Margaret Jean Wisener, Robert A. Wisener,
Charles R. Wisener and John T. DesBrisay,
executors of the will of Philip Atlee Wisener
(Appellants)
v.
Minister of National Revenue (Respondent)
Trial Division, Kerr J.—Toronto, December 19;
Ottawa, December 28, 1972.
Estate tax—Insurance policy effected by company on
employee—Policy taken out to secure loan to enable
employee to acquire property—Whether policy proceeds
includable in employee's estate—Estate Tax Act, 1958, c.
29, s. 3(4b) (now R.S.C. 1970, c. E-9, s. 3(8)].
Decedent was president of two companies which were
controlled by him and his brothers. In order to enable these
companies to acquire another business, decedent loaned
them money which he had borrowed from a bank on the
security, inter alia, of an insurance policy on his life for
$50,000 taken out by one of the companies for the purpose.
On decedent's death the Minister included the proceeds of
the insurance policy in assessing his estate for estate tax
purposes on the ground that it was insurance effected on
decedent "in respect of, in the course of or by virtue of his
office or employment . .. as an employee" within the mean
ing of section 3(4b) of the Estate Tax Act, 1958, c. 29 [now
R.S. 1970, c. E-9, s. 3(8)].
Held, reversing the Tax Appeal Board, the enactment did
not apply. The insurance was effected not because decedent
was an employee but because he was lending money.
APPEAL from Tax Appeal Board.
Pierre Genest, Q.C. for appellants.
M. Storrow for respondent.
KERR J.—This is an appeal from the decision
of the Tax Appeal Board pronounced on the 8th
day of December, 1970, dismissing an appeal
by the appellant executors of the estate of
Philip Atlee Wisener from a re-assessment
under the Estate Tax Act wherein an estate tax
in the amount of $26,579.43 was levied in
respect of the said estate.
The dispute is in relation to an amount paid
under a policy of insurance on the life of the
deceased, Philip Atlee Wisener, effected by his
employer Wisener and Company Limited,
which the Minister included in computing the
aggregate net value of property passing on the
death of Mr. Wisener.
The principal issue is whether the amount
was payable under a policy effected on the life
of the deceased "in respect of, in the course of
or by virtue of his office or employment as an
employee of Wisener and Company Limited",
within the meaning of section 3(1)(k) and 3(4b)
of the Estate Tax Act, 1958, c. 29 and amend
ments thereto, the relevant portions of which
read as follows:
3. (1) There shall be included in computing the aggregate
net value of the property passing on the death of a person
the value of all property, wherever situated, passing on the
death of such person, including, without restricting the
generality of the foregoing,
(k) any superannuation, pension or death benefit payable
or granted
(i) out of or under any fund or plan established for the
payment of superannuation, pension or death benefits
to recipients, or
on or after the death of the deceased in respect of such
death;
(4b) For the purposes of paragraph (k) of subsection (1),
any amount payable in respect of the death of a person
under a policy of insurance (other than a policy of insurance
owned as described in paragraph (m) of subsection (1))',
under which any life insurance was effected on the life of
that person in respect of, in the course of or by virtue of his
office or employment or former office or employment as an
employee of any employer, except any part of that amount
that was payable under the policy to
(b) an individual or corporation other than
(ii) a corporation that was controlled, whether directly
or indirectly and whether through holding a majority of
the shares of the corporation or of any other corpora
tion or in any manner whatever, by that person, by one
or more individuals described in subparagraph (i), by
that person and such one or more individuals or by any
other person on his or their behalf,
and except where the policy was assigned to that person
and was not at any time thereafter assigned to any employer
described in paragraph (a), or to any person in trust or
otherwise for the purposes of a fund or plan established for
the payment of superannuation, pension or death benefits to
recipients, shall be deemed to be a death benefit payable in
respect of the death of that person out of or under a fund or
plan established for the payment of death benefits to recipi
ents. (The underlining is mine.)
The parties agreed that the evidence in this
appeal shall consist of the following:
1. Agreed statement of facts filed before the
Tax Appeal Board.
2. Exhibit 1—Manufacturers Life Insurance
Company Policy No. 1478826 with application
attached.
3. Exhibit 2—letter Ronald D. Smith & Co.
Limited to Toronto Stock Exchange, dated
January 27, 1959.
