Concise Law Dictionary, 6th ed., by John
Burke, London: Sweet & Maxwell, 1976, "defeasible",
"distribution".
Shorter Oxford English Dictionary, vol. I, 3rd ed.,
Oxford: Clarendon Press, 1969, "indefeasible", "trans-
fer", "distributed".
COUNSEL:
David P. Jones, Q. C., and Anne S. de Villars for
plaintiff.
J.E. Fulcher and Naomi R. Goldstein for defen
dant.
SOLICITORS:
de Villars Jones, Edmonton, for plaintiff.
Deputy Attorney General of Canada for defen
dant.
The following are the reasons for judgment ren
dered in English by
JEROME A.C.J.: This matter came on for hearing at
Edmonton, Alberta, on September 13, 1990. The
executrix of the estate of Alexander Boger, deceased,
(the "plaintiff') appeals a decision of the Tax Court
of Canada dated November 3, 1988 which dismissed
the plaintiff's appeal against a reassessment by the
Minister of National Revenue (the "Minister") dated
January 12, 1984 in respect of the 1979 terminal tax
return of Alexander Boger (the "taxpayer"). The reas
sessment disallowed a "roll-over" pursuant to subsec
tion 70(9) of the Income Tax Act [S.C. 1970-71-72, c.
63 (as enacted by S.C. 1973-74, c. 14, s. 19; 1976-77,
c. 4, s. 27(4))] (the "Act") of farm land and deprecia-
ble property given to the taxpayer's children under
his will because this property had not been "trans-
ferred or distributed" to the children and had not been
established to have become "vested indefeasibly"
within the time limit set out in subsection 70(9). At
the time of hearing I reserved judgment pending fur
ther written submissions of counsel.
FACTS
The facts are not in dispute and are outlined in the
following summary of the "partial agreed statement
of facts". The taxpayer, a farmer, died testate on
March 10, 1979. Surviving him were his wife, Olga
Boger (the "spouse") and four daughters (the "chil-
dren") one of whom was a minor. In his will, the tax
payer named his daughter, Sharon Boechler, as exec
utrix and trustee (the "plaintiff'). He disposed of his
property as follows: widow — life estate in S.W. 1/4
14-38-13-W4 (the "home quarter"); children — 1/4
share of residue each. Letters probate were granted to
the plaintiff on July 9, 1979. The taxpayer's estate
consisted of the following land and farming interests
as well as cash, shares, and personal effects having a
total value of $446,180.42:
Land (Probate value)
S.W. 1/4 14-38-13-W4 (the "home quarter") $50,000.00
N.E. 1/4 15-38-13-W4 47,250.00
N. W. 1/4 15-38-13-W4 48,750.00
S.W. 1/4 17-38-13-W4 45,700.00
S.E. 1/4 18-38-13-W4 47,300.00
S. 1/2 7-38-13-W4 54,300.00
$293,300.00
Farming interests
Farming Equipment $83,483.00
Livestock 18,490.75
Grain 860.50 $102,834.25
The land and farming interests were used by the tax
payer in the business of farming immediately before
his death.
A terminal tax return to date of death was filed and
was received by Revenue Canada on April 30, 1980.
A "spousal roll-over" of the home quarter pursuant to
subsection 70(6) and a "farm roll-over" of the
remaining land and farming equipment pursuant to
subsection 70(9) were claimed. Consequently, no
capital gains (or losses) were declared on what would
otherwise be a deemed disposition of these assets
under subsection 70(5).
In 1979 the spouse made an application under the
Family Relief Act (then R.S.A. 1970, c. 134, as
amended) for a greater share of the estate. The Minis
ter issued a clearance certificate to date of death
dated October 14, 1980. No distribution took place,
however, until after the spouse's application was
finally determined, 29 months after the date of death.
By Court order dated August 4, 1981 (the "order"),
the spouse received:
(a) $75,000 cash paid with interest to her in November,
1981;
(b) absolute title in fee simple to the home quarter (probate
value $50,000) transferred to her on January 6, 1982;
(c) some of the farming equipment which was delivered
immediately:
(i) 1967 Chevrolet 1/2 ton truck with camper (probate
value $4,000); and
(ii) six grain bins on S. 1/2 15-38-l3-W4 (probate value
$4,200).
Farm equipment remaining in the taxpayer's estate
had been sold by auction in September, 1979. In
April, 1981 the estate had been transmitted to the
plaintiff, as executrix, and she became the registered
owner of the property. Three quarter sections of land
were sold in August, 1982 with the consent of the
beneficiaries of majority age and the public trustee of
Alberta on behalf of the minor. Payments were made
from the estate to the spouse in accordance with the
order, and capital distributions were made to the chil
dren as follows:
September, 1981 $26,000.00 each $104,000.00
December, 1981 2,500.00 each 10,000.00
May, 1982 2,000.00 each 8,000.00
September, 1982 47,000.00 each 188,000.00
In October 1982, after concern had been expressed
by the estate accountants with respect to the 1979 ter
minal return and in view of the decision in Hillis v.
R., [1982] CTC 293 (F.C.T.D.), solicitors specializ
ing in estate practice were retained and a meeting
was requested with Revenue Canada in February,
1983. As a result of this meeting, the taxpayer's 1979
terminal return was reassessed on the following
basis:
(a) a spousal roll-over was applied to the home quarter;
(b) the roll-over with respect to the remaining farm land was
disallowed as the taxpayer was deemed to have disposed
of the remaining land at fair market value immediately
prior to his death and capital gains were declared;
(c) the roll-over with respect to farm machinery was disal
lowed. The auction proceeds were included as income in
the taxpayer's 1979 return;
(d) adjustments were made concerning interest income.
