In Re: Succession Duty Act >>in Re : Fisher Estate, [1949] CTC 42

MACFARLANE, J.:—This is an application under sec. 40 of the Succession Duty Act, R.S.B.C. 1936, c. 270, to determine for succession duty purposes the value of one-third of the rentals in respect of a lease forming part of the estate of Mary Catherine Fisher, deceased.

The late Charles Woodward, the father of Mary Catherine Fisher, under date of December 21, 1922, leased to Woodward’s Limited lot 16 in block 4, Old Granville Townsite, being the north-west corner of Hastings and Abbott Streets in the city of Vancouver, on which is situate a five-storey building forming a portion of Woodward’s store, for the term of 65 years, reserving to the lessor a yearly rental of $30,000 payable at the rate of $2,500 a month. In order to secure the payment of the said rentals, he obtained from Woodward’s Limited first a mortgage dated April 17, 1924, in his favour covering an adjoining lot, lot 15, and the easterly 20 feet of lot 14, in the sum of $150,000. Under date of June 17, 1930, he obtained a further mortgage over the same property for an additional sum of $150,000, making securities in all of $300,000.

Charles Woodward died, leaving a will, dated October 1, 1931, by which he directed his trustees to hold the income arising from his Vancouver real estate for his daughters in equal shares and, inter alia, provided that his trustees should distribute the whole of such income annually during the life-time of the survivor of the following, namely, his daughters and those children of his daughters living at the time of his death, such distribution to be amongst his daughters share and share alike. By the second codicil to his will the late Charles Woodward substituted Mrs. Eleanor McLaren in the place of her mother, a daughter of the testator who had predeceased him. The will and codicil contained appropriate provisions to ensure that if either of his daughters or Mrs. McLaren should predecease him, leaving children, that the children of such deceased parent should take the share of the mother, and if more than one equally between them. So far as the question before me is concerned, Mary Catherine Fisher survived her father and became entitled to one-third of the income from his Vancouver real estate. Mrs. Fisher, on her death on October 23, 1943, left no surviving children. My brother, Mr. Justice Coady, has already held (61 B.C.R. 298, at 306) that the gift to her of the share of the income that she received from her father vested in her on the death of the father and did not become divested upon her death, so that Mrs. Fisher’s share of the income is payable to her personal representative until the death of the survivor of the group specified in her father’s will. It is the valuation of this one-third of the income with which I have to deal.

The petitioner is the execurtix of the estate of Mary Catherine Fisher. The Succession Duty Department of the province has notified her that it proposes to value the interest of the deceased in this income at $156,666.60, arrived at as follows:

The petitioner submits:

(1) That the value of the said interest in the said lease should be the fair market value thereof at the date of death of the deceased ;

(2) That the Suecession Duty Department erred in valuing the interest of the deceased in the rentals to be received from the said lease as an annuity and of basing the value thereof on expectation of life :

(3) That the moneys to be received by the estate of the deceased whilst forming a portion of the capital of the said estate constitute income for income tax purposes in the hands of the executrix of the said estate and that the market value thereof is a figure to be determined after deduction of the income taxes which may be levied in respect thereof ;

(4) That the department in so valuing the said rentals has failed to take into consideration the following facts which would affect the rental value of the said premises:

(a) That the lessees of the lands covered by the said lease might meet with competition from various new business;

(b) That by reason of the existence and registration of the bond issues created by Woodward’s Stores Limited the value of the leasehold premises is reduced as in the event of foreclosure thereof the business of Woodward’s Stores Limited might get into the hands of people who were not capable of managing it properly ;

(c) That the centre of business activity in Vancouver might change ;

(d) The risk of destruction of the building by fire, earthquake, bomb or loss by expropriation for Dominion, municipal or provincial purposes ;

(e) The possible requirement of extensive repairs for the purpose of safety, which repairs might not be chargeable to the tenant ;

(f) The possibility of the lessor being obliged to re-enter and let to others at a considerably less rental.

Counsel for the petitioner takes his position on the basis that what they are receiving is the income from the Vancouver real estate and, as I take it, that it is not to be regarded as a bequest of so much money payable annually, although the portion of the rentals receivable are fixed by the leases and securities, nor is it to be regarded as an annuity and valued as such, and, if it is, then not on the basis of the life expectancy of the youngest life. He contends that the bequest of the income should be valued in the manner applicable to stocks, shares or other property, real or personal, and so assessed at the fair market value thereof at the date of the death of the deceased on the principle followed by me when sitting as a commissioner and reported on appeal to the Supreme Court of Canada in Untermeyer Estate v. Atty.- Gen. for B.C., [1929] S.C.R. 84 (affirming [1928] 2 W.W.R. 209, 39 B.C.R. 533) but also taking into consoderation for the purposes of such valuation the deductions from the possible purchaser for income tax as well as the other various possible eventualities that a purchaser on the market might consider when approaching the question as to whether he would purchase the right to receive this Income and what price he would pay for it.

I think, when at the death of the testator the annual income from the real estate is definitely fixed and determined by the lease and securities, that I should regard the bequest as one for that sum of money payable annually limited to the existence of the lives mentioned.

The argument of the execurtix presented to me, in writing, is confusing. Although the proposition put to me is that I should value ‘‘the particular future estate with which this application ‘ ‘ deals, it is suggested that 4 it is the existence of the interest in question as one of the items of property vested in the deceased at the time of her death that raises the first difficulty’’. I do not know what is meant by questioning the existence of the interest in question. I certainly do not know how it is the primary consideration here.

The question is then raised as to whether ‘‘in truth the interest is within the words future income or interest as used in sec. 3”, which makes such future income or interest subject to the provisions of sec. 19, both being sections of the Succession Duty Act.

It is then submitted that see. 18 of the Act under which the assessor proceeded in determining the value, is "‘on its face” not necessarily limited in its operation to its use in conjunction with see. 19. That section speaks of the value of every future, limited or contingent estate, ete. and says that, where the duty is paid within the period of two years, the duty shall be upon the value of such estate as computed under sec. 18.

The question then is posed whether the words "‘the value’’ as used in the section mean "‘net value’’ or "‘dutiable value’’ or both.

It is conceded that the dutiable values in total, if paid within two years (of the death of the deceased) may be the same as the net value.

These provisions deal with payments and the time of payment. I think it is the first only with which we are dealing here and that the distinction between dutiable value and net value need not confuse us, because the total of the dutiable values of the separate items will be the net value.

It was aereed that I should not be concerned with the rate of duty as the whole of the estate is not before me nor are the other dispositions. Arrangements for payment on account were made shortly after the death of the deceased, and if it is found that the payment on account is not sufficient, that is another question.

As I understand it, my brother Coady decided that the interest passing under the will was an interest vested in possession pur autre vie. Now, as l. have said, although it is a future interest I am asked to value, counsel for the executors contends that ‘‘in the sense of enjoyment it is not future because it is an interest in possession even before the death of Mrs. Fisher, and continues after death in possession, not only in possession, but vested in possession’’. This leaves out of consideration the main feature of the interest, that is, that it is an interest pur autre vie. Stripping the matter of its technical garb, it is a right to receive certain moneys in the future during the longest of the lives of several people or limited to the period during which any of these people live. The "‘right’’ to receive these moneys may be a vested right and in that I do not disagree with my brother Coady. This right exists in time limited to the continuation of the longest of these lives; in time again, it is contingent upon the continuation of one of these lives. I do not see how in these circumstances, notwithstanding that the right is vested in pos- Session pur autre vie, it ean be said that it is neither a future, or contingent, or limited estate, income or interest. It is stated by counsel that this language does not appear to have been used in any other jurisdiction. I do not know that it has. I think the language, however, is sufficiently comprehensive to include the particular form of interest with which we are here dealing. I do not agree that because the right to the income is vested that, in the sense of enjoyment, it is not future income. I do not see how on the facts here that contention can be maintained. Surely the limitation imposed on the description of the right by my brother Coady, expressed in the words pur autre vie, can mean nothing else than that it is a right to be enjoyed in its fruits during a future period and limited by the continuation of that period. Once that point is disposed of, the difficulties of the interpretation of sees, 2, 3, 18 and 19 disappear as does also the application of the principle of valuation based on "‘fair market value.’’ Sec. 2 defines ‘‘net value’’ with respect to the property to be included. See. 3 provides that in case of any future or contingent income or interest, instead of the principle that the fair market value shall be taken at the death of the deceased as a measure of net value applying, the provisions of see. 19 shall apply. See. 19 provides duty shall be paid but it also provides that the duty shall be on “the value of such estate, income or interest computed under section 18’’. It also provides that such duty if not sooner paid (as in this section provided) shall be payable forthwith when such estate, income or interest comes into possession, in which case the duty shall be on the value computed under sec. 18 as at the date of such coming into possession. It is urged here that the right to the income, though payable over a period of the continuance of lives, is vested in possession and was so vested at the date of the death of Mrs. Fisher. These sections do not refer to dutiable value or net value, but only to value which, by reason of the provisions of these sections, is computed according to the provisions of sec. 18. The provisions of see. 3 dealing with the determination of net value and of dutiable value are made subject in the case of any future or contingent income or interest to the provisions of sec. 19 and in the like case by that section the method of computation is provided.

I think sec. 18 should be applied, not in one operation to the whole annual amount of $10,000 annually, but, in separate operations, to the proportionate part that those entitled to share in it take, that is to say, if each takes one-third of that amount to ascertain the value on the basis of his or her life expectancy and that the value of interests falling in hereafter on the death of the others be valued when they fall in on a like basis.

I have not in the material before me the ages of the persons entitled to take as at the date of the death of Mrs. Fisher. Given those ages, the value which I would place upon the bequest for suecession duty purposes can be easily computed.

In the view I take it is not necessary for me to consider the various possible so-called contingencies which are of the most speculative character. This relieves me also of the necessity of considering the question of the incidence of income tax as affecting the value.

If the parties can agree on a valuation on the basis I have indicated, I will be pleased to have their submission and to approve a valuation accordingly.

There will be liberty to the parties to speak to the question of costs if desired.