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Les diagrammes suivants illustrent la m^thode. 1 2 3 1 2 3 4 5 6 'S^xmszm^iimz^FK, ^^M:j.':^*f2E If'.r.v "' ;ejp MICROCOPY RESOLUTION TEST CHART (ANSI and ISO TEST CHART No 2) 1.0 I.I 1.25 ISO 2.8 m 1^ 1.4 [ 2.5 2.2 ZO 1.8 1.6 ^ -APPLIED IM/IGE Inc ^P^ 1653 EqsI Mq.i Strsel S^S Rochester, New York 14609 USA •-^ (716) 482 - OJOO - ^■^one SSS {/16) 288 - 5989 - fax Succession duties and the IMPOSITION OF Same R. C. SMITH. K.C. ' • • Published in No. 1, Vol. 16 of the Journal of the Canadian Bankers' Association MONTREAL 1008 • •• •: *•• • ••' • •• • ••• • I • • * • • • • ? • '• • •• • »• ■ • *« •••••• •• • f • • " m SUCCESSION DUTIES AND THE IMPOSITION OF SAME. WrUten by E. C. Smith, Eag..K.C., of the Bar of Montreal, andpublUhed tn No. 1. Vol. 16 of the Journal of the Canadian Bankers' Association, CUCCESSION duties, which are now generally admitted to *^ be fair and reasonable taxation, have in Canada frequently become excessive and vexatious by reason of dual imposition. In our confederation we have nine provinces, each of them jh«^8ing as ample powers of "direct taxation within the prov- ince" as the Impend Parliament itself possesses. A principle of International law, to which I shall later venture to refer more fully, is that while immovable property is governed by the law of the place where it is situated, movable property is gov- erned by the law of the domicile of its owner, and is not deemed to have any situs apart from that domicile. This principle is expressed in the maxim mobilia sequunter personam. Notwith- standing this principle, which is recognized by every writer on private international law, we find that every state claims abeo- lute juD' ' ••- over all the property, immovable and movable, which ], , y situated within its territorv. To put the questio.. ' .; concrete in the matter of succession duties, we have ea..i of the provinces of the Dominion claiming the power— I do not know whether they all have exercised it— of imposing duties upon successions devolving within it, including all the property of the succession, movable and immovable withm the province, and also all the movable property of the succession whercsoevor situated; and at the same time esich province claims the power to impose succession duties upon all the property, movable and immovable, situated within its limits and belonging to successions devolving in other provinces or m foreign countries. Thus, the Province of Quebec exacts duties upon the succession of a person dying domiciled in the province, (1) upon all the property, movable and immovable situated m the province, and (2) upon all the movable property situated in Ontario, Manitoba or anywhere else. The Province 61430 of Ontario, in the niattir of tli< amo succi'ssioii, exacts duties ii|)oii all till' i>ri)|M'rty, movalilf and iniinovalilc. situated within ii8 limits. altliiMifrh llii' succession devolved in the Province of Quel)cc. Tlie c<)n verse is true of succession,^ devolving in On- tario. \ understand the succession duty laws of other provinces are -iiniilar. These impositions are enforced l)y penaUies, by pna( tments that no property liable to duty shall pass nor shall anyone ac«|uire any title to it vmtnl the duty be paid, and by proliibitinjj banks and other corporations making any transfers of shares until evidence is furnished them that the succession duty has been paid. So a portion of nearly every large suc- cession is compelled to suffer duplicate taxation. The case of Lambe vs. Manuel, decided a few years ajro. was followed with much interest in the hope that the judgment of the Privy Council would remove !the anoniai\ The late Mr. Allan (rilmonr died while domiciled in Ottawa, and a por- tion of his estate consisted of G2fi shares of the Merchants Bank of the value of «93,000, and 4,275 .shares of the Canadian Bank of Commerce of the value of $300,187, together with a loan secured by hypothec in ^lontreal. Mr. Lambe, the col- lector of revenue in Montreal, brought suit against Manuel, Gilmour's execubor, to recover the Quebec succession duty upon these three items of the estate, a.s being liable under the Quebec Succession Dutv Act. which at that date read: — (Art. 1101 b, Kevi.sed Statutes. Quebec), "All transmissions, owing to death, of the property in, usufruct or enjoyment of, movable or im- movable property in the province, shall be liable to the following taxes, etc." The claim to the duty on the bank stocks '..