The Minister also agreed that income earned in the
1980 and 1981 estate taxation years should be taxable
in the hands of the trustee because the spouse's litiga
tion under the Family Relief Act was still pending in
those years. Income and capital gains or losses, if
any, in the 1982 estate taxation year and in subse
quent years were to be allocated to the residuary ben
eficiaries.
The notice of reassessment reflecting these
changes was mailed August 19, 1983. No objection
was filed, however, the Minister issued another
notice of reassessment on January 12, 1984 with
respect to the terminal return. A notice of objection
was filed by the plaintiff on March 14, 1984. On Feb-
ruary 10, 1987 the Minister issued a clearance certifi
cate to date of death stating that:
This is to certify that all amounts for which the taxpayer
named below [Alexander Boger, deceased] is liable and for the
payment of which you may reasonably be expected to become
liable in your capacity as the responsible representative of the
taxpayer for the period ending with date of death and any pre
ceding taxation year under the provisions of [various acts
including the Income Tax Act] have been paid or that security
thereof has been accepted by the Minister.
The plaintiff states that, by operation of the taxpay
er's will, the taxpayer's interest in the property was
transferred to and vested indefeasibly in the benefi
ciaries under the will, immediately upon his death or,
alternatively, within the time prescribed by subsec
tions 70(6) and 70(9). The plaintiff therefore claims:
(a) A declaration that the deceased is entitled to roll-overs
provided by subsections 70(6) and 70(9) of the Act, for the
purpose of calculating the proceeds of disposition deemed
to arise upon the death of the late Alexander Boger;
(b) A declaration that the defendant is estopped from collect
ing further taxes having issued two clearance certificates
to date of death;
(c) All costs of this action.
In the present case, the roll-over to the children is
only being claimed with respect to the property
passed to them as a result of the will as amended by
the order of the Court of Queen's Bench.
ISSUES
This action involves the proper interpretation of
the farm roll-over provision found in subsection
70(9) of the Income Tax Act and the effect of clear
ance certificates issued by the Minister pursuant to
subsection 159(2) of the Act. The spousal roll-over,
provided for in subsection 70(6), is not at issue here.
The specific issues and sub-issues to be addressed,
therefore, are:
1. What is the meaning of the words "vested indefeasibly in
the child" in subsection 70(9)? Does an application under
the Family Relief Act by the remaining spouse prevent the
property from being "vested indefeasibly in the child"?
2. What is the meaning of the words "transferred or distrib
uted" in subsection 70(9)? Must the executor and trustee
of the deceased's estate actually do something to transfer
or distribute the farm property to the child of the deceased
who is a beneficiary under the will? Is the "roll-over"
available where the executor and trustee subsequently sells
the farm property directly to a third party purchaser?
3. Is the Minister prevented or estopped from asserting that
the deceased, the executor and trustee, or the beneficiaries
are liable to tax once a clearance certificate has been
issued?
STATUTORY PROVISIONS
The relevant provisions of the Income Tax Act are
subsection 70(9) which deals with the farm roll-overs
and subsections 159(2) and (3) which deal with clear
ance certificates:
70. ...
(9) Where any land in Canada or depreciable property in
Canada of a prescribed class of a taxpayer to which paragraphs
5(a) and (c) or paragraphs 5(b) and (d), as the case may be,
would otherwise apply was, immediately before his death, used
by him, his spouse or any of his children in the business of
farming and the property has, on or after the death of the tax
payer and as a consequence thereof, been transferred or distrib
uted to a child of the taxpayer who was resident in Canada
immediately before the death of the taxpayer and the property
can, within 15 months after the death of the taxpayer or such
longer period as is reasonable in the circumstances, be estab
lished to have become vested indefeasibly in the child not later
than 15 months after the death of the taxpayer, the following
rules apply .
159. .. .
(2) Every assignee, liquidator, administrator, executor and
other like person, other than a trustee in bankruptcy, before
distributing any property under his control, shall obtain a cer
tificate from the Minister certifying that taxes, interest or pen
alties that have been assessed under this Act and are chargea
ble against or payable out of the property have been paid or
that security for the payment thereof has, in accordance with
subsection 220(4), been accepted by the Minister.
(3) Distribution of property without a certificate required by
subsection (2) renders the person required to obtain the certifi
cate personally liable for the unpaid taxes, interest and penal
ties.
Other relevant statutory provisions include subsec
tions 5(1), 5(4), 11(1), 17(1) and 18(1) of the Family
Relief Act, R.S.A. 1980, c. F-2 and sections 3, 9 and
10 of the Devolution of Real Property Act, R.S.A.
1980, c. D-34, as amended:
Family Relief Act
5(1) The judge in any order making provision for maintenance
and support of a dependant may impose any conditions and
restrictions he sees fit.
(4) Where a transfer or assignment of property is ordered, the
judge
(a) may give all necessary directions for the execution of the
transfer or assignment by the executor or administrator or
such other person as the judge may direct, or
(b) may grant a vesting order.
11(1) When an order is made under this Act, the order has
effect as from the date of the deceased's death and the will, if
any, has effect from that date as if it had been executed with
such variations as are necessary to give effect to the order.
17(1) Until the expiration of 6 months from the grant of pro
bate of the will or administration, the executor, administrator
or trustee shall not distribute any portion of the estate to any
beneficiary without the consent of all of the dependants of the
deceased, or unless authorized to do so by order of a judge
made on summary application.
18(1) On notice of any application being given to the executor,
administrator or trustee, the estate is subject to the provisions
of any order that may be made and the executor, administrator
or trustee shall not proceed with the distribution of the estate
otherwise than in accordance with that order.
