Tremblay,
T.C.J.
[Translation]:—This
appeal
was
heard
on
July
24,
1990,
in
Québec,
Québec.
1.
Issue
The
issue
is
whether
the
appellant,
in
calculating
his
income
for
the
1984
taxation
year,
was
justified
in
not
including
the
amount
of
$32,000
he
received
as
compensation
after
his
employment
was
terminated.
Such
an
amount
was
also
granted
as
compensation
for
the
moral
wrong
suffered
by
the
appