A-232-73
Reverend Joseph K. Wipf (Appellant)
v.
The Queen (Respondent)
and
Jacob K. Wipf (Appellant)
v.
The Queen (Respondent)
and
Reverend Peter S. Tschetter (Appellant)
v.
The Queen (Respondent)
and
Reverend John K. Hofer (Appellant)
v.
The Queen (Respondent)
and
Reverend John K. Wurz (Appellant)
V.
The Queen (Respondent)
Court of Appeal, Thurlow and Ryan JJ., Smith
D.J.—Edmonton, January 30, 31, 1975.
Income tax—Hutterite communities—Income received by
trustees for common benefit—Subsistence allowed each mem-
ber—Members not assessable for tax on aliquot share of
profits—Assessable as to subsistence—Income Tax Act ss. 2,
3, 4—The Companies Act, R.S.A. 1970, c. 60, s. 29.
The appellants, adhering to the tenets of the Hutterite
Brethren Church, lived in communities where extensive farm
ing operations were carried on by trustees appointed by compa
nies formed under The Companies Act (Alberta) or, in the case
of unincorporated communities, by trustees appointed under a
trust deed. The actual services were performed by the appel
lants, by other members and by their families. The appellants
covenanted to give their services "without compensation or
reward", except for what was allowed them by the trustees, in
whom was vested the income from the operations, for the
common use and benefit. The allowance included food, cloth
ing, lodging, medical and dental care, maintenance in illness or
old age, and education of the children. Assessments of the
appellants for the years 1961-66 were affirmed by the Tax
Review Board. Affirming the decision, the Trial Division, for
reasons reported in [1973] F.C. 1382, held that the appellants
were in receipt of income from a business or property within
the meaning of section 3 of the Income Tax Act and were
therefore liable to assessment for taxation on their aliquot
share in the profits therefrom, by virtue of section 4. The
appellants appealed further to the Court of Appeal.
Held, the appeal should be allowed. In the case of the
unincorporated group, the individual appellants and the mem
bers of the community as a whole had no entitlement to a share
of the profits from the farming operation. Where the affairs of
the community were in the hands of a corporation, the individu
al members were denied dividends. The farming operations
were those of the trustees and for their account. The profits
from the operations were theirs with a view to the purposes for
which they were appointed. The members were not entitled to
such profits, individually or collectively, but were entitled to
subsistence only, and its value represented the full value of the
individual member's taxable income. The assessment should be
referred back to the Minister for re-assessment on that basis.
Hofer v. Hofer [1970] S.C.R. 958, applied.
INCOME tax appeal.
COUNSEL:
J. A. Matheson for appellants.
N. A. Chalmers, Q.C., and R. Pyne for
respondent.
SOLICITORS:
J. A. Matheson, Edmonton, for appellants.
Deputy Attorney General of Canada for
respondent.
The following are the reasons for judgment
delivered orally in English by
THURLOW J.: This is an appeal from judgments
of the Trial Division dismissing appeals from deci
sions of the Tax Review Board which had dis
missed appeals from assessments of income tax for
the years 1961 to 1966 inclusive. The details of the
facts are set out in the reasons for judgment of the
learned Trial Judge and in those to be delivered by
Mr. Justice Ryan.
The appellants are Hutterites, each being a
member of a Hutterian colony or community. Two
of them are members of an unincorporated com
munity the affairs of which are carried out by a
group of trustees in their capacity as trustees of
the community property. Each of the other three
appellants is a member of one of three other
communities the affairs of which are carried on in
each case by a corporation limited by guarantee, of
which the appellant is a member. In all cases
farming operations are carried on and the profits
therefrom belong to the trustees in their capacity
as trustees of the community property or to the
corporation, as the case may be. Each appellant
devotes his time and efforts to working on the farm
of the community of which he is a member, but he
owns nothing, he is entitled under the arrange
ments to nothing, and he gets nothing beyond such
subsistence as the trustees or corporation allow
him. This includes food, clothing, lodging, medical
and dental care and maintenance when
incapacitated by illness or age for the member and
his family as well as education for his children.
In the case of the unincorporated group neither
the individual appellants nor the members of the
community as a whole are the sole beneficiaries of
the trust and they have no entitlement to a share
of the profits of the farming operation. See Hofer
v. Hofer' where Ritchie J. speaking for the majori
ty of the Court said at pages 968-9:
It follows in my view that, notwithstanding the fact that the
Interlake Colony was a prosperous farming community, it
cannot be said to have been a commercial enterprise in the
sense that any of its members was entitled to participate in its
profits. The Colony was merely an arm of the church and the
overriding consideration governing the rights of all the Breth
ren was the fulfilment of their concept of Christianity. To the
Hutterian Brethren the activities of the community were evi
dence of the living church. In this context I find it impossible to
view the Interlake Colony as any form of partnership known to
the law.
Similarly in the cases where the affairs of the
community are in the hands of a corporation the
individual members are not entitled to receive
dividends.
' [1970] S.C.R. 958.
The assessments in question in each case treat
the appellant as having been entitled to a share of
the profits of the farming operation and they have
been upheld on the view that the individual mem
bers of the communities, including the appellant in
each of the cases, can be regarded as having been
engaged in farming and entitled to an aliquot
share of the profits of the operation which, by
reason of prior assignment by him on his becoming
a member, had become vested in the trustees or
corporation after he had become entitled to it.
With respect, I am unable to share this view.
In my opinion neither the farming operations
nor the profits therefrom are, in any relevant
sense, those of the individual members of the
communities. The operations in each community
are those of the trustees or the corporation, as the
case may be, and for their account. The profits, as
well, of such operations are theirs for the purposes
for which they have been established. The
individual members are not entitled to such profits
at any stage either in individual shares or collec
tively. When becoming members they engage to
devote their time and effort to the operation with
out wages or reward and without entitlement to
any form of return save the subsistence to be
provided by the trustees or corporation for them
and their families. Such subsistence, as I see it, is
all that the individual members are ever entitled to
under the arrangements and, in my opinion, its
value represents the full extent of the individual
member's income for the purposes of the Income
Tax Act.
I would allow the appeal and refer the assess
ments back to the Minister for re-assessment on
that basis. The appellants are entitled to their costs
of the appeal and in the Trial Division.
* * *
The following are the reasons for judgment
delivered orally in English by
RYAN J.: This is an appeal from judgments of
the Trial Division dismissing appeals from deci-
sions of the Tax Review Board affirming assess
ments made against the appellants in respect of
income allegedly earned by them in the taxation
years 1961 to 1966 inclusive.
The appellants, who are Hutterites, are mem
bers of Hutterian colonies in Alberta. Three of the
appellants are members of corporations incorpo
rated under The Companies Act of Alberta' as
companies limited by guarantee. The others are
members of an unincorporated community.
The objects of one of the companies, with the
name "Hutterian Brethren of Mixburn", are set
out in clause 3 of its Memorandum of Association.
There are minor differences between this Memo
randum and the Memoranda of the other two
companies, but in my view the differences are
without significance to this case. Clause 3
provides:
3. The objects for which the Company is established are:
(a) To promote, engage in and carry on the Christian reli
gion and religious teachings, and connected therewith and as
part thereof, the religion and religious teachings of the
Hutterian Brethren Church, being the belief of the members
of said Company; to engage in, carry on, and conduct
farming, agriculture, milling, manufacturing of flour and
other articles from agricultural products, and mechanics and
mechanical arts, necessary thereto, and to buy and sell and
deal in said agricultural products and products made and
manufactured therefrom, and other articles, material, ma
chinery, implements and things belonging to, or necessary to
engage in, carry on and conduct said farming, agriculture,
milling, manufacturing, mechanics and mechanical arts
necessary thereto, and as a part of and connected with the
religion and religious teachings of said Company and mem
bers thereof.