Devolution of Real Property Act
3 Subject to the powers, rights, duties and liabilities mentioned
in this Act, the personal representative of a deceased person
holds the real property as trustee for the persons by law benefi
cially entitled thereto, and those persons have the same right to
require a transfer of real property as persons beneficially enti
tled to personal property have to require a transfer of the per
sonal property.
9 The personal representative may sell the real property for the
purpose not only of paying debts, but also of distributing the
estate among the persons beneficially entitled thereto, whether
there are or are not debts, and it is not necessary for the per
sons beneficially entitled to concur in any such sale except
when it is made for the purpose of distribution only.
10(1) Subject to this Act, no sale of real property for the pur
pose of distribution only is valid as respects any person benefi
cially interested, unless that person concurs therein.
Subsection 70(9) is one of the "roll-over" provi
sions in the Income Tax Act. It is an exception to sub
section 70(5) which deems that a taxpayer has imme
diately before death disposed of his capital property
and realized all accrued gains or losses. A roll-over
gives a measure of tax relief to surviving members of
a family unit by delaying the tax consequences of the
deemed realization until the recipient subsequently
disposes of the property. Subsection 70(9) thus
allows a tax-free roll-over of farm land or depreciable
property used in a farming business if it is "trans-
ferred or distributed" to the child on or after the death
of the deceased and as a consequence thereof and if it
is established within 15 months of the death of the
deceased [or such longer period as is reasonable] that
it has become "vested indefeasibly" in the child not
later than 15 months after death.
Issue #1: Did the property vest indefeasibly in the
children? What is the meaning of the
words "vested indefeasibly in the child" in
subsection 70(9)? Does an application
under the Family Relief Act by the remain
ing spouse prevent the property from being
"vested indefeasibly in the child"?
In support of their respective positions, the parties
have both referred to the decision of the Federal
Court of Appeal in Hillis v. R., [1983] 6 W.W.R. 577.
In Hillis the Court was called upon to interpret sub
section 70(6) of the Income Tax Act, the "spousal
roll-over" provision, and to consider the effect of an
order under the Saskatchewan Dependants' Relief
Act, R.S.S. 1978, c. D-25, increasing a widow's share
of the deceased's estate. The operative words in sub
section 70(6) are similar to those found in subsection
70(9) and Hillis, therefore, requires close examina
tion. The three members of the Court of Appeal,
however, took very different approaches to the matter
before them and delivered separate and very distinct
reasons. Accordingly, although Hillis is very much
on point, the directions provided by the Court of
Appeal are somewhat unclear.
In Hillis, the taxpayer died intestate in Saskatche-
wan. Under the provincial succession legislation his
widow and two sons acquired an interest in his estate.
Long after the 15-month requirement set out in sub
section 70(6), the taxpayer's son executed a dis
claimer by deed of his interest in the estate and the
widow obtained an order under the Dependants'
Relief Act vesting the entire estate in the widow. Pur
suant to section 14 of that Act, the order purported to
be retroactive to the date of the taxpayer's death. The
administrators filed a terminal tax return and claimed
a spousal roll-over under subsection 70(6) of the
Income Tax Act with respect to the entire estate. The
Minister reassessed on the basis that no part of the
estate was subject to the roll-over.
Both Clement D.J. and Pratte J.A. held that the
provincial legislation could not have effect for federal
tax purposes. Therefore, section 14 of the
Dependants' Relief Act could not alter the fact that
the 15-month period had expired and that the prop
erty did not vest within the time limits set out in sub
section 70(6) of the Income Tax Act. Clement D.J.
commented at page 598:
When a relief order is made it operates to affect the expecta
tions or vesting arising out of a testamentary disposition ....
By no stretch can this language [section 14] import a deemed
will into another statute or act for a different purpose.
He held that the succession legislation nevertheless
effected an indefeasible vesting in the widow of
$10,000 and one-third of the residue and he allowed
the roll-over with respect to that amount. He reasoned
(at pages 596-598):
The question of indefeasible vesting within the prescribed
period is to be determined by provincial law, subject to what I
have to say later. The Intestate Succession Act is necessarily
the starting point .... In my opinion, the provisions come into
operation upon the death of the intestate and effect an indefea-
sible vesting in the beneficiary of the interest provided, to
which the administrators must give effect, albeit subject to
dealings with the vested interest by the beneficiary. In this
view, the vesting of the interest is not dependent upon an order
of the court granting administration of the intestate's estate: it
takes place by force of imperative statutory provision operat
ing at the moment of death of an intestate.
Beyond this, it may be observed that there was no certainty
within the prescribed 15-month period that any part of the
estate, beyond that already vested in her by the Intestate Suc
cession Act, would be the subject of a relief order nor what
terms the court might impose. [Emphasis added.]
He acknowledged at page 599 that the effect of the
son's disclaimer and the order "was an accretion to
the interest of the spouse of whatever net estate might
then be left" but he determined that they occurred "at
a time when the spouse's right to relief from tax had
already crystallized under the provisions of the Intes
tate Succession Act". He concluded, therefore, that
the accretion did not vest indefeasibly in the spouse
within the prescribed 15 months.
Pratte J.A. dismissed the appeal. He agreed that the
two-thirds interest in the residue granted under the
order did not vest indefeasibly within the time period
but he added that no portion of the estate was entitled
to the roll-over. He reasoned that, since the estate had
not been fully administered within the time period,
the widow did not obtain a specific interest in any of
the property but only a right to receive certain sums
of money. In his opinion [at page 584], "Mrs. Hillis'
rights under the Intestate Succession Act were merely
rights to a sum of money and to a share of the residue
of the estate". He considered the question [at page
583], "when did the estate become indefeasibly
vested in Mrs. Hillis?" and he remarked at page 583:
In my view, when the disclaimers were executed and when the
order was pronounced since the effects of the disclaimers and
the court order, in spite of their retroactivity, did not exist as
long as the disclaimers were not executed and the court order
was not pronounced. It is only when the disclaimers were exe
cuted and the court order was pronounced that Mrs. Hillis
became entitled to the whole of her husband's estate with ret
roactive effect to the date of his death. If, therefore, the dis
claimers and the court order had, as contended by the appel
lants, the effect of vesting the estate in Mrs. Hillis, that effect
did not take place within 15 months after the death of Mr. Hil-
lis.