-as based on the fact that the head office of the Merchants Bank was in Montreal, and that, although the head office of the Bank of Commerce was in Toronto, it had a branch in Montreal with a separate stock register and transfer book, and that Mr. Gil- mour's shares were, at the tim of his death, standing in his name in the Montreal regi>.. r. Sir Melbourne Tait, in a judgment citing numerous authorities (Q.P., 18 S.C., p. 184), held that the language of the article of the Revised Statutes invoked applied only to a succession devolving in the Province of Quebec. He laid it down that " the rule mobilia sequunter personam is well recognized in our law, and also in the law ol' Kiife'land, in intcrprctinj.' tho loi,'acy and succession duty acta in l'e Quebec Supcedsion Duty Ams in respect of which " succession taxes are claimed form part of a succession devolv- '' injr under the law of Ontario. "The decisions of the Quel ( ourts are, in their Lord- " ships' opinion, entirely in consonance with well-established " principles, which have been reco>;nized in England in the " well known cai*8 of Thomson vs. Advocate-General, and Wal- "lace vs. Attorney-General, and by this Board in the case of " Harding vs. Commissioners of Stamps for Queensland. " Their liordships will, therefore, humbly advise His Ma- " jesty that the appeal should be dismissed." As I have already intimated, the judgment of Sir Mel- bourne Tait really turned upon the construction of the Quebec Succession Duty Act, and the case can, therefore, not be cited as a direct authority f^^r the proposition that a Province has power to levy succession duty upon movable property situate without such province and forming part of a succession which devolves within that province. When we look at the only three cases cited by T-iord Macnaghten as exemplifying well-established principles, it might reasonably be assumed that s" jh power does exist. One is naturally beset with difficulty in predicating general principles from decisions which are influenced more or less by the views that their Lordstiips have taken of particular acta, or, as Lord Hobhouse described it in one case, as " verbal criticism of the act*s." Nor is it reasonable to say that ona decision is inconsistent with another without boing able to deter- mine just how potent a factor this verbal criticism was in the decision of each case. I cannot, however, refer to the recent case of Woodruff vs. The Attorney-General of Ontario, upon which present interest centres, without some reference to the three canon which Ijord MncnnKhtcn rofcre to a^ ,xpre»wing well (>«tabl iHhetl principIeB. The first of the- waa Thomson v$. Advocate-nenoral, de- cided by tlic House of I/irds in 1845 (12 Clarke & Finnelly, p. 1). John Grant, a Britiali subjoct, dieu.ntry at the time of the denth, you must take i " primiple laid down in the case of In Re Ewin (1 C >•. Sc Jfe.v., " ISl), and it must be considered as property withi thf" domi- "cile of the testator, which domicile was T-'merara.' The Lord Chanc-ellor was followed by 'd Brou^I.am, who expressed his views as follows: — " Here it is a case of money or property brought over " here and administered here, the domicile of the testator or " intestate beinsf abroad out of the jurisdiction. There, in the " matter of Ewin, it was the converse, administration being by " a person domiciled here and a testator or intestate domiciled "here, and the funds locally situated abroad; it is perfectly " clear that no difference can he made in consequence of that " iKJoauBe the principle mobilia sequnnter personam as regards " their distribution and their coming or not withm the scope " of this Revenue Act, must be taken to apply to two cases pre- "cisely similar; and the rule of law, indeed, is quite general " that in i^uc•h cases the domicile governs the personal projicrt-y, "not the real; but the personal property is in contemplation "of the law, whatever may be the fact, supposed to l)e within "the domicile of the testator or intestate." T,ord Campbell expressed the same view as follows : — " If a tcij-tator has died out of Great Britain with a domi- "cile abroad, although he may have personal property that is "in rJrcat Britain at the time of his death, in contemplation " of law that property is supposed to be situate wher(> he was "domiciled and, therefore, dm's not come within the Act: this "seems to be the most oasonable construction to l)ie put upon " the Act of Parlianu>nt ; it is the most convenient, and any " other construction would lead to veiT great difficulties.'" The second of the cases was Wallace vs. The Attorney- General, decided in 180,-) (L.IM., eh. 1), where Lord Crans- worth. L.C.. gave the judgment from which Sir Melbourne Tait quoted at some length. The Lord Chancellor took the case just above referred to, of Thomson and the Advocate-General, as "finally settling the law upon the subject.'' This was tlie case which arose concerning the estate of Ix)rd Henry Se^-mour. who died, domiciled in France, leaving movable property in England. The last of the three cases which Lord Macnaghten refers to is that of TTarding and the Commissioners, decided in 1S!)8 (1808 A.C.. p. 7f)0). Silas ITarding died, domiciled in Vic- toria, leaving movable property in Queensland. Th" ca«=e went to the Privy Council, where Lord Hobhouse, having quoted the Queensland Act, said: — "The hteral force of these expressions include the estate "of Silas Harding. But then it includes a great deal more "which nobody can suppose that