Davis, J.:—This is an income taxation case. The late Sir William Mackenzie of Toronto died on December 5, 1923. By his last will and testament, dated May 20, 1909, he gave and devised all his estate unto three named executors and trustees upon the trusts therein mentioned and provided that his estate should be divided ultimately among his wife and children, and children of any deceased child, as if he had died intestate, with authority to his executors and trustees to make divisions of the estate from time to time when and as in their discretion they should think suitable having regard to the general position of the estate and its future requirements.
This will remained unchanged from 1909 until November 14th, 1923, at which time, one of his sons named as an executor and trustee having died, Sir William appointed by codicil two additional executors and trustees, thereby increasing the number from two to four. The following day, November 15th, 1925, by a second codicil he bequeathed the sum of $5,000 to each of his grandchildren then living. On November 28th, 1923, he made a third codicil, upon which the questions in issue in this ease have arisen. This codicil was as follows:
‘“This is a codicil to the last will and testament of me, William Mackenzie, of Benvenuto, Toronto.
"WHEREAS by my said will I appointed my son Joseph Merry Mackenzie and Sir Edmund Byron Walker, President of the Canadian Bank of Commerce, to be two of the executors thereof, AND WHEREAS by codicil to my said will made on the fourteenth day of November, one thousand nine hundred and twenty-three, I appointed Robert John Fleming, formerly General Manager of the Toronto Railway Company, and my son-in-law Frank H. McCarthy to be additional executors of my said will Now I Direct that my son Joseph Merry Mackenzie shall be paid Five hundred dollars a month in addition to any sum which the courts or other proper authorities may allow him in common with the other executors. AND in all other respects I confirm my said will, and the codicils thereto made.’’
Then on December 4th, 1923, another codicil was made providing for the use of the testator ‘s Toronto home by his daughters upon certain terms and conditions. The following day Sir William died.
Joseph M. Mackenzie, a son of the testator and one of the executors named in the will, survived his father and died some time in 1932. It was apparently inconvenient for some years for the estate to pay to Joseph M. Mackenzie the $500 a month provided by the third codicil, and nothing appears to have been paid to him in this connection until the 5th of March, 1927, when a lump sum of $19,500 was paid to him to cover the period from the date of the testator’s death to that date. During the balance of the year, 1927, the payments amounted to $4,916.67, making a total sum received by him in that year of $24,416.67. During the succeeding years 1928, 1929, 1930 and 1931, and up to the date of his death in 1932, he appears to have received his $500 a month. None of this money was reported by the late Joseph M. Mackenzie in his income tax returns upon the ground, it is said, that he treated these moneys as a legacy to him. Under see. 3(a) of the Dominion Income War Tax Act these moneys, if a legacy out of capital, would not be taxable, because income as defined by the Act excludes the value of property acquired by gift though not the income from such property.
The first question, then, that arises in this ease is whether or not, as a matter of interpretation, the $500 a month directed to be paid to the son was a legacy or additional remuneration to him as an executor and trustee over and beyond whatever his portion might be of the compensation which would be allowed by the Surrogate Judge to the executors and trustees upon the passing of their accounts. If it be determined that these moneys were not a legacy but remuneration, then the further question is raised in this appeal as to whether or not the Department of National Revenue was entitled to assess Mr. Mackenzie for the taxation period 1927 the whole of the sum of $19,500 received by him on March 5, 1927, notwithstanding that $18,000 of that amount represented arrears of monthly payments that had fallen due during the preceding three years. The obvious objection to treating the whole amount as income in the particular year in which it was actually received is that it results in a higher percentage of taxation upon the total amount than could have been imposed had the payments been made as they fell due month by month during the preceding years. The appellants, the executors of the will of the late Joseph M. Mackenzie, contend that if, contrary to their main contention, the payments are not to be treated as a legacy but as additional remuneration, then the assessments should be revised so as to allocate $6,000 to each of the years in respect of which the amounts were payable, and the tax levied accordingly.
Dealing now with the first question, as to whether or not the $500 a month was a legacy or additional remuneration qua executor. It is not unreasonable to assume that the testator realized, or that his attention was called to the fact, that increasing the number of executors from two to four would
necessarily. involve his son in a substantial decrease of compensation as one of the executors. The codicil does not:in precise language say that the $500 a month is additional remuneration to the son as an executor but it is sufficiently definite to express that to be the intention of the testator. The words are,
" Whereas . . , by codicil . . I appointed . . .. additional executors ... Now I direct that my son . . . shall be paid Five hundred dollars a month in addition to any. sum which the courts or other proper authorities may allow him in common with the other executors.’’
A fair test to apply is to ask oneself, what would have been
the position if the son had renounced his executorship? Could he have enforced payment of this monthly sum while declining,
as he would have been quite free to do, to act as an executor of his father ‘s will? It must be held, I think, that he could not. If that is so, then it was not a legacy but additional remuneration and as such was taxable income.
But should the total payment of $19,500 have been assessed in 3 respect of the taxation year in which it was actually received? If so, it is apparent that it works an injustice to the taxpayer, but it is almost inevitable that every general taxation statute will in its application to some particular case create an injustice while in its wide application to normal conditions it will work satisfactorily. The statute here by sec. 3 defines. income as "‘income received’’ and by sec. 9 imposes the tax upon "‘the income during the preceding year’’. Unfortunately in this case the taxpayer is bound to pay a larger amount than could have been levied and collected upon the same income had it been paid in instalments month by month as it became due and payable, but that cannot affect the liability plainly imposed by the statute.
We were pressed to apply the provisions of sec. 11 to this income as something that "‘accrued to the credit” of the taxpayer each month, but sec. 11 has no application to the facts of this case. It relates only to income of a beneficiary of any estate or trust.
We cannot escape from the conslusion, which seems a rather harsh one, that the appeal must be dismissed with costs if asked.
Appeal dismissed.
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