Heald J.A., on the other hand, was of the opinion
that the wording of subsection 70(6) clearly shows
that (at page 587) "Parliament contemplated that the
law of the provinces in respect of the disposition of
property on or after death, being matters relating to
property and civil rights, would apply so as to control
the application of s. 70(6)". He, therefore, held that in
accordance with section 14 of the Dependants' Relief
Act, the order took effect from the date of death and
from that date [at page 588] "vesting the entire estate
of the deceased taxpayer in the widow, which vesting
is deemed to have had effect from the taxpayer's
death." The spouse's interest was established within a
reasonable time and thus the entire estate was subject
to the roll-over.
The result in Hillis then was that, under subsection
70(6) of the Act, the deceased taxpayer's estate was
allowed a spousal roll-over of the sum of $10,000
and one-third of the residue that had passed to her in
accordance with the succession legislation. However,
a roll-over of the additional property given to the
spouse under the dependants' relief legislation was
not allowed. It should be noted that by virtue of sub
section 9(2) of the Saskatchewan Dependants' Relief
Act, no order thereunder could give the wife of a tes-
tator less than she would have obtained under the
succession legislation.
Submissions — Issue #1
The plaintiff submits that the property had "vested
indefeasibly" in the children, notwithstanding the
spouse's application under the Family Relief Act. As
"vesting" is a concept known to equity, equitable
concepts must be applied to determine its meaning.
Accordingly, the plaintiff submits that an interest is
"vested indefeasibly" if the gift is not contingent
upon a condition precedent or subject to a condition
subsequent or determining event. The statutory
power to rearrange beneficial interests as found in the
Family Relief Act is irrelevant to the concept of
"vested indefeasibly" in that, according to the com
mon law of real property, an interest which has
vested can only be defeasible if there is a condition
subsequent contained in the document creating the
interest. The plaintiff submits that if this were not the
case, the mere existence of dependant relief legisla
tion, or any other statutory power to rearrange benefi
cial interests (such as expropriation and municipal
taxation statutes which provide for the forfeit of
property in the event of a failure to pay municipal
property taxes), would defeat the vested interest
whether or not an application is made. Thus no roll-
over would ever be available to a deceased taxpayer.
The plaintiff states that the fact that in Hillis the
widow's interest under the provincial succession leg
islation could not be reduced by an order under the
dependants' relief legislation was not critical to the
Court's determination that such interest had vested
indefeasibly. The Saskatchewan Dependants' Relief
Act is extraordinary in that corresponding legislation
in other provinces does not contain a similar provi
sion maintaining that a widow's portion is irreduci-
ble. Thus, if irreducibility were the test for indefeasi-
bility, then roll-overs under the Income Tax Act
would only be available to widows in Saskatchewan.
Similarly, because provincial dependant relief legis
lation does not grant an irreducible share to children,
no roll-overs could ever operate in favour of children.
If, however, the dependant relief legislation is
deemed to have the same effect as a condition subse
quent, the plaintiff submits that the children are enti
tled to the roll-over with respect to the property
which they actually received and which was not
affected by the order. Because only a successful
application under the Family Relief Act is operative
to divest the beneficiaries of their interests under the
original will, the order does not affect the remaining
portion of the property left to the children. Therefore,
the roll-over applies to the property not affected by
the order as it was always vested in the children and
remains so even after the order. The plaintiff suggests
that if, as in Hillis, the widow was not vested with the
incremental property until the actual date of the
order, it must follow that the children were not
divested of their interest therein until the same date.
The defendant submits that even if the property
had vested in the beneficiaries immediately upon the
death of the taxpayer, it was not capable of "vesting
indefeasibly" until the application was settled and an
order was issued under the Alberta Family Relief Act
within the time limits set out in subsection 70(9).
Although the children acquired rights to the residue
under the terms of the will, the particulars of those
rights were not ascertained until after the Court order
was made. The Family Relief Act allows a dependant
to make an application within six months of the grant
of probate of a will and provides that, upon notice of
the application to the executor, the distribution of the
estate shall not proceed otherwise than in accordance
with that Act. By virtue of section 5, the Court has
power to divest title to property left to a beneficiary
under a will. Therefore, the defendant submits that, in
Alberta, property can only vest indefeasibly in a ben
eficiary either upon the expiry of the six-month
period where no application has been made or upon
Court order. Until then, the children do not have a
specific or certain interest in the property.
The defendant states that this interpretation of sub
section 70(9) is consistent with the public policy pur
pose of assisting children who want to stay on the
land and continue to use the depreciable farming
property. Furthermore, the "transferred or distrib
uted" requirement tests the seriousness of their com
mitment to continue farming. The defendant recog
nizes that the 15-month period places a constraint on
the parties to ensure that the taxation issue will be
determined in a timely fashion. It is suggested that, in
the event of a family relief application, the parties
will have to conduct their affairs accordingly as the
application may frustrate their ability to take advan
tage of the subsection 70(9) exemption from taxation.