the T>egislature intended to "tax. It includes all persons and all property all over the "world, and if not c(mrm('d within reasonable limits would " enable the Queensland authorities to levy a tax in respect of " foreign property on foreigners within their power. Atmormal " consecjuences such as these have been avoided by judicial de- " cisions in England The nuitter appears to be well I " summed up in Mr. Dicey's work on the Conflict of Laws, at " page 785, in which he paraphrases T^rd Cransworth's applica- " tion of the principle ' mobilia sequunter personam ' by saying "that the law of domicile prevails over that of situation. " It is, of course, a maintainable opinion that the law of " situation should prevail, and that a line which brings under "the general words of taxation property which is protected "by the taxing state, and which in i.isc of dispute is admin- " istercd by it, would form a more reasonable limitation of "such words than the limitation of such words by domicile. "The learned judges just below inclined to that principle; "and the Queensland Legislature has adopted it. But the " Court has only to decide what the Legislature meant when it " passed the x\ct of 1892, etc." This case certainly seemed to sanction the principle that in contemplation of law movable property is deemed to he situ- ate where the testator or intestate had his domicile at the time of his death, and thus to bring the property within the taxing jurisdiction of the state where the testator had his domicile. But the Manuel case only held that the Quebec Act, as then worded, was limited in its application to succession de- volving within the Province of Quebec. At the very next session the Quebec Legislature passed an amending Act (3 Edward VH, ch. 20, sec. 1), adding the following words to article linib of the Revised Statutes: — "The wrird 'property' within the meaning of this Act "shall include n'! property, whether movable or immovable, " actually >ituat<' or owing within the province, whether the " deceased at the time of his death had his domicile within " or without the province, or whether the debt is payable within "or without the province, or whether the transmission takes " place within or without the province." I take it to be elementary law that the Quebec TiCgislature cannot, by means of any definition which it can devise, enlarge the scope of the talcing powers which it possesses only by virtue of the British North America Act. To that Act alone we must have reference in order to determine what these powers are, and in section 92, sub-section 2, we find the power of 10 direct taxation linntcd to taxation within the Provmce ^t is obvious that the Jueb«. Ix.gi«lature cannot, by defimtnon or aly other form of enactment, bring taxation beyond the ;;ovTn'e within its powor. But it would ^^^ff\^Jf^^ That the Juebcc Provincial amendment which I ^J- ^ub quoted, is ultra vires of the Quebec Legislature. Lord trans worth, in the Wallace case, said:— "Parliament has, no doubt, tiie power of taxing the sue- « cession of foreigners to their personal property in this country, " bui T can liardly think we ought to presume suoh an intention " unless it is clearly stated." And Sir Melbourne Tait, in the Manuel case, said :- « The power of the legislature to levy a tax upon movable "property situate in this province, irrespective of where the " testator is domiciled or where the succession devolves cannot «be doubted, and it would not have been difficult to find lan- " guage to express its intention to exercise it." „ , ,, . We have, therefore, very high authority to the effect that movable property is deemed to be situate where the testator or intestate had his domicile, and we have also high authority for holding that the Provincial Legislature has power to tax whatever property it finds within its territorial junsdiction. Tlie question naturally arises whether movable property', for the purpose of taxation, can be held to be situate in two differ- ent places at the same time. This brings us to the consideration of the case of Woodruff vs. The Attorney-General of Onlario decided by their T^rd^^hips of the Privy Council in July last The iudgment of the Court of Appeals in Ontario is reported in 1.^ Ontario Law Reports, 1908, p. 416. The fax:ts, argu- ments and views of the judges in the courts below arc exposed in the decision of the Privy Council, as delivered by I^jd Col- lini>, and in order that the scope of this judgment may be fully understx)od, I shall not attempt to summarize it, hut quote the report as given in the Ijondon Times: — "Lord Collins, in delivering their Lordships' judgment, " said, the question on these appeals was as to the right of the " \ttorncv-General of the Province of Ontario to demand pay- "ment of a tax called, in the Provincial Act (The Succession «< « tc « ti it « « « « « « « « « « « Duty Act, Rev. Stat., Out., Ud'^ c. 24), which imposed it, 'succession duty' upon personal property locally situate outside the province and