Reverend Joseph K. Wipf (Plaintiff)
v.
The Queen (Defendant)
and
Jacob K. Wipf (Plaintiff)
v.
The Queen (Defendant)
and
Reverend Peter S. Tschetter (Plaintiff)
v.
The Queen (Defendant)
and
Reverend John K. Hofer (Plaintiff)
v.
The Queen (Defendant)
and
Reverend John K. Wurz (Plaintiff)
v.
The Queen (Defendant)
Trial Division, Urie J.—Edmonton, September
11, 12 and 13; Ottawa, November 19, 1973.
Income tax—Hutterites—Farm income earned by com-
munity—Whether individuals assessable on aliquot shares—
Income Tax Act, ss. 2, 3 and 4.
Plaintiffs were members of Hutterian colonies in Alberta,
some of which were incorporated by Memorandum of Asso
ciation and some of which were not. Members of the Hut-
terian colonies carried on farming collectively in furtherance
of the religious objects of the Hutterian Brethren Church.
Plaintiffs were individually assessed to income tax on por
tions of the collective income of their respective colonies.
They appealed.
Held, plaintiffs were in receipt of income from a business
or property within the meaning of section 3 of the Income
Tax Act and were therefore taxable on the profits therefrom
by virtue of section 4. The business of farming was carried
on by plaintiffs in common with other members of their
respective colonies under an agreement which operated as a
disposition or assignment of the income earned by plaintiffs
from such business, which income was for the common use
and benefit of each member. The plaintiffs were therefore
required to declare their aliquot shares notwithstanding that
it had not been withdrawn by them.
Barickman Hutterian Mutual Corp. v. Nault [1939]
S.C.R. 223; Hofer v. Hofer [1970] S.C.R. 958; Lagacé
v. M.N.R. [1968] 2 Ex.C.R. 98, discussed.
Held also, inasmuch as the whole scheme of organizations
of the Hutterian Brethren Church made a clear separation of
the Church and its purely religious context from the colony,
the members of which engaged in both religious and secular
activities, plaintiffs were not entitled to deduct from their
income for the year the amount of their earned income as
being members of a religious order within the meaning of
section 27(2) of the Income Tax Act.
Towle Estate v. M.N.R. [1967] S.C.R. 133, discussed.
Held also, the obligation of the plaintiffs to pay tax on
their income earned was not in conflict with the provisions
of the Canadian Bill of Rights.
APPEAL.
COUNSEL:
J. A. Matheson for plaintiffs.
N. A. Chalmers, Q.C., and R. Pyne for
defendant.
SOLICITORS:
J. A. Matheson, Edmonton, for plaintiffs.
Deputy Attorney General of Canada for
defendant.
URIE J.—These are appeals by way of trial de
novo by the plaintiffs from a decision of the Tax
Review Board rendered on the 16th day of
February, 1972 affirming assessments made by
the defendant against them in respect of income
earned by them for the taxation years 1961 to
1966 inclusive. By agreement the actions were
tried together and the evidence adduced is appli
cable in all appeals.
The plaintiffs are all members of the Hutteri-
an Brethren Church which was founded over
four centuries ago in Germany by Jacob Hutter
and are known colloquially as "Hutterites". His
successor was Peter Rideman, whose Confes
sion of Faith first published in Germany in
1565, is the authoritative source of Hutterian
doctrine, belief and practice.
The Hutterites are organized in colonies of
approximately 100 persons each. When the
members of a colony decide that it has become
too large for effective operation a small number
of them will break off from the "mother"
colony and with the financial and other material
assistance thereof form a "daughter" colony. In
the various documents which were tendered in
evidence on the trial of the actions the colonies
are described as congregations or communities
and these congregations or communities are
associated in groups known respectively as
DARIUS-LEUT, LEHRER-LEUT and SCHMEID-
LEUT. Generally speaking, residents in the
colony are members of the Hutterian Brethren
Church which was incorporated in Canada by
an Act to Incorporate the Hutterian Brethren
Church, 15 George VI, S.C. 1951, c. 77. All of
the plaintiffs herein are members of colonies
which are included in the DARIUS-LEUT group of
congregations or communities.
Section 4 of the incorporating Act reads as
follows:
4. The objects of the Corporation shall be to engage in and
carry on the Christian religion, Christian worship and reli
gious education and teaching and to worship God according
to the religious belief of the members of the Corporation.
The Act also empowers the corporation to
hold land for the purposes of the corporation
for the periods of time limited by the enactment,
to borrow money for the purposes of the corpo
ration and to invest and re-invest any of its
funds, in investments prescribed by the Act.
On August 1, 1950 the Constitution of the
Hutterian Brethren Church and rules as to com
munity of property was enacted pursuant to the
Act of Incorporation and was signed by the
appropriate officers of each of the colonies then
existing under the headings of the three afore
mentioned groups to which each colony
belonged. A new amended Constitution was
enacted on May 28, 1970 but it was agreed that
the Constitution of 1950, filed as Exhibit D-1, is
the applicable document in these proceedings.
Article 2 of that Constitution may be summa
rized conveniently as follows:
The objects and powers for which the Church
is formed are, it is stated, to follow the religious
precepts established by Jacob Hutter in such a
way that the members achieve one entire
spiritual unit in complete community of goods
and all members, and especially the elders, are
charged with the responsibility of carrying out
the objects of the Church. It is, moreover,
stated that the capital and surplus produce and
surplus funds of each individual congregation or
community of the Church is to be used by such
community for social work to which the Church
is dedicated. Each congregation or community
of the Church is empowered, inter alia, as
follows:
To engage in, and carry on farming, stock raising, milling,
and all branches of these industries; and to manufacture and
deal with the products and by-products of these industries;
To carry on any other business (whether manufacturing or
otherwise) which may seem to said congregation or commu
nity of the said Church capable of being conveniently car
ried on in connection with its business or calculated directly
or indirectly to enhance the property or rights of the congre
gation or community;
In general each community is further empow
ered to acquire businesses, property and any
liabilities of any person or company carrying on
any business authorized by the Church; to carry
on, to apply for, purchase or otherwise acquire
patents, licences, concessions and the like either
as principals, agents or otherwise; and to do
such other things as are conducive to the attain
ment of the objects of the Church.
Each congregation is also empowered to pur
chase or otherwise acquire real or personal
property and, of course, to sell or convey such
property, to borrow money and to issue security
for such borrowing and to make, amend or
repeal such rules, regulations and by-laws as are
necessary for the good administration of the
community.
Article 3 provides that the Church shall be
comprised of all of the congregations or com
munities in the DARIUS-LEUT, LEHRER-LEUT and
SCHMEID-LEUT groups. The following articles
are also relevant in the determination of the
issues herein:
35. Each congregation or community shall be comprised of
all persons who have been elected to membership in that
congregation or community upon their request and who
have become members and communicants of the Hutterian
Brethren Church in the manner set forth in the book written
by Peter Rideman hereinbefore referred to, and who have
been chosen and elected to membership upon a majority
vote of all the male members of that congregation or com
munity at any annual, general or special meeting thereof.
36. No individual member of a congregation or community
shall have any assignable or transferable interest in any of
its property, real or personal.
37. All property, real and personal of a congregation or
community, from whomsoever, whensoever, and howsoever
it may have been obtained, shall forever be owned, used,
occupied, controlled and possessed by the congregation or
community for the common use, interest, and benefit of
each and all members thereof, for the purposes of said
congregation or community.
38. All the property, both real and personal, that each and
every member of a congregation or community has, or may
have, own, possess or may be entitled to at the time that he
or she joins such congregation or community, or becomes a
member thereof, and all the property, both real and person
al, that each and every member of a congregation or com
munity may have, obtain, inherit, possess or be entitled to,
after he or she becomes a member of a congregation or
community, shall be and become the property of the congre
gation or community to be owned, used, occupied and
possessed by the congregation or community for the
common use, interest and benefit of each and all of the
members thereof.