The defendant submits that the "no risk" aspect of
the widow's one-third share of the residue in Hillis
was crucial to Mr. Justice Clement's conclusion that
such share vested indefeasibly. In the defendant's
opinion, the combined decisions of Clement D.J. and
Pratte J.A. indicate that if there is any doubt or uncer
tainty which is not resolved within the time frame
established in subsection 70(9), a deemed disposition
pursuant to subsection 70(5) will apply. Here,
because there was no certainty at any time during the
15-month period as to who would finally be entitled
to any particular parcel, the defendant submits that an
interest in the property was not vested indefeasibly.
Analysis — Issue #1
It is useful to consider dictionary definitions of the
terms at issue:
Vested interest. A present right or title to a thing, which car
ries with it an existing right of alienation, even though the
right to possession or enjoyment may be postponed to some
uncertain time in the future, as distinguished from a future
right, which may never materialize or ripen into title, and it
matters not how long or for what length of time the future
possession or right of enjoyment may be postponed, if the
present right exists to alienate and pass title .... It is not
the uncertainty of enjoyment in the future, but the uncer
tainty of the right of enjoyment, which makes the difference
between a "vested" and a "contingent" interest.
Defeasible. Subject to be defeated, annulled, revoked, or
undone upon the happening of a future event or the perform
ance of a condition subsequent, or by a conditional limita
tion. Usually spoken of estates and interests in land. For
instance, a mortgagee's estate is defeasible (liable to be
defeated) by the mortgagor's equity of redemption.
Defeasible title. One that is liable to be annulled or made void,
but not one that is already void or an absolute nullity.
Indefeasible. That which cannot be defeated, revoked, or made
void. This term is usually applied to an estate or right which
cannot be defeated.
Black's Law Dictionary, 5th Ed.
Indefeasible, not to be made void.
Jowitt's Dictionary of English Law
Indefeasible.... Not defeasible; not liable to be made void,
or done away with; that cannot be forfeited.
Shorter Oxford English Dictionary, 3rd Edition
Thomas G. Feeney in The Canadian Law of Wills,
Vol. 2, (Toronto: Butterworths, 1987), discusses the
meaning of "vest" (at page 258):
The word "vest" is also used in the sense of the gift vesting
in possession, or it being payable or transferable, in the case of
a pecuniary legacy or other gift of personal property, of the
devisee being entitled to possession, in the case of land. This is
the sense of "vest" where a gift is absolutely vested on the tes-
tator's death and is not postponed at all.... Also, a gift
becomes vested in possession when it is no longer subject to a
legal postponement.
Whether property was "vested indefeasibly" in a
spouse as required by subsection 7(1) of the Estate
Tax Act, S.C. 1958, c. 29, was considered in Don-
tigny Estate v. The Queen, [1974] 1 F.C. 418 (C.A.).
In that case, the deceased's will provided that his
widow would inherit all his property subject to the
condition that if she remarried his real estate should
pass to his children or grandchildren at that time.
Jackett C.J., for the Court, held (at page 421) that the
property was not "vested indefeasibly" in the widow
in the light of this condition:
Regardless of whether the will created a substitution, within
the meaning of the word in the Civil Code of Quebec, when it
gave to the widow the testator's real property subject to the
requirement that, if she remarried, the real property would pass
to the children or the grandchildren at the time of the remar
riage, ... the widow received the property under the will, not
absolutely, but subject to title passing to the children or
grandchildren if she re-married. In my view, such a will does
not vest the property in the widow "indefeasibly". A gift that is
subject to being defeated or terminated on an event such as re
marriage is defeasible and does not, therefore, fall within the
principal part of section 7(1)(a). [Emphasis added.]
In Lucky, Mr y MNR, [1972] CTC 2412 (T.R.B.)
Maurice Boisvert, Q.C. referred to the definition of
"defeasible" in Osborn's Concise Law Dictionary
"[a]n estate or interest in property, which is liable to
be defeated or terminated by the operation of a condi
tion subsequent or conditional limitation." He
observed (at page 2415) that "[t]here was nothing in
the will which could render [the] vested property
defeasible" and concluded that "[f]rom the moment
the will was probated, the appellant had an absolute
title to the estate." Finally, in Greenwood Estate v.
The Queen (1990), 90 DTC 6690 (F.C.T.D.), Madam
Justice Reed stated that [at page 6691] "[i]ndefeasible
vesting requires that the person in whom the property
is vested have the right to determine whether or not
the property will be retained by him or her or dis
posed of to another." In that case, the deceased tax
payer's estate was subject to an agreement of
purchase and sale executed by him prior to his death
and the property affected by the agreement was not
found to be indefeasibly vested in the spousal trust
created by the will.
I do not agree with counsel for the defendant that
concepts and terminology from estates and real prop
erty law do not assist in the interpretation of the
Income Tax Act. Language associated with these
areas has been used and any interpretation must take
into account the meanings ascribed to the terms. In
the law of real property a distinction is drawn
between "vested" and "contingent" interests. A
"vested interest" may be "vested in possession"
where the recipient has a present right of enjoyment,
or "vested in interest" where the right of enjoyment is
postponed even though an already subsisting right in
property is vested in its owner. An interest is vested
if two requirements are satisfied: (i) the person(s)
entitled to it must be ascertained; and (ii) it must be
ready to take effect in possession forthwith, and be
prevented from doing so only by the existence of
some prior interest(s): Megarry and Wade, The Law
of Real Property (London: Stevens & Sons Limited,
1984), pages 231-232. A "contingent interest", on the
other hand, is one which will give no right of enjoy
ment unless or until a future event, called a condition
precedent, occurs.