alleged by him to form part of the estate of a deceased domiciled inhabitant of the province, one Samuel de Veaux Woodruff. The question involved the consideration of two separate transactions or seta of trans- actions whereby the deceased divested hiriself, or assumed to (liveet himself, of certain personal property locally situate in the State of New York. The first of those transactions took place in 1894, the second in 1902. The deceased died on November 28th. 1904, domiciled, as above stated, in the Province of Ontario. The present suit was brought by the Attorney-General in February, 1906, to have it declared that the property comprised in the transactions of 1894 and 1902 (as well as certain other property described as 'the home- stead property') was improperly omitted from a certain affi- davit to lead probate filed by the first three defendants (ap- pellants) as executors of S. de V. Woodruff in the Surrogaite Court, and claiming an account of the dutiable value of the property, and payment of the amount of the succession duty thereon" The action was tried before Chief Justice Faloon- bridge, of the King's Bench Division of the High Court, who, on Januarj' 5th, 1907, held that the homestead property, which had been settled on the testator's wife and his son, H. K. Woodruff, was improperly omitted from the affidavit, but that the property comprised in the transaction.^ of 1894 and 1902 was not improperly omitted from the affidavit, and as the value of the homestead property, added to the estate disclosed, aid not bring the propertj- up to the minimum value fixed by the Succession Duty Act for pajonent of duty in the case of properh- going to a wife and children, he dismissed the action. On appeal to the Court of Appeal for Ontario the decision of the trial judge as to the homesttead property and the transaction in 1894 was affirmed, but was over-ruled in the transaction of 1902 ; and as to the amount comprised in the latter, the defendants were held liable to pay succession duty. No question had been raised before their Lordships as to the homestead property, but both parties had appealed 12 «a.. to the transactions of 18!) 1 and 1902, the clcfen.lants seek- " ing to set aside the decision against them as to the transa. jon " of 1902, and the plaintiff by way of cross-appeal claiming " duty in respect of tlie transaction of 1894. Though that •' latter claim arose bv way of cross-appeal only, and the main " appeal was by tbe defendants in respect of the transaction of " 1902, it was. perhaps, more convenient to take them in chrono- " logical order and begin with the transaction of 1894. In " that year the Mercantile Safe Deposit Company in Xew York " City held in their custody for S. de Y. Woodruff, bond^ and "deliontnres issued by various municipalities in the Fnited "States and transferable by dslivery, amounting in value to " about $213,000. He arranged with the United States Tnist " Company of New York that they should take over the cnsto<1y '• of those securities to be held by them in trust to carry out " the terms of certain deeds to bo executed by each of his « four sons. He then, in company with his son, H. K. Wood- " ruff, went to New York, takin^ with him four trust deeds "("xec'uted bv his four sons respectively, and delivered thase " deeds with"^ four parcels of the securities, one parcel appro- ''■ 1 Tiated to each deed, to the Trust Company tr hold under " the terms of the trusts so credited. Those trusts were for " the boiirfit of each of the sons respectively during his life " and for his children after him in equal shares. During the " life of S. de V. Woodruff the income derived from these secur- •' ities was sent bv the Trust Company half-yearly to the sons " respectivelv bv cheques on a New York bank. Those cheques " Avere sent on bv the sons to S. de V. Woodruff, who returned •' to each of them $1,500 per annum. The evidence was that " there was no agreement, arrangement or bargain of any !cmd " between the father and the sons that he should receive this •• income or any portion of it, and that this action on the part "of the sons wa.s entirely voluntary. Chief Justice Falcon- " bridge held as to the transactions, both of 1894 and 1902, *■' that the Act did not ' extend to this particular property situ- " ated in the State of New York and governed by the laws of "New York,' and that, in the view he took of the case, the " intentions and motives of the testator and his sons were not 13 in issue. The subioci'-matter of the transfer of 1902 con- sisted of similar bonds or debentures, also then in the custody of the IVfercantile Safe Deposit Company, New York, and a cash balance in the hands of Messrs. E. D. Shepard & Com- pany, bankers, Xew York (-ity, the proceeds of collection of interest they had made for !■_ . de V. Woodruff, ix)rd T^yndhurst, Tjord Broiijrham, Lord Campbell, and even of T^ord Hobhouse in the Harding case. The judgment of the Supreme Court of Vic- toria was reversed. Lord Hobhouse delivering the decision of the Privy Council. It was reversed, not because their Ijord- ships of the Privy Council differed from the general principles laid down by the learned Chief Justice of the Supreme Court of Victoria, but because of the view which they entertained of the literal effect of the taxing act they were construing. Lord Hobhouse said : — " It appears to their Lordships that the court below has " first searched for a rule of law and has then bent the Statute " in accordance with it; where? 3 until the true scope and inten- " tion of the statute has been discovered it cannot be seen what " rules of law are applicable to it." After a " verbal criticism of the Statute," Lord Hobhouse concludes : — " What their Lord- " ships find is that the Victorian Legislature have imposed a " tax payable by an executor, as a condition precedent to the " issue and efficacy of the probate necessary for his action, out " of the estate while it is in bulk, and before distribution or " administration has commenced. All these things, the person "to pay, the occasion of payment, the fund for payment and " the time of payment, point to the Victorian assets as the " sole subject of the tax. The reason which led English courts " to confine probate duty to the property directly affected by " the probate, notwithstanding the sweeping general words of " the Statutes which imposed it, apply in full force to this ' case Their Lordships think that in imposing a duty " of this nature, the Victorian Tjegislature also was contem- IS " platiii;? tlio property which was under its own hand and did "not intend to levy a tax in respect of property beyond its "jurisdiction, etc." The gist of the decision was in effect that the language used in that particular Act requiring payment of the duty hy the executor, et<\, was intended only to cover property within Victoria. The executor by probate in Victoria would not ac- quire, it seems, control over the property outside of that colony without obtaining ancillary probate, and that the intention was only to tax property of which he acquired the control by liie pnujatc. The cac(i does not appear to be any authority for the proposition that the Legislature of Victoria had not inherent power to tax all the movable property, wherever situ- ate, of a succession which devolved in Victoria. I express no opinion as to whether it can be gathered from the language used by Lord Collins that their Lordships intended entirely to reject the maxim mohilia seqminter pcrsonani as inappropriate to the decision of questions relating to succession duty, but the perusal of the citations I have taken the liberty of making, will indicate clearly enough how very unsatiisfactory and even anomalous a position we find oursolvi-s in with respect " to the whole question of succession duties. I suppose I may take it as a i>()s;ulate tliat the same property of a succession ought not to pay succession duty twice or to two different tax- ing powers, and also thai movable p"'>perty ought not to have more than one situs in contemplation of law for purposes of taxation. It ought to be possible to remove this anomaly by an agreement between the several provinces, and, if neces- sary, also between the provinces and the Imperial Government. It is only a very short time since the estate of a lady domiciled in England paid succession duty to the Province of Quebec of upwards of $80,000, most of the property here being movable property. At the last conference of the Provincial Premiers I understand the matter was to some extent discussed, but no agreement was arrived at. The disposition to do what is right and just no doubt prevails, and it ought not to be difficult to arrive at a rational and an equitable solution of the difficulty. I hear that one 17 province settled a succession duty question with the Ini|X!rial Aubhorities upon the basis of a division of the amount accord- ing to the value of the estate there and hero. But a general understanding between the provinces themselves and with the Home Government) is essential, to prevent the irritation of double taxation. In concluding, I hope it will not be deemed an impertin- ence upon my part if T suggest that one provision of the Ontario Succession Duty Act may be worth a further consideration by the authorit' "i and by the profession, namely, that which, in the case of a person dying, domiciled outside the Province of Ontario, and leaving property in Ontario, fixes the rate of taxation upon that property in Ontario according to the valu- ation of the whole succession, i.e., thafc if A die, domiciled in Montreal, leaving, say, $20,000 of property in Ontario, the rate of taxation upon that property in Ontario is made to de- pend upon how much there is in the succession elsewhere than in Ontario. Again, in cases where the amounts left in Ontario are so small as to be exempt from d'lty, the province looks upon the estates outside its limits to complete the amounts that will warrant taxation. Montreal, P.Q., October, 1908.