39. None of the property, either real or personal, of a
congregation or community shall ever be taken, held,
owned, removed or withdrawn from the congregation or
community, or be granted, sold transferred or conveyed
otherwise than by such congregation or community in
accordance with its by-laws, rules and regulations and the
provisions of these Articles, and if any member of a congre
gation or community shall be expelled therefrom, or cease to
be a member thereof, he or she shall not have, take, with
draw from, grant, sell, transfer or convey, or be entitled to
any of the property of the congregation or community or
any interest therein; and if any member of the congregation
or community shall die, be expelled therefrom or cease to be
a member thereof, 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 the
congregation or community, or interest therein, whether or
not he or she owned, possessed or had any interest in or to
any of the property of the congregation or community 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 the congre
gation or community at any time.
40. Each and every member of a congregation or commu
nity shall give and devote all his or her time, labor, services,
earnings and energies to that congregation or community,
and the purposes for which it is formed, freely, voluntarily
and without compensation or reward of any kind whatso
ever, other than herein expressed.
45. The act of becoming a member of a congregation or
community shall be considered as a Grant, Release, Trans-
fer, Assignment, and Conveyance to that gregation [sic] or
community of all property, whether real or personal owned
by any person at the time of his or her becoming a member
of the congregation or community, or acquired or inherited
at any time subsequent thereto; such property to be owned,
occupied, possessed and used by the congregation or com
munity for the common use of all its members.
(The emphases are mine.)
From all of the above it is apparent that there
was a clear distinction drawn between (a) the
religious affairs of the Church which are under
the supervision of the Board of Managers com
posed of nine persons, three of whom were
appointed by each of the groups and (b) the
temporal or business affairs and concerns of
each Church member which were to be
managed by the congregation or community
(hereinafter called the "colony") to which each
belonged.
In this appeal each of the plaintiffs is, of
course, a duly baptized member of the Hutteri-
an Brethren Church and is, as well, a member of
a colony. The plaintiffs Hofer, Tschetter and
Wurz are members respectively of the colonies
known as the Hutterian Brethren of Scotford,
the Hutterian Brethren of Mixburn and the Hut-
terian Brethren of Wilson, each of which is a
company limited by guarantee and incorporated
under the provisions of the Alberta Companies
Act.
The plaintiffs Joseph Wipf and Jacob Wipf
are both members of the Hutterian Brethren of
Lakeside, an unincorporated group.
In the cases of those plaintiffs whose colonies
have been incorporated, the Memorandum of
Association in each case include objects clauses
similar to or identical with the following excerpt
from the Memorandum of Association of Mix-
burn colony:
3. The objects for which the Company is established are:
(a) To promote, engage in and carry on the Christian
religion 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, machinery, 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 members thereof.
Each of the Memoranda also provides, inter
cilia,
(a) that all property, real and personal of the
company shall be owned, used, occupied and
possessed by the company for "the common
use, interest and benefit of each and all mem
bers thereof" for the purposes of the
company,
(b) that all property, real and personal owned
or possessed by a member at the time he joins
the company or which he acquired thereafter
is similarly owned, used, occupied and pos
sessed by the company for the common use,
interest and benefit of each and all members
thereof for the purposes of the company,
(c) that no property shall ever be withdrawn
by a member on death, expulsion or with
drawal from membership,
(d) that each member shall give and devote all
of his or her time, labour services, earnings
and energies to the company and the purposes
for which it is formed freely, voluntarily and
without compensation or reward of any kind,
(e) that the members of the company shall be
entitled to have their husbands, wives and
children who are not members thereof reside
with them and be supported, maintained,
instructed and educated by the company so
long as they obey, abide by and conform to
the rules, regulations and by-laws of the
company.
In so far as the unincorporated colonies are
concerned, of which the Lakeside is an exam
ple, a document which might be described as
Articles of Association, contains provisions
very similar to those referred to above con
tained in the Memoranda of Association of the
incorporated colonies. In the Lakeside colony
there are five trustees elected by the members
at the annual meeting of the colony. Three of
the trustees have full charge and management
and control of the affairs, property and business
transactions of the colony. The other two act in
an advisory capacity only.
The above, then, sets the framework for these
appeals. Counsel for the plaintiffs early in the
trial acknowledged that he was not arguing that
the colonies were charitable organizations
within the meaning of section 62(1)(e) of the
Income Tax Act but simply that the individual
members of each colony because of their renun
ciation of private property and the right to com
pensation for their labours had no earnings, and,
therefore, no taxable income.