A vested interest is liable to be defeated or "defea-
sible" if it is subject to a condition subsequent or
determinable limitation. There is ample authority for
the proposition that the condition or limitation must
be contained in the grant. For instance, in Oosterhoff
& Rayner, Anger and Honsberger: The Law of Real
Property, 2nd ed.: Canada Law Book, 1985, at page
125 it is stated that "it [a condition subsequent] is
created by the addition of a condition to a grant ...
which may cut the estate short at the instance of the
grantor." [Underlining added.] It thus appears that to
be vested "indefeasibly" an interest must not be sub
ject to a condition subsequent or a determinable limi
tation set out in the grant.
Here, the interest in the property is unquestionably
vested: there is no condition precedent to be fulfilled
before the gift can take effect; the children, the per
sons entitled to it, are ascertained; and, they are ready
to take possession forthwith, there being no prior
interests in existence. The children's vested interest
is also not defeasible as it is not subject to a condition
subsequent contained in the will. Clearly the taxpayer
has not otherwise restricted the children's right to
retain, deal with, or sell the property, as they have
done in this instance. The interest is then "vested
indefeasibly" in accordance with the ascribed mean
ings of the terms. This is consistent with the decision
of Clement D.J. in Hillis, that upon the death of the
intestate, the provisions of the Intestate Succession
Act become operative and effect an indefeasible vest
ing in the beneficiary of the interest provided therein.
However, there is one other troublesome matter. In
Hillis Clement D.J. noted (at page 597) that the wid
ow's interest under the Intestate Succession Act was
irreducible in the light of subsection 9(2) of the
Dependants' Relief Act:
Section 9(2) ordains in mandatory terms that no allowance of
relief to a spouse shall be less than would go to the spouse on
an intestacy and this, I think, expresses public policy in Sas-
katchewan as to the minimum rights of a spouse in the
deceased spouse's estate — subject, of course, to restrictions
that are not applicable here. No order under this statute can
affect adversely the vesting effected by the Intestate Succes
sion Act.
However, Mr. Justice Clement's earlier comments (at
pages 596-597) support the plaintiff's position that,
despite the fact that the children's interests were
indeed adversely affected by the order, they neverthe-
less were indefeasibly vested, at least to the extent
that they were not affected by the order:
Section 4 [of the Intestate Succession Act] [am. 1978 (Supp.),
c. 34, s. 3], in imperative terms entitles the spouse to $10,000
and secures payment to her by a charge on the estate. It further
provides that one-third of the residue shall go to her, and this is
also in imperative terms. By necessary implication the remain
ing two-thirds of the residue goes to the children in similar
fashion. In themselves these provisions allow for no equivoca
tion or subsequent divesting ab initio: no doubt the interest
given can be dealt with subsequently but not on the basis of
repeal of the statutory grant. In my opinion, the provisions
come into operation upon the death of the intestate and effect
an indefeasible vesting in the beneficiary of the interest pro
vided, to which the administrators must give effect, albeit sub
ject to dealings with the vested interest by the beneficiary. In
this view, the vesting of the interest is not dependent upon an
order of the court granting administration of the intestate's
estate: it takes place by force of imperative statutory provision
operating at the moment of death of an intestate. [Emphasis
added.]
Here, the children's property interest under the
will, as amended by the order, had vested indefeasi-
bly in accordance with subsection 70(9). An applica
tion under dependant relief legislation, of course,
may result in a transfer of the interest away from the
children. Nevertheless, if as held by Clement D.J. and
Pratte J.A. in Hillis, additional property received pur
suant to an order under dependant relief legislation,
does not vest until the actual date of the order, it fol
lows here that the children are not divested of their
interest therein until that date as well. Thus, the inter
est given to the children under the will that is not
affected by the order must certainly be found to have
been vested indefeasibly in the children.
I find it would be inconsistent for the Minister to
deny the subsection 70(6) roll-over with respect to
the incremental property given to the spouse as in
Hillis, yet also deny the subsection 70(9) roll-over
with respect to the property left to the children under
the will as reduced by the order in this instance.
This result accords with what I believe to be the
object of subsection 70(9) and the comments of
Heald J.A. in Hillis (at page 589) appear to support
this position:
The net effect of those subsections [70(5)] is to provide for a
deemed capital gain on the death of a taxpayer where the fair
market value of property at date of death exceeds the adjusted
cost base to the taxpayer of that property. This is clearly an
onerous provision and, in many cases, this notional concept of
capital gain imposes considerable hardship on the beneficiaries
of an estate, particularly an estate comprised largely of real
property with few liquid assets from which the income tax
made payable because of the notional capital gains, can be
paid.... If the benefit of the rollover provisions of s. 70(6) is
restricted to those widows who have been successful in
obtaining a court order within 15 months of the date of death
of the taxpayer, the result is to subject all widows to a number
of contingencies beyond their control.... I perceive that a sig
nificant number of spouses of deceased taxpayers would be
deprived of the s. 70(6) exemption were the interpretation pro
posed by the respondent to prevail.
The time frames set out in subsection 70(9) in any
event do not pose a problem in this instance as I am
willing to give some latitude to the taxpayer in that
there is no evidence that the parties did not act expe
ditiously in this matter.
Issue #2: Has the remaining farm land and deprecia-
ble capital property (the "property"), on or
after the death of the taxpayer and as a con
sequence thereof, been "transferred or dis
tributed" to the taxpayer's children?
Submissions
The plaintiff submits that, by virtue of the will,
which speaks from the moment before death, a vested
beneficial interest in the remaining farm land and
depreciable property (the "property") was effectively
"transferred or distributed" to the children. The chil-
dren's rights in the property were determined imme
diately upon the taxpayer's death and no further
action was required to give them full ownership. She
submits that the ordinary meanings of "transfer" and
"distribute" are very broad and do not require a con
veyance of legal title or physical possession. As well,
no such requirement is found in subsection 70(9)
which provides for a transfer "on or after the death of
the taxpayer and as a consequence thereof' and the
plaintiff notes that the term "property", as broadly
defined in subsection 248(1), must include property
recognized by equity. An executor under a will,
therefore, need not take a super-added mechanical
step or action to "transfer" the property to the chil
dren.