4. Exhibit 3—letter P. A. Wisener to Bank of
Nova Scotia dated January 30, 1959.
5. Exhibit 4—covenant letter P. A. Wisener
to Bank of Nova Scotia dated January 30, 1959.
6. Exhibit 5—letter P. A. Wisener to Bank of
Nova Scotia dated December 19, 1958.
7. Evidence J. T. DesBrisay given before the
Tax Appeal Board.
together with portigns of the examination for
discovery of J. T.' DesBrisay read into the
record by counsel for the Minister.
The agreed statement of facts filed before the
Tax Appeal Board is as follows:
1. The Minister has included in the taxable value of the
property passing on the death of the deceased the sum of
$38,160.97 being the net amount paid by the Manufacturers
Life Insurance Company to Rosehill Holdings Limited
("Rosehill") under Policy No. 1478826 insuring the life of
the deceased and owned by Rosehill. The said policy was
originally issued to Wisener & Company Limited ("Wisener
Limited") in June, 1958; it was sold by that company to the
deceased's widow on May 25th, 1961 and subsequently was
sold by her to Rosehill on January 17, 1967.
Exhibit 1 to this Statement is a true copy of the policy
with application attached.
2. The Minister has taken the position that the aforesaid
sum is an amount payable in respect of the death of the
deceased under a policy of insurance effected on the life of
the deceased in respect of, in the course of or by virtue of his
office or employment as an employee of Wisener Limited
and therefore to be included in the taxable value of property
passing on the death of the deceased under the provisions
of section 3(4b) of the Estate Tax Act. The sole issue in
these proceedings is whether the provisions of section 3(4b)
are applicable.
3. In 1958, the deceased was the president of Wisener
Limited, members of the Investment Dealers Association of
Canada and dealers in investment securities, and also of
Mackellar, Wisener Limited ("Mackellar Limited") stock
brokers and members of the Toronto Stock Exchange (these
companies are hereinafter sometimes together called "the
Wisener Companies"). The deceased, his brother C. R.
Wisener and his son R. A. Wisener (hereinafter together
referred to as "the Wisener Group") owned the majority of
the shares in both companies.
4. In the spring of 1958, the deceased opened negotia
tions with the shareholders of Ronald D. Smith & Company
Limited ("Smith Limited") also members of the Toronto
Stock Exchange, with a view to acquiring the business of
that company for the account of the Wisener Companies.
Smith Limited specialized in the handling of overseas trans
actions and the Wisener Companies had important contacts
in England and desired to acquire the Smith Limited busi
ness to enhance their own overseas businesses. The negotia
tions aforesaid culminated in the early part of 1959 when
the Smith Limited business was taken over by the Wisener
Companies.
Exhibit 2 is a copy of a letter from Smith Ltd. to the
Toronto Stock Exchange setting out the result of the
transaction.
5. At the outset of the negotiations aforesaid it was
recognized by the Wisener Group that if the Smith Limited
business were acquired, it would be necessary for the
Wisener Companies to increase their capital by reason of
the rules of the Toronto Stock Exchange and the Invest
ment Dealers Association of Canada which require member
companies to maintain certain ratios of capital in proportion
to business carried on. The ratios required in respect of the
carrying on of an overseas business were substantially more
onerous than in the case of firms carrying on domestic
businesses because of delayed delivery dates and the deliv
ery practices of overseas firms. It was accordingly neces
sary for the Wisener Companies to obtain assurances that
the additional capital required could be raised before pro
ceeding far with the negotiations. To this end, the Wisener
Group undertook to lend the moneys required by the said
Wisener Companies on the security of long term notes.
6. The rules of the Toronto Stock Exchange and of the
Investment Dealers Association of Canada prohibit member
firms from raising long term capital from other than share
holders or employees of the member firms and accordingly
the shareholders of the Wisener Companies were the only
source of the long term capital requirements of the
Companies.
7. The Wisener Group arranged to raise the capital which
they agreed to invest in the Wisener Companies aforesaid
by borrowing the same from the Bank of Nova Scotia ("the
Bank") secured by a pledge of the long term notes of the
Wisener Companies as aforesaid and the assignment by the
Wisener Companies to the Bank of the policies of insurance
on the lives of the Group to be maintained by the Wisener
Companies.