(b) That all the property, real and personal, of said Com
pany, howsoever it may have been obtained, shall forever be
owned, used, occupied and possessed by said Company for
the common use, interest and benefit of each and all mem
bers thereof, for the purposes of said Company during the
time, and so long as they remain members thereof.
(c) That all the property, both real and personal, that each
and every member of said Company have, or may have, own,
possess or be entitled to at the time that they join such
Company, or become members thereof, and all the property
both real and personal, that each and every member of said
Company may have, obtain, inherit, possess or be entitled to,
after they become members of said Company, shall be
owned, used, occupied and possessed by said Company for
the common use, interest and benefit of each and all of the
z R.S.A. 1970, c. 60, as amended.
members thereof as aforesaid.
(d) That none of the property, either real or personal, of said
Company shall ever be taken, held, owned removed, or
withdrawn from said Company, or be granted, sold, trans
ferred or conveyed by any member or members thereof; and
if any member of said Company shall be expelled therefrom
or cease to be a member thereof, he or she shall not have,
take, withdraw from, grant, sell, transfer or convey, or be
entitled to any of the property of said Company or any
interest therein; and if any member of said Company shall
die, be expelled from or cease to be a member thereof, then
his or her personal representatives, heirs at law, legatees or
devisees or creditors or any other person shall not be entitled
to, or have any of the property of said Company, or interest
therein, whether or not he or she owned, possessed or had any
interest in or to any of the property of said Company at the
time he or she became a member thereof, or at any time
before or thereafter, or had given, granted, conveyed or
transferred any property or property interest to said Com
pany at any time.
(e) That each and every member of said Company shall give
and devote all his or her time, labor, services, earnings and
energies to the said Company, and the purposes for which it
is formed, freely, voluntarily and without compensation or
reward of any kind whatsoever other than hereinafter
expressed.
(f) That the members of said Company shall be entitled to
and have their husbands, wives and children who are not
members thereof, reside with them and be supported, main
tained, instructed and educated by said Company, according
to the rules, regulations, requirements and by-laws of said
Company, and the Christian religion, religious teachings and
belief promoted, engaged in and carried on by said Company,
during the time and so long as they obey, abide by and
conform to the rules, regulations, instructions, requirements
and by-laws of said Company, but not otherwise howsoever.
(g) Whenever any member of said Company shall die, then
his or her husband, wife and children who are not members
thereof, shall have the right to remain with, and be support
ed, instructed and educated by said Company during the
time and as long as they give and devote all of their time,
labor, services, earnings and energies to the said Company,
and the purposes thereof and obey and conform to the rules,
regulations, requirements and by-laws of said Company, the
same as if the said member had lived, but not otherwise
howsoever.
(h) That the husbands, wives and children of each and all of
the members of said Company, who are not members there
of, shall give and devote all their time, labor, services,
earnings and energies to the said Company and purposes for
which it is formed, freely, voluntarily and without compensa
tion of any kind whatsoever, other than herein provided, and
obey and conform to all the rules, requirements, regulations
and by-laws of said Company while they remain at or with
the said Company.
(i) That the said Company shall not be dissolved without the
consent of a three-fourths vote of all its members; PROVIDED
THAT nothing herein contained shall be deemed to confer
upon the said Company any powers to which the jurisdiction
of the Legislature of the Province of Alberta does not extend,
and particularly shall not be deemed to confer the right to
issue promissory notes in the nature of bank notes; and all
the powers in the said memorandum of association contained
shall be exercisable subject to the provisions of the laws in
force in Alberta and regulations made thereunder in respect
of the matters therein referred to, and especially with respect
to the construction and operation of railways, telegraph and
telephone lines, the business of insurance, and any other
business with respect to which special law and regulations
may now be or may hereafter be put in force.
The Memorandum also declares in Clause 4:
...that this Company has been formed solely for the purpose of
promoting its objects, and that all of its profits, if any, or any
other income, or receipts, will be applied in promoting its
objects, and that no dividends shall be paid to any of its
members.