The plaintiff submits that the fact that she held
legal title to the property as trustee, in accordance
with section 3 of the Devolution of Real Property Act,
when it was sold to a third party does not, in this
instance, affect the fact that the property had been
transferred to the children as a consequence of the
taxpayer's death. Once the debts of the estate had
been paid, the children were entitled to call for the
property at any time and at that point, the plaintiff
became an agent for the children. The property was
sold by the plaintiff to a third party on the instruction
of and with the concurrence of the beneficial owners.
In accordance with usual estate practice in Alberta,
there was no actual conveyance of the legal title to
the beneficiaries before it was transferred to the third
party purchaser. Finally, the plaintiff submits that the
spouse's application under the Family Relief Act does
not prevent the property from being "transferred or
distributed" to the children immediately upon the tax
payer's death for the purposes of the subsection 70(9)
roll-over although the possibility of such an applica
tion may prevent a personal representative from con
veying the property.
The defendant submits that because the property
was never legally conveyed to the taxpayer's children
and because the property was sold by the executor to
a third party, it was not "transferred or distributed" to
the children in accordance with subsection 70(9). The
defendant submits that the definitions and judicial
consideration of the terms "transferred or distributed"
connote a legal conveyancing. Reference is made to
Willis Estate v. M.N.R. (1968), 68 DTC 204 (T.A.B.),
at page 210 where it was held that a court order
directing an executor to transfer all property of a
deceased does not, in itself, transfer the property. The
order only empowers the executor to act and it is only
when he actually gives effect to the direction that the
transfer occurs. Relying on Mr. Justice Rip's decision
in Hrycej (A) Estate y MNR, [ 1984] CTC 2115
(T.C.C.), the defendant further submits that the fact
that the property was sold by the executor to a third
party supports the position that it had never been
transferred to the children. The defendant notes as
well that the taxpayer did not leave specific pieces of
land or equipment to his children. Rather, the will
provides that they are to receive the "residue" of the
estate in equal shares. The defendant suggests, there
fore, that what was to be distributed to the children
presumably was funds and not property subject to
subsection 70(9).
Analysis — Issue #2
The parties have referred to the following defini
tions of "transferred" and "distributed":
Transfer, v. To convey or remove from one place, person, etc.,
to another; pass or hand over from one to another; specifi
cally, to change the possession or control of (as, to transfer a
title to land). To sell or give. Chappel v. State, 216 Ind. 666,
25 N.E.2d 999, 10001.
Transfer, n. An act of the parties, or of the law, by which the
title to property is conveyed from one person to another. The
sale and every other method, direct or indirect, of disposing
of or parting with property or with an interest therein, or
with the possession thereof, of or fixing a lien upon property
or upon an interest therein, absolutely or conditionally, vol
untarily or involuntarily, by or without judicial proceedings,
as a conveyance, sale, payment, pledge, mortgage, lien,
encumbrance, gift, security or otherwise. The word is one of
general meaning and may include the act of giving property
by will. Hayter v. Fern Lake Fishing Club, Tex.Civ.App.,
318 S.W.2d 912, 915.
Transfer means every mode, direct or indirect, absolute or
conditional, voluntarily or involuntary, of disposing of or
parting with property or with an interest in property, includ
ing retention of title as a security interest.
Black's Law Dictionary, 5th Ed.
Distribution The division of the personal property of an
intestate among his next-of-kin, ...
Osborn's Concise Law Dictionary, 6th Ed.
Transfer transferred I.... To convey or take from one
place, person, etc. to another; to transmit, transport; to give or
hand over from one to another.... 2. Law. To convey or make
over (title, right, or property) by deed or legal process....
Distributed .... I.... To deal out or bestow in portions or
shares among many, to allot or apportion as his share to each;
to dispense, administer (justice, etc) 3. To divide and
arrange.... 4. To divide and place in classes or other divi
sions; to classify ... 5. To separate and allocate to distinct
places .... 7.... To make distributive....
Shorter Oxford English Dictionary, 3rd Edition
In Tory Estate v. Minister of National Revenue,
[1973] F.C. 820 (C.A.) (appeal by Minister to S.C.C.
dismissed [1976] CTC 415; 76 DTC 6312), Bastin
D.J. discussed the meaning of the words "transferred
or distributed to the beneficiaries" in what was then
subsection 64(3) of the Act. He concluded (at pages
823-824):
The word "distributed" is used to cover cases where the con
veyance is to several beneficiaries. The word "transferred" is
inserted to provide for a ease where the conveyance is to only
one person.
The meaning of "transferred" in this clause is limited by its
association with the word distributed. 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.
Bastin D.J.'s comments in Tory, however, do not
suggest that there must be a formal conveyance
before there can be a "transfer" or "distribution". The
dictionary definitions are clearly broad enough to
include the act of giving property under a will. In
Fasken, David v. Minister of National Revenue,
[1948] Ex.C.R. 580, Thorson P. held (at page 592)
that:
The word "transfer" is not a term of art and has not a techni
cal meaning. It is not necessary to a transfer of property from a
husband to his wife that it should be made in any particular
form or that it should be made directly. All that is required is
that the husband should so deal with the property as to divest
himself of it and vest it in his wife, that is to say, pass the
property from himself to her. The means by which he accom
plishes this result, whether direct or circuitous, may properly
be called a transfer. [Emphasis added.]
He referred to Gathercole v. Smith (1880-81), 17 Ch.
D. 1 (C.A.) at page 9 where Lush L.J. stated, "[t]he
word `transferable', ... is a word of the widest
import, and includes every means by which the prop
erty may be passed from one person to another."
Here, the taxpayer's will appointed the plaintiff
executrix and trustee and left all his property to the
plaintiff in trust for his wife and children. Therefore,
upon his death the legal title to his property vested in
the trustee to assist her to manage and administer the
estate and the equitable or beneficial title vested in
the beneficiaries. The taxpayer had in this way
divested himself of ownership in his property. In this
instance, the creation of a valid will passing the tax
payer's property to his spouse and children is a suffi
cient "transfer" for purposes of subsection 70(9). The
fact that the "residue" of the estate was left to the
children does not, in my opinion, change the charac
ter of the property entitled to the roll-over. Surely
Parliament did not intend that a specific bequest of
each item of farm land and depreciable property he
made before a "farm roll-over" could occur, the
object of subsection 70(9) being to provide a measure
of tax relief when transferring these assets from one
generation to another.
The defendant, and the Tax Court below in Boger
(A.) Estate v. M.N.R., [1989] 1 C.T.C. 2110 (T.C.C.),
at page 2117, rely on Hrycej to support the position
that, because the property was sold directly by the
executrix in her capacity as executrix, "there was no
transfer or distribution of the land to the children of
the deceased". In Hrycej, the deceased taxpayer's
will gave his daughter an option to purchase certain
farm equipment which, if not exercised within a
specified period, would fall into the residue of the
estate left to his widow. The daughter exercised the
option and the widow received the cash proceeds of
sale. The estate claimed a subsection 70(6) roll-over
on the basis that the widow had been vested with the
equipment upon the death of the taxpayer, however,
Rip T.C.J., held that, because the farm equipment
was subject to the option, it was not vested in the
widow. Although Rip T.C.J. stated [at page 2117]
that "the farm equipment was never transferred or
distributed to [the wife]", I note that a specific find
ing on the transferred or distributed issue was not in
fact made as the parties had admitted that the farm
equipment "remained in the possession of the execu
tors and was not transferred or distributed to Mrs
Hrycej."
Finally (at page 596) Clement D.J. in Hillis also
appears to have recognized that a formal conveyance
may not be necessary:
In effect, the spouse must be able to establish that in law in the
circumstances of the case the property vested indefeasibly in
her within the prescribed 15 months. In the whole of the con
text it is clear that it is not necessary that actual conveyance of
the property to her shall have been completed within that time:
if she makes the required proof, then in law the conveyancing
must follow as a matter of course and of right. What must
inevitably occur is to be taken as having occurred. This inter
pretation affords an intelligible reconciliation of the phrase
with the preceding phrase which speaks of property that has on
or after the death been transferred or distributed: it gives some
recognition to the difficulties and complexities attendant in
some cases on the due administration and distribution of estate
and which may have to be resolved, particularly when the con
struction and operation of a will is contested, before distribu
tion can be made. [Emphasis added.]
I find that the sale of the farm land to a third party
by the trustee, was upon the direction and consent of
the children and that she was not acting on behalf of
the taxpayer at that time but on behalf of his children
as owners of the land. I note that, following the order,
title to the home quarter was transferred to the spouse
on January 8, 1982. Presumably, title to the remain
ing farm lands could have been transferred as well to
the beneficiaries when they were sold in August,
1982 and I accept the plaintiff's explanation that title
was not transferred to the children in accordance with
"usual estate practice in Alberta". I therefore accept
that "transfer or distribute" includes the passing of
property under a will and I am satisfied that the prop
erty was "transferred" to the taxpayer's children in
the sense required by subsection 70(9).
Finally, I do not accept the defendant's argument
that the fact that the property was sold within the 15-
month period is detrimental to the application. Sub
section 70(9) simply does not say that the property
must remain in the hands of the children for the roll-
over to apply. So long as the property is transferred to
the beneficiaries, the estate may claim a roll-over
under subsection 70(9). However, when the property
is subsequently disposed of by the beneficiaries, as
has happened here, the beneficiaries, as owners of the
property, become liable for any capital gains upon
disposition even if the sale is made by the trustee.
Issue #3: Do the clearance certificates issued by
Revenue Canada prevent it from asserting
that the deceased, the executor/trustee, or
the beneficiaries are liable to any tax?
In the alternative, the plaintiff submits that the
Minister is estopped from reassessing the plaintiff in
the light of the clearance certificates issued on Octo-
ber 14, 1980 and February 10, 1987 respectively.
Conversely, the defendant submits that the issuance
of the clearance certificates is not applicable to this
action in that they are issued to Sharon Boechler in
her personal capacity and do not, in any respect,
estop the Minister from assessing the tax liability of
Alexander Boger, deceased.
I am in total agreement with the Tax Court below
that the fact that a clearance certificate has been
issued to an executor of an estate, the "personal rep
resentative" does not free the estate from its liability
under the Act. Subsection 159(3) simply provides
that if the personal representative does not obtain a
certificate as required under subsection 159(2) before
the distribution of property over which she had con
trol in her capacity as personal representative, then
she will become personally liable for the unpaid
taxes, interest and penalties. The estate is by no
means relieved of its liability for tax. Put simply, the
personal representative remains liable as personal
representative, but she is relieved of the personal lia
bility imposed under subsection 159(3). Accordingly,
the plaintiff's appeal on this issue is dismissed.
CONCLUSION
The subsection 70(9) roll-over applies to the farm
land and equipment passed to the children under the
taxpayer's will, as amended by the order, and the
plaintiff's appeal with respect to issues #1 and #2 is
allowed. I would invite counsel to prepare a draft
judgment for my signature in accordance with these
reasons. The plaintiff is allowed 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.