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1929 Supreme(SC) 88
Privy Council At Ontario
Justice Duff, Tomlin , Mer-Rivals , Darling, Justice Lords Chancellor, JJ.
Eri Beach Co. Ltd. -Appellant
Versus
Attorney-General of Ontario -Resopndent
Privy Council Appeal No. 41 of 1929
Decided On : 07-11-1929
Redden, Blake, Lawrence Jones and Co., A.W. Margins, Wilford Greene , A. Courtney Kings-tone, W.N. Tilley
The location of shares for taxation purposes is where the share register is legally required to be kept. A statutory penalty imposed on a company for transferring shares without payment of succession duty is a direct tax if the company cannot recover the amount from the beneficiary.
Headnote:(A) Succession Duty Act - Sections 7 and 10 - Companies Act - Location of shares - Succession duty is imposed on property situate in the Province. The locality of shares in a joint stock company is determined by where the shares can be effectually dealt with, specifically where the register of shareholders is required by law to be kept. (Paras 10-13)
(B) Direct vs. Indirect Taxation - A tax is direct if it is demanded from the person who is intended to pay it, and indirect if demanded from one person with the expectation that they will be indemnified by another. A statutory penalty imposed on a corporation for permitting the transfer of property without payment of duty, where no right of reimbursement exists, constitutes a direct tax and is within the legislative powers of the province. (Paras 14-18)
Facts of the case:
A company incorporated in a province had shares registered to a deceased person domiciled in a foreign state. The company sought a declaration that the shares were not subject to the province's succession duty and that the company was not liable for penalties for transferring shares without such duty. Although the company's business was managed from a foreign state, its head office and share register were legally required to be maintained within the province.
Findings of Court:
The shares are property situate in the province because they can only be effectually dealt with there. The provision imposing liability on the company for unauthorized transfers is a direct tax as it penalizes the company without providing for reimbursement from the beneficiary.
Issues: Whether shares of a company are situated where the register is kept or where the business is managed, and whether a penalty imposed on a company for transferring shares without payment of succession duty constitutes an indirect tax.
Ratio Decidendi: The local situation of shares is determined by the place where the register is required by law to be kept, as this is where the shares can be effectually dealt with. Furthermore, a liability imposed on a corporation for breaching a statutory prohibition, which the corporation cannot recover from others, is a direct tax.
Result: Appeal dismissed.
Legal Category Hierarchy
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constitutional law
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division of powers
- direct taxation
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division of powers
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tax law
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succession duty
- situs of assets
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succession duty
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company law
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shares
- transfer of shares
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shares
Lord Merrivale, J.:-
The Erie Beach Company, Limited, appeals against the judgment of the Appellate Division of the Supreme Court in an action upon an agreed statement of facts wherein the company prayed a declaration that certain shares of its capital stock registered in the name of Frank V. E. Bardol, deceased, and other like shares allotable to him under a contract of his with the company were not upon his death subject to duty under the Ontario Succession Duty Act; a declaration that the company is not under S. 10 of the Act liable to pay duty in respect of a transfer of such shares permitted by the Company before payment of succession duty thereon or security given for the payment of the same; and a declaration that S. 10 of the Act in so far as it purports to impose the last mentioned duty on the company is ultra vires of the Province of Ontario.
Frank V. E. Bardol was at all material times domiciled in the State of New York in the United States of America. The plaintiff company is incorporated in Ontario under the Ontario Companies Act, 1914, having as its chief object the establishment, ownership and conduct of an amusement park upon a site at the village of Fort Erie on the Canadian shore of Lake Erie, within easy reach of the city of Buffalo. Mr. Bardol was apparently the person chiefly concerned in the undertaking. In consideration of assignments of property made by him to the company 9,000 preferred and 1,000 ordinary shares of $100 each therein, fully paid, were agreed, to be issued to him; one hundred of the ordinary shares were issued, ninety-six to him and four to nominees of his. The remainder were to be issued when and as he should direct, and remained unissued at his death in April 1925. Probate of the will of Frank V. E. Bardol was granted in 1925 in the proper Court in the State of New York. The plaintiff company in 1926 issued 'certificates for the testator's previously unissued shares, but was notified on behalf of the Attorney-General of Ontario that it would be held liable under the terms of the Provincial statutes if it should permit any transfer before succession duty had been paid or secured. Thereupon the company brought the present action. At first instance judgment was given in its favour, but upon appeal, the Court of appeal was unanimously of opinion against the several contentions raised by the plaintiffs. The Court held the shares to be subject to succession duty, the statute intra vires of the provincial legislature, and the contingent liability of the company under S. 10 to be well founded in law.
The Ontario Succession Duty Act (R.S.O., 1914, c. 24) by S. 7 imposes succession duty on:
"all property situate in Ontario and any income thereon passing on the death of any person, whether at the time of death domiciled."
in Ontario or elsewhere, and no question was raised but that this enactment so far as S. 7 goes is within the legislative powers of the province as a measure of direct taxation within the terms of the British North America Act, 1867, S. 92.
What was mainly in dispute upon the hearing at this Board was whether the shares in question were assets of the testator situate in Ontario. There was, however, the further question whether, in any view of the matter, S. 10 of the statute, imposing liability not upon succession to shares, but upon the corporation in which the shaves exist, without the accrual of any successory interest in them to the company, is or is not indirect taxation and so beyond the legislative powers of the province. The material words of S. 10 are these :
"No property in Ontario belonging to any deceased person at the time of his death or held in trust for him ... whether such deceased person was at the time of his death domiciled in Ontario or elsewhere, shall be transferred . . . until the duty, if any, is paid, or security given therefor, and any corporation or person allowing such property to be so transferred . . . contrary to this subsection shall be liable for such
