Date: 19981223
Docket: 97-370-IT-G
BETWEEN:
KEN & JESIE DEGRACE FAMILY TRUST,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Delivered orally from the Bench at Toronto, Ontario on August 7, 1998 and revised in Ottawa, Ontario on December 23, 1998
Bonner, J.T.C.C.
[1] The appellant trust appeals from assessments of income tax for the 1993 and 1994 taxation years. In making each assessment, the Minister of National Revenue disallowed the deduction of $46,000.00 claimed under subsection 104(6) of the Income Tax Act ("Act") as an amount which "became payable in the year" to the beneficiaries of the Degrace Family Trust.
[2] The trust was discretionary in nature and in this regard I refer to paragraph 2(b) of the trust debenture, Exhibit A-1. It was the position of the appellant that amounts totalling $46,000.00 were paid in each year to the two beneficiaries as a consequence of payment of trust funds by Mrs. Degrace as trustee to herself and the expenditure by her of such funds for the benefit of the children who are the beneficiaries of the trust.
[3] Mrs. Degrace did not pay any of the money to the beneficiaries at all. The money in question was spent on the ordinary household costs of the Degrace family. It was paid for shelter costs in the form of mortgage payments on the family farm owned by Mr. and Mrs. Degrace and, I gather, on maintaining the family home on the farm by way of decorating and painting bedrooms. As well, it was spent in grocery stores for food that was served on the family table. It was spent in pharmacies for medicines required by the children. It was spent on the diapers worn by the beneficiaries. It was spent to cremate the remains of the family pet and to purchase a replacement.
[4] The evidence established that Mrs. Degrace spent the trust moneys on ordinary family household expenses. The evidence falls far short of establishing payment in the year to a beneficiary.
[5] Assuming, without deciding, that payment of trust funds to a trustee and expenditure of such funds by the trustee for the benefit of a beneficiary may constitute payment to a beneficiary within the meaning of subsection 104(24) of the Act, the expenditure by the trustee must clearly be made by the trustee in his or her capacity as trustee for a purpose which is unequivocally for the benefit of beneficiary.
[6] The evidence here shows nothing more than the use by a person who happened to be a trustee of trust property to pay the ordinary expenses of a household in which the trustee and beneficiaries resided. For that reason alone the appeals must fail.
[7] I will add that the evidence falls far short of accounting for the expenditure of all of the $46,000.00 in issue in each of the years. The appeals will therefore be dismissed with costs.
Signed at Ottawa, Canada, this 23rd day of December 1998
"Michael J. Bonner"
J.T.C.C.