Evidence was adduced that no members of
the Hutterian Brethren had any income, savings,
property, insurance, superannuation benefits,
houses, livestock, motor vehicles, farm equip
ment, tools or were the recipients of pensions or
children's allowances from any governmental
source. Their physical needs such as for cloth
ing, food, shelter, medical and dental attention,
equipment, tools and all other necessities were
provided by the colony through its officers or
trustees. Most of their food was supplied from
produce and meat grown or raised on their
communal farms. To a large extent they manu
factured their own clothing and footwear but
purchases of food not grown on the farm and
cloth and leather for clothing and footwear were
made from stores in nearby communities.
Their income was derived from the sale of
livestock, dairy products, poultry, eggs, vege
tables, grain and hides and fur and all receipts
of such earnings were accounted for by the
Bursar of the colony and by the Head Preacher
who are also responsible for payment of all
expenses relating to the operation, including
taxes on the real estate owned by each colony.
Those officers are responsible for maintaining
proper books of account, bank accounts and
investment of surplus funds. Surplus funds are
said to be used in the work of the Church.
Audited statements of the accounts were pre
pared by professional accountants each year.
The Hutterites carry on efficient and success
ful farm operations. Financial statements filed,
assuming they are typical of all or most of the
colonies' operations, indicate that they have
substantial net profits each year the taxability of
which has led to these proceedings. Apparently
until the year 1960, the colonies paid no income
taxes of any kind. Whether returns were ever
filed by or on behalf of the colonies for the
individuals comprising them prior to that time
was not, to my recollection, disclosed in evi
dence. However, some time after 1960 assess
ments were levied at least against the corporate
entities from which appeals were taken. Ulti
mately a Memorandum of Understanding was
entered into in 1968 between the Minister of
National Revenue and certain of the appellants
for and on behalf of the Hutterian Brethren
colonies in Canada. The agreement set forth the
method of computing the taxable income of
each and every member of each colony. The
member colonies of the LEHRER-LEUT and
SCHMEID-LEUT groups have since that time
abided by the terms of the agreement and paid
tax in accordance therewith for each of the
years from and including 1961 to date. The
DARIUS-LEUT group, to which the plaintiffs
herein belong, refuses to be bound by the agree
ment as a result of which the adult members of
each of the colonies in the group were assessed
by the Minister for each of the years 1961 to
1966 inclusive in accordance with the principles
set out in the above mentioned agreement filed
as Exhibit D-8 in these proceedings, thus lead
ing to the appeals to the Tax Review Board and
now to this Court.
As I understand his submissions, counsel for
the plaintiffs argues that
(a) no income tax is leviable against any Hut-
terian Brethren because they are not in
receipt of any income within the meaning of
sections 3 and 4 of the Income Tax Act,
(b) even if they are found to be in receipt of
taxable income they are members of a reli
gious order and had, as such, taken a vow of
perpetual poverty. Therefore, the provisions
of section 27(2) of the Income Tax Act apply
and each is entitled to deduct from his income
for the year an amount equal to his earned
income since that amount had been paid to
the Order,
(c) if, in any event, the income of a member is
found to be taxable by reason of the provi
sions of the Income Tax Act, such provisions
are inoperative because they are in conflict
with the provisions of the Canadian Bill of
Rights and in particular section 1(c) thereof in
that its effect is to interfere with the Hutter-
ites' freedom of religion.
It is the position of the defendant that the
farmers in each colony are collectively engaged
in the business of farming and that the monies
earned by each are, by contract arising out of
the Articles of Association, assigned or made
over before their receipt by such farmers to the
company for use in accordance with the provi
sions of the Memorandum and Articles of Asso
ciation. It is, therefore, income in the hands of
each for tax purposes. Such income is taxable
on an accrual basis and not on a cash basis since
there is no evidence that an election to be taxed
on a cash basis has been made by the plaintiffs
as required by section 85F(1)(c) of the Income
Tax Act.
As will hereafter appear I am of the opinion
that the plaintiffs are in receipt of income from
a business or property within the meaning of
section 3 of the Income Tax Act and are, there
fore, taxable on the profits therefrom by virtue
of section 4 of the said Act. I believe this to be
the case because the business of farming was
carried on by the plaintiffs in common with
other members of their respective colonies
under an agreement which operated as a dispo
sition or assignment of the income earned by
the plaintiffs from such business, which income
was for the common use and benefit of each
member and therefore, the plaintiffs were
required to declare their aliquot share notwith
standing that it had not been withdrawn by
them.
In Barickman Hutterian Mutual Corporation
v. Nault [1939] S.C.R. 223, the Supreme Court
was called upon to decide whether the appellant
was a farmer within the meaning of that word as
used in the Farmers' Creditors Arrangement
Act, 1934. The appellant in that case, a colony
of the Hutterian Brethren Church, was a corpo
ration created by a special Act of the Manitoba
legislature. The objects of the corporation as set
out in the Act were two-fold:
(a) to promote, engage and carry on the Chris-
tian religion according to the beliefs of its
members, and
(b) to engage in and carry on farming, stock-
raising, milling etc.
The Act contained clauses of a similar nature to
those contained in the Articles of Association of
the colonies to which the plaintiffs herein
belonged, particularly in relation to community
of property and devoting labour and earnings to
the corporation without compensation or
reward.
At page 227 Chief Justice Duff found as
follows:
On the other hand, the members of the Corporation are
farmers dependent for their livelihood and the livelihood of
their families upon revenues derived from their labours and
those of their brethren in farming and in necessarily inciden
tal pursuits; the Corporation being the depositary of the title
to all the property and all the revenues of the community,
which it holds and administers for their benefit. The Corpo
ration (which takes the place of the former trustees) is
simply the legal instrumentality by which this autonomous
community of farmers manages under the law its affairs and
those of its members (according to the plan of community of
property); and I can see no impropriety in designating it as a
"farmer" as a "person" whose principal occupation is farm
ing. In a temporal sense, farming (with necessarily incidental
pursuits) is not only the "principal", it is said to be the
exclusive occupation of the members of this community.
The Chief Justice, it can be seen, found that,
notwithstanding that the corporation had reli
gious objects, its principal occupation was that
of farmer and that the corporation was the
depositary for the revenues derived therefrom
which it holds and administers for their benefit.
On the basis of this authority then, the corpora
tions and trusteeships acquiring the revenues
earned by the plaintiffs herein are mere deposi-
taries for the income earned by each member.
Since no distinction can be drawn between
individual members each is the recipient of an
equal share of the net income, even though it is
not drawn by them, and this is income within
the meaning of sections 2, 3, and 4 and there
fore taxable in their hands.
At page 231 Kerwin J., as he then was, found,
as I do in this case
The evidence is uncontradicted that not only the principal
occupation but the sole occupation of all its members is
farming.
He then referred to section 2, subsections (a)
and (b) of the Act of Incorporation which are
similar in terms to the objects clauses in the
Letters Patent of the corporations of which the
plaintiffs are members. Again on page 231 he
says:
... and in section 2 of the Act of Incorporation the first
object "of the corporation" is stated to be:—
(a) to promote, engage in and carry on the Christian
religion, Christian worship and religious education and
teachings, and to worship God according to the religious
belief of the members of the corporation;
This, I think, may be taken to be the spiritual object. So far,
however, as the temporal object of the "corporation" and its
temporal occupation and chief business are concerned, the
"corporation" was by clause (b) of section 2 authorized:—
(b) to engage in, and carry on farming, stock-raising,
milling and all branches of these industries; and to manu
facture and deal with the products and by-products of
these industries;
subsequent clauses authorized the "corporation" to carry on
any other business (whether manufacturing or otherwise)
which might seem capable of being conveniently carried on
in connection with its business, etc., but its principal occu
pation as carried on by its members does consist in farming
or the tillage of the soil.
To summarize, in the Barickman case (supra),
the colony, a corporate entity, was seeking the
benefit of a Federal Act providing for the com
promise and rearrangement of debts of farmers.
