The recent income tax tribunal decision in Buckeye Trust is worthy of praise and criticism.

The recent income tax tribunal decision in BuckeyeTrust is worthy of praise and criticism.

I applaud the sound interpretation of clause (x) of the proviso to Section 56(2)(x)(c) of the Act. Clause (x) is clear – the trust must be 'solely' for the benefit of the settlor’s relatives. In the absence of a temporal requirement, there is no call to read clause (x) as applying only to the moment of receipt. Instead, there must be certainty that the trust is, and will always be, solely for the benefit of the settlor’s relatives. Any other interpretation is prone to abuse.

A discretionary trust administered by a trustee with the power to add unrelated beneficiaries does not satisfy clause (x) because it is impossible to determine with any certainty whether such a trust is solely for the benefit of the settlor’s relatives until the trust is terminated.

I also applaud the rejection of the specious argument that trust contributions involve consideration. A “trust” is “an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner". To point to the word obligation and insinuate the existence of consideration is wrong. By the acceptance of a trust and by the terms of the trust deed a trustee assumes obligations but these duties should be seen not as based on a contract but rather on the effect of a conveyance. These are fiduciary duties rooted in equity and codified under the Trusts Act. Their assumption is not equivalent to the giving of consideration as understood under the Contract Act.

Unfortunately, some of the tribunal’s other conclusions amount to a fascinating showcase of what happens when logic takes a holiday.
For some inexplicable reason, having jettisoned any semblance of legislative deference and rewritten a perfectly workable definition of ‘property’, the tribunal chooses to treat partnership interests as shares by construing the word “shares” to mean 'a part or portion of something' because – wait for it – “sharing" refers to dividing or giving out portions of something among several people. Why examine the law when simplistic analogy will suffice.

I’m all for treating partnership interests on par with shares and securities – but that is a decision for Parliament. Not the tribunal. The Partnership Act and the Limited Liability Partnership Act both speak of ‘partnership interests.’ The merest perusal of the Income Tax Act makes clear that ‘shares’ is a term of art. Especially as used in section 56. After all, if the term ‘share’ was capable of such wide import, why did Parliament reference “shares or interest” in Section 9(1)?