Clause 7 of the Articles of Association vests in
trustees power to conduct the business and manage
the property of the company. The clause reads:
7. All the powers, privileges, business and property of said
Company shall be exercised, transacted, conducted and con
trolled by the three Trustees hereinafter named as Kirche
Altester, Kirche Gehulfe Altester and the Householder, who
shall be male members of the Company, the other Trustees
merely acting in an advisory capacity notwithstanding anything
to the contrary contained in these Articles of Association.
Clause 9 of the Articles provides:
9. The three Trustees of the Company mentioned in paragraph
7 hereof shall have charge, management and control of, and
exercise, conduct and transact all the affairs, property, business
and transactions of the Company as hereinafter provided.
Clause 16 of the Articles states:
16. The officers of the Company shall consist of the Trustees
as aforesaid.
The Memorandum of Association and the
Articles of Association constitute a contract be
tween the company and each of its members.'
Extensive farming operations were conducted
during the taxation years in question in each of the
colonies. The actual services were performed by
the appellants who are members of the companies
and other members of the companies and by mem
bers of their families. In my opinion, however, the
farming was done by the companies acting pursu
ant to the power conferred on them by clause 3 of
The Companies Act, R.S.A. 1970, c. 60, s. 29. See L.C.B.
Gower, Principles of Modern Company Law (3d ed. 1969) at
pp. 261-265.
the Memorandum of Association to engage in
farming and related undertakings. The services
provided by the appellants were provided under
their covenants with the companies as set out in
the Memorandum of Association.
Two of the appellants, Joseph Wipf and Jacob
Wipf, are members of the "Hutterian Brethren of
Lakeside", which is not incorporated. The objects
of this community are set out in clause 2 of a deed
executed in July, 1948. These objects, stated with
slight differences in wording, are the same as those
quoted above in subclause 3(a) of the Memoran
dum of Association. All of the subclauses, except
subclause 3(i), quoted from clause 3 of the Memo
randum appear as terms in the deed establishing
the Lakeside community. The property of the
Lakeside community is vested in the trustees
appointed by or under the deed of trust. Just as the
farming was conducted by the companies in the
case of the corporate communities, so was it con
ducted by the trustees in the case of the unincorpo-
rated community.
The terms under which services were provided to
the companies and to the unincorporated commu
nity are clearly defined in identical terms in clause
3(e) of the Memorandum of Association and in
clause 6 of the deed of trust. The appellants cove
nanted that they would give and devote their
"time, labor, services, earnings and energies" to
the companies and to the community "freely,
voluntarily and without compensation or reward of
any kind whatsoever other than hereinafter
expressed." The appellants and their families were
to receive support, maintenance and other stipulat
ed benefits. The income of the appellants in
respect of the services provided to the companies
and to the trust community was the value of the
support, maintenance and other benefits received
by them and their families from the companies or
the trustees of the unincorporated community.
The learned Trial Judge appears to have placed
a different construction on the terms of the Memo
randum of Association and of the trust deed. As I
read his reasons for judgment [1973] F.C. 1382,
he construed these terms as including an assign
ment or disposition, by members of the companies
and of the trust community of the right to their
future earnings derived from what he regarded as
their farming activities, to the companies or the
trustees as depositories to hold these earnings for
the use and benefit in common of all the members.
He accordingly concluded that these were earnings
of the members which were properly included in
their income on an aliquot basis. With respect, I
am not in accord with this interpretation. The
terms on which the services were provided were
settled by the Memorandum of Association and
the trust deed. Apart from the support, mainte
nance and other benefits they were to receive
under the relevant clauses of the Memorandum
and the deed, the appellants agreed not to charge
for their services; in other words, for these services
they were to receive the stipulated benefits, noth
ing else. I therefore do not see what they had to
assign either to the companies or the community.
I would allow the appeal and refer the assess
ments back to the Minister for re-assessment on
the terms stated by my brother, Thurlow J.
I agree that the appellants are entitled to their
costs of the appeal and in the Trial Division.
* * *
SMITH D.J. concurred.
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.