Exhibits 3 & 4 to this Statement are letters of Jan. 30,
1959 from the deceased to the Bank applying for this
loan.2
8. Insurance was effected by Wisener Limited on the
lives of the Wisener Group as follows:
(i) an insurance policy in the face amount of $50,000 on
the life of the deceased was taken out on June 26, 1958
(being the insurance in question in this proceeding);
(ii) an insurance policy in the face amount of $60,000 on
the life of Robert A. Wisener was taken out on June 24,
1958;
(iii) an insurance policy in the face amount of $60,000 on
the life of Charles R. Wisener was taken out on June 24,
1958;
The aforesaid insurance was effected some seven months
before the final completion of the agreement with Smith
Limited because the members of the Wisener Group were
found to be insurable on application made in June, 1958
(soon after the commencement of negotiations) and the
insurance was accordingly then taken out.
9. In January 1959, at the time of the completion of the
transaction with Smith Limited, the Wisener Group jointly
borrowed the sum of $230,000 from the Bank. At that time
it was agreed with the Bank that in the event of the death of
a member of the Wisener Group the proceeds of life insur
ance held by the Wisener Companies on the life of that
member would be used and applied to enable the estate of
that deceased member to repay that deceased member's
portion of the said joint loan to the Bank.
10. The sum of $230,000 borrowed by the Wisener
Group from the Bank as aforesaid were used by the Wisen-
er Group to purchase notes of the Wisener Companies as
follows:
(i) the deceased and his wife purchased notes of Wisener
Limited in the principal amount of $70,000
(ii) the deceased and his wife purchased notes of Mackel-
lar Limited in the principal amount of $70,000
(iii) C. R. Wisener purchased notes of Wisener Limited in
the principal amount of $30,000
(iv) C. R. Wisener purchased notes of Mackellar Limited
in the principal amount of $20,000
(v) R. A. Wisener purchased notes of Wisener Limited in
the principal amount of $20,000
(vi) R. A. Wisener purchased notes of Mackellar Limited
in the amount of $20,000
In addition, at this same time, C. Barnaby Benson, a resi
dent of England and a former shareholder of Smith Limited
who at the time of the transaction became a shareholder of
Mackellar Limited, purchased notes of Mackellar Limited in
the principal amount of $50,000.
11. Immediately after the purchase of notes as aforesaid,
Wisener Limited applied the sum of $35,000 to retire pref
erence shares of that Company held by the deceased and his
wife.
12. Just prior to the advance of moneys by the Bank to
the Wisener Group the policies of insurance described in
paragraph No. 8 above, were pledged by Wisener Limited
to the Bank. In addition Wisener Limited also pledged to
the Bank insurance already owned by it on the life of the
deceased in the face amount of $30,000 (which insurance
had been held by Wisener Limited to enable it to redeem
preference shares held by the deceased as aforesaid in the
event of the death of the deceased). The insurance so
pledged was in addition to insurance on the life of the
deceased pledged to the Bank by Mackellar Limited.
Exhibit 5 to this Statement is a copy of a letter from the
deceased to the Bank dated December 16, 1958.
14. In the summer of the year 1959 (some months after
completion of the acquisition of the business of Smith
Limited) and because of changes in the capital requirements
of the Toronto Stock Exchange, Wisener Limited acquired
the assets of Mackellar Limited and changed its name to
Wisener, Mackellar and Company Limited. The borrowings
of the two companies were consolidated and new notes
issued by Wisener, Mackellar and Company Limited and
the previous notes cancelled. Immediately thereafter notes
of Wisener, Mackellar and Company Limited in the princi
pal amount of $40,000 held by the deceased were sold to S.
R. Mackellar another shareholder of the Company; and the
policy of insurance in issue in this proceeding was, on May
25, 1961 sold by the Company to the deceased's widow at
the full cash surrender value thereof. Subsequently, the
deceased's widow sold the policy to Rosehill all of the
issued shares of which are beneficially owned by the chil
dren of the deceased.
The application by Wisener & Company Lim
ited for the policy stated that its relationship to
the life to be insured was President of the
Company and that the Company's insurable
interest in the life was stock interest.