In the case at bar the Minister of National
Revenue is endeavouring to apply the provi
sions of another Federal statute, the Income
Tax Act, to the income earned by the members
of a colony from the business of farming as
defined by section 139(1)(p) of the Act. The
situations are, therefore, analogous and the rea
soning in the Barickman case is, in my opinion,
applicable in this case with the result that it
would seem there is nothing to preclude the
application of the Income Tax Act to the farm
income merely because of the reference in each
colony's Articles of Association to the promo
tion of religion.
The reasons of the majority of the Court in
Hofer v. Hofer [1970] S.C.R. 958, at first glance
would not appear to support that result although
Ritchie J. in those reasons cited with approval
the Barickman decision. In the Hofer case the
parties were all Hutterian Brethren but the
appellants had been expelled from the Church
and subsequently the colony to which they had
belonged because they had become adherents of
another faith. When the colony had been
formed each of the seven parties to the action
had signed Articles of Association which includ
ed an objects clause very similar to that of the
Mixburn colony hereinbefore set forth and
many other of the Articles were almost identical
to those referred to in the Mixburn Articles of
Association. They sought a declaration that they
were still members of the Hutterian Brethren
Church, together with an order for the winding
up of the affairs of the colony, the appointment
of a receiver to gather in its assets, an account
ing and direction that all of its assets should be
distributed equally among the appellants and the
respondents. The Supreme Court held that the
trial judge, whose judgment was affirmed by the
Manitoba Court of Appeal, was right in dismiss
ing the action principally on the ground that the
appellants were validly expelled pursuant to the
Articles of Association which they had volun
tarily signed.
At pages 968-969, Ritchie J., whose reasons
were concurred in by Martland and Judson JJ.,
states as follows:
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
Brethren was the fulfilment of their concept of Christianity.
To the Hutterian Brethren the activities of the community
were evidence 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.
Notwithstanding the apparent conflict
between the views as to the legal nature of the
colony as expressed in the Barickman case
(supra) and as expressed by Ritchie J. in the
Hofer case (supra), I do not believe that they
are in fact inconsistent. In reaching this conclu
sion it must first be borne in mind that Articles
of Association comprise, in fact, an agreement
between shareholders or members which are
binding upon all of them (see M.N.R. v. Dwor-
kin Furs (Pembroke) Limited [1967] S.C.R. 223
at p. 236.). Secondly it must be noted that
Ritchie J. expressly limited his view that the
colony was not a commercial enterprise by
using the words "in the sense that any of its
members were entitled to participate in its prof
its". By these words I take it that he recognized
that an enterprise can be commercial and yet
exclude the right of shareholders and others to
participate in its profits. An example of that
type of enterprise is one such as is found in this
case where by agreement arising out of the
Articles of Association, to which agreement the
plaintiffs were parties by reason of their mem
bership in their respective colonies, the parties
contracted themselves out of their right to
receive the share of the net profits to which
they would have been otherwise entitled. The
majority of the Court refused to relieve against
the forfeiture of all of the appellants' property
because such forfeiture was the result of the
contractual obligation voluntarily incurred by
the appellants through their Articles of Associa
tion, not only because they were members of
the colony governed by such Articles but also
because they were signatories thereto. This was
the purport of the reasons of Cartwright C.J.
(with whom Spence J. concurred) who agreed
with the result reached by the majority but not
entirely for the same reasons.
The contractual nature of the forfeiture of the
right to earnings derived from their labours
similarly, in my opinion, bars the plaintiffs from
claiming that they are not liable to pay tax on
such earnings notwithstanding the fact that they
did not receive them, whether or not they are
members of colonies which are incorporated or
not incorporated. The fact is that by contract
they voluntarily assigned or made a disposition
of such earnings to a depositary in the sense
that that term is used by Chief Justice Duff in
the Barickman case (supra) and the depositary
retained those earnings for their use and benefit
in common with all of their fellow members. It
is clear then that such earnings are the earnings
of the members and are properly included as
income in reporting their taxable income in any
taxation year as required by the Income Tax
Act. The fact that the assignment was made
prior to the income being earned does not, from
a tax point of view, make the result different
than if it had been made after earning it.
The same conclusion may be reached in
another way. Lagacé v. M.N.R. [1968] 2
Ex.C.R. 98 is a decision in which the factual
situation is entirely different from this case but
the language used in describing how revenue not
actually received by a business may be income
of the business for tax purposes is appropriate.
Jackett P., as he then was, at page 109 said:
... for purposes of Part I of the Income Tax Act, profits
from a business are income of the person who carries on the
business and are not, as such, income of a third person into
whose hands they may come. This to me is the obvious
import of sections 3 and 4 of the Income Tax Act and is in
accord with my understanding of the relevant judicial
decisions.
At page 1 1 1 under the heading of Appendix in
the same judgment, Jackett P. further stated:
So that there may be no misunderstanding as to the view
upon which I have acted in deciding this case, I should like
to make it clear that, as I see it, there is a clear distinction in
principle between
(a) the case where a trader carries out business transactions
of his business in the name of some other person who is
agent, trustee or "nominee", in which case, the profits from
selling his "stock-in-trade" are profits of his business even
though the transactions are carried out in the name of
somebody else, and
(b) the case where a trader takes stock-in-trade out of his
business and uses it himself or gives it to somebody else so
that there is no sale of it in the course of the business and
can therefore be no profit from a sale of it in the course of
his business.
Again at page 112 he says:
If the principles applied in such cases apply to matters
arising under the Canadian Income Tax Act, it would
appear, strangely enough, that the result would depend on
whether the taxpayer kept his accounts on a cash or accrual
basis.
If he kept his accounts on a cash basis, he would not bring
in any amount on the revenue side of the accounts of the
business in respect of the stock-in-trade removed from the
business even though the cost of acquiring it was reflected
in the accounts of the business. If he kept his accounts on
an accrual basis, he would bring in, as revenue, the value of
the stock-in-trade so removed as that value was at the time
of removal.
Counsel for the defendant contended on the
basis of the Lagacé decision (supra) that the
plaintiffs were engaged in the business of farm
ing, had assigned or given up the revenue arising
from such farming operation to a company, not
because of a bona fide business transaction
between them but to implement a contract
between them, the object of which was to
ensure that they complied with the religious
requirements of their sect. Since they had not
elected to be taxed on a cash basis it was
necessary for them to bring in as revenue the
value of the stock-in-trade sold by the company
on behalf of the plaintiffs. After the appropriate
adjustments to determine the taxable income
this then was taxable in the hands of the
individual members. The amount of such tax
able income was determined using the only
method possible in the circumstances namely,
by determining the gross revenue of the corpo
rate entity from which were deducted such out
lays as were incurred for the purpose of gaining
or producing the income and generally comput
ing such income in the same manner as was
done in the case of the LEHRER-LEUT and
SCHMEID-LEUT groups pursuant to the Memo
randum of Understanding hereinbefore referred
to. I am in agreement with these submissions
and find that for these reasons too, the plaintiffs
are in receipt of taxable income.
Having so concluded, I must deal with the
plaintiffs' contention that a Hutterite is a
member of a "religious order" within the mean
ing of section 27(2) of the Income Tax Act and,
having taken a vow of poverty, may deduct
from his income for the year the amount of his
earned income, if that income was paid to the
Order.
Neither by its incorporating statute nor by its
constitution is the Hutterian Brethren Church
empowered to engage in farming or to receive
and retain beneficially either the assets owned
or revenue earned by its members or by its
colonies. It does have the power to hold land
but only for the limited periods of time permit
ted by section 9 of its incorporating statute.
On the other hand its Constitution empowers
colonies to hold property of all kinds and
requires members of the colony, who must be
members of the distinct and separate entity, the
Hutterian Brethren Church, to assign all of the
property they own when they become members
of the Church, or acquire thereafter, to the
colony. It is clear that the whole scheme of
organization is to make a clear separation of the
Church in its purely religious context from the
colony, the members of which engage in both
religious and secular activities. There are sever
al authorities for the proposition that when an
organization has both charitable and non-chari
table objects it is deemed not to be a charitable
entity for purposes of taxation. (See Keren
Kayemeth Le Jisorel Ltd. v. Commissioners of
Inland Revenue 17 T.C. 27; The Oxford Group
v. Commissioners of Inland Revenue 31 T.C.