Letters to the Bank of Nova Scotia referred
to in paragraph 7 of the agreed statement of
facts, applying for the loan of $230,000 state,
inter alia, that the loan will be secured by
(a) a joint note of P. A. Wisener and M. J.
Wisener, C. R. Wisener and R. A. Wisener;
(b) the pledge of the notes to be purchased;
(c) the pledge of certain life insurance poli
cies, namely, $292,000 on the life of P. A.
Wisener, $60,000 on the life of C. R. Wisen-
er, and $60,000 on the life of R. A. Wisener,
and include also the following paragraphs:
The enlargement of the two businesses and the borrow-
ings which we contemplate, clearly dictate the preserva
tion of the control by the Wisener group.
By the use of life insurance assigned to your Bank and
also life insurance on the lives of the borrowers carried
by the two firms, the debts of the individuals will be
largely, if not entirely, eliminated in the case of the death
of any of the borrowers.
In addition, funds will be provided to the survivors to
acquire the equity held by the individual so that the
control would be secured for the protection of the Bank.
It is proposed to pledge through a joint note of all the
assets of the Wisener group. As part of this program all
current indebtedness to your Bank will be discharged.
In actual practice the amount for which each participant
will be responsible will be furnished to your Bank for its
records.
This becomes necessary for the individual tax returns, as
the notes will be issued in the name of the individual and
therefore interest will accrue to each individual.
This procedure is further dictated so that the amount of
insurance assigned to your Bank by the individuals can
discharge the individual's indebtedness in case of death.
Under these circumstances the estate of the deceased
would only be obligated to pay up the unpaid portion of
the deceased individual's liability and any balance
received through insurance would be paid over to the
estate of the deceased and the estate of the deceased
would be released from further obligation.
Mr. J. T. DesBrisay, whose evidence before
the Tax Appeal Board is included in the agreed
evidence in this Court, is executor of the estate
of the deceased and also his son-in-law, and he
is a solicitor of the Supreme Court of Ontario
and a partner in the legal firm of Cassels,
Brock, in Toronto. He testified that he was
consulted in connection with the deceased's
negotiations with the Smith Company and was
familiar with the arrangements made by the
Wisener Companies to obtain the necessary
capital. He said that the arrangement proposed
at the outset of the negotiations was that the
Wisener Group would themselves borrow
money from the bank and in turn lend it to the
Wisener Companies, secured by long-term
notes, that it had been a policy of the Compa
nies to effect insurance on the lives of the
individuals lending the money so that in the
event of the death of any of the individuals
there would be additional capital from the pro
ceeds of the life insurance to enable the Compa
nies to reduce the long-term note; and that in
this instance it was part of the arrangement that
the Wisener Group arranged financing to enable
them to buy the notes of the Companies on the
basis that the Companies would take out suffi
cient insurance and pay the premiums on it to
protect their estates in the event of death; that
the insurance was effected in June 1958 and
was held by the Wisener Companies pending
the completion of the Smith deal and in Decem-
ber of that year, when only formalities of the
deal were still to be completed, the several
policies, including the policy in issue in this
case and $60,000 on the lives of each of the
other members of the Group, plus $30,000
which had been taken out previously in 1954 by
Wisener & Company, were lodged with the
bank and later in January 1959 were formally
assigned to the bank to stand as additional
security for the moneys borrowed by the Wis-
ener Group from the bank. In answer to a
question whether the policy was taken as
security for the loan given to the Wisener group
of companies by the Wisener Group or whether
it was used to facilitate the Wisener Group
borrowing money from the bank, Mr. Des-
Brisay's answer was as follows:
The two were inseparable. The Wisener Group insisted on
having insurance to protect their advances to the company,
so that in the event of their death there would be money to
pay off the bank. You see, they borrowed from the bank on
demand notes $230,000. Mr. Wisener's portion of that
originally was $140,000.00. In the event of his death the
bank would call that $140,000.00 and otherwise he would
be left with a long-term obligation of his company paying
him that $140,000.00 over a period of time.
and he further stated that the proposal that the
deceased made to the bank was "Lend us
$230,000 and we will secure it by taking notes
of the Wisener Companies and taking insurance
which the Wisener Companies will take out".
He also said that the deceased was 59 or 60
years of age when the policy in issue was taken
out, he was concerned about his insurability and
applied for the insurance money early in the
negotiations because it was the means by which
financing could be arranged, and the policy was
taken out when he was found to be insurable. In
answer to the question why in May 1961 the
policy was sold to the deceased's widow (prior
to his death), Mr. DesBrisay said that the
amount that the deceased personally owed to
the bank as his portion of the joint note had
been reduced, partly by the sale of some of his
notes to Mackellar and in part by the regular
principal payments which had been made on the
notes for a couple of years, so the insurance
was no longer required to secure the money he
owed to the bank and therefore no longer
required to secure the reduced money which the
company owed him and as a result there was no
further justification for the company to hold the
policy and continue to pay premiums on it. Mr.
DesBrisay was asked on examination for dis
covery why the policy of insurance was not
cancelled at the end of May 1961 when it had
served its purpose with the bank and his reply
was:
It is very hard for me to speculate as to that. I would say
there were probably a number of reasons: one, I don't know
if Mr. Wisener ever had a policy of insurance that he ever
had in his life to be cancelled because he always felt that it
would be a very valuable asset to have in the event of
further borrowings being required either by him or his
family. Oh, I don't think I can do better than that. He
believed in insurance.
It was agreed by the parties that at all rele
vant times the deceased was an employee of the
Wisener Companies, and there also was no
question that the Wisener Group controlled the
Wisener Companies, that Rosehill is a company
owned by the children of the deceased, and that
when the policy was purchased from the Wisen-
er Company by the deceased's widow and
subsequently purchased by Rosehill these pur
chasers paid the full cash value of the policy.
The position taken on behalf of the Minister
is that the scheme of the Estate Tax Act brings
into the net worth of an estate policies of insur
ance of the kind here in issue which, in this
particular instance, ended up in the hands of the
children of the deceased; that the policy was
taken out by the Wisener Company not merely
to provide security to the bank but to protect
and benefit the estate of the deceased in the
event of his death, and that it was effected "in
respect of, in the course of or by virtue of his
office or employment" as an employee of the
Wisener Company, within the meaning of sec
tion 3(4b) of the Act; also that the words "in
the course of" refer to time and have the same
meaning as the word "during".
Counsel for the appellants submitted that the
policy was taken out to provide a method to
satisfy the deceased's obligation to the bank in
the event of his death, that the taking out of the
policy was in relation to his position as a lender
of funds to the company, and had nothing to do
with his status as an officer or employee of the
company; that the policy was not effected "in
respect of, in the course of or by virtue of" his
office or employment; and that those words as
used in the Act imply a direct causal connection
between the taking out of a policy and the
office or employment of the insured person as
an employee of the company.
Counsel for the appellants cited the following
cases in support of his argument: Williams v.
M.N.R. [1955] Ex.C.R. 12; Hochstrasser v.
Mayes [1959] 3 All E.R. 817; Goldman v.
M.N.R. [1953] 1 S.C.R. 211; Attorney-General
v. Murray [1904] 1 K.B. 165.
The words "in respect of, in the course of or
by virtue of" an office or employment are
found also in the Income Tax Act and are also
used in numerous contexts in everyday lan
guage, they are not precise words. In some
dictionaries the words "in the course of" are a
synonym of "during" or "while".
In the present case I do not think it can be
said that the insurance was taken out "in
respect of" or "by virtue of" the deceased's
office or employment, for it was taken out
predominantly as an incident or step in the
method adopted to raise needed funds for the
company and because the deceased incurred
liability to the bank as a borrower of a portion
of the funds lent to the company in that connec
tion. The statements in the application for the
policy as to his relationship as president and as
to the company's insurable interest as stock
interest are not inconsistent with that view. It
seems to me also that the words "in the course
of" in section 3(4b) are not used merely in the
sense of "during" or "while", and I think that
where, as in this case, the policy was effected
because the deceased was lending money to the
company and not because he was an officer or
employee, the subsection does not apply to the
policy in question.
The appeal will therefore be allowed, with
costs, and the assessment will be referred back
to the respondent for re-assessment on the basis
that section 3(4b) of the Estate Tax Act does
not apply to the policy in question.
i It was agreed by counsel for the parties at the hearing of
the appeal in this Court that section 3(1)(m) is not
applicable.
2 M. J. Wisener, referred to therein, was the wife of the
deceased P. A. Wisener.
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.