221, and Towle Estate v. M.N.R. [1967] S.C.R.
133).
In the latter case Ritchie J. pointed out that if
some of the purposes of the Letters Patent of an
entity are exclusively charitable then it remains
to be determined whether the other objects and
purposes for which the association was incorpo
rated are such as to deprive it of its character as
a charity. At page 144 he states:
I am, however, of opinion that as the Association is a
Letters Patent Company, the question of whether it was
"constituted exclusively for charitable purposes" cannot be
determined solely by reference to the objects and purposes
for which it was originally incorporated.
He then adopted the statement made by Lord
Denning in Institution of Mechanical Engineers
v. Cane [1961] A.C. 696 at page 723 as follows:
... the first question is whether the Institution of Mechani
cal Engineers is a "society instituted for the purpose of
science exclusively". I do not think this question is to be
solved by looking at the royal charter alone and construing it
as if you were sitting aloft in an ivory tower, oblivious of the
purposes which the institution has in fact pursued. That
would be proper enough if you had only to consider the
purposes for which the society was originally instituted. But
that is not the test. A society may be originally instituted for
certain purposes and afterwards adopt other purposes. You
then have to ask yourself this question: for what purpose is
the society at present instituted?
Drawing an analogy then between finding a
body to be one constituted exclusively for chari
table purposes and one constituted exclusively
for religious purposes, I find that the main pur
pose for which the colony, as distinct from the
Church, is constituted, both originally and at
present, is farming, which farming is not just for
the purpose of providing food for each member
and his family but for profit. The uses to which
the profits or earnings are put are immaterial
from the point of view of the Income Tax Act.
Since the objects or purposes of each colony
are not exclusively religious they cannot be, in
my opinion, "religious orders" within the mean
ing of section 27(2) of the Act and since the
issues in these appeals arise out of the plaintiffs'
membership in their respective colonies, they
are not, therefore, members of a religious order.
If that is the case I do not have to decide
whether the members, as such, have taken a
vow of perpetual poverty within the meaning of
that section.
As previously indicated, the plaintiffs have
also argued that the provisions of the Income
Tax Act, in so far as they are concerned, are
inoperative because they are in conflict with the
provisions of the Canadian Bill of Rights in that
their right to freedom of religion has been inter
fered with. The argument of the plaintiffs it
would seem is based upon the view that if the
Hutterites are forced to pay tax on income
earned, it means that, in some mysterious way,
they are being forced to accept income which
their religious beliefs do not permit them to
accept. The application of the Income Tax Act
in no way imposes any obligation upon the
Hutterites to accept income. All that has been
done is to enact legislation within the powers of
the Parliament of Canada requiring the taxing
authorities to tax the income earned by all
Canadians including Hutterites. This does not
mean that there has been any deprivation of his
freedom to practice the religion of his choice in
the manner required by his Church nor that he
is thereby forced to infringe any of the tenets of
his faith and it does not in any way constitute an
infringement of the basic rights given all
Canadians under the Bill of Rights.
As further support for this conclusion, it must
be noted that there was tendered in evidence an
excerpt from Peter Rideman's Confession of
Faith which specifically states that
We likewise, are willing to pay taxes, tribute or whatever
men may term it and in no way oppose it for we have
learned this from our Master, Christ, who not only paid it
himself but also commanded others to do so saying, "Ren-
der unto Caesar what is Caesar's and to God what is God's".
Therefore we as his disciples desire with all diligence to
follow and perform his command and not to oppose the
government in this.
The excerpt goes on to say that where taxes are
demanded for the special purpose of going to
war they will give nothing. However, the impor
tant thing to observe is, of course, that notwith
standing the fact that it has been argued by the
plaintiffs' counsel that the Income Tax Act
interferes with the plaintiffs' freedom of reli
gion, by their own Confession of Faith they are
bound to pay taxes and, in fact, the evidence
discloses that they do pay taxes on their real
property without any such plea apparently being
taken.
For all of the above reasons I find that the
plaintiffs were properly assessed by the defend
ant and, therefore, the appeals are dismissed
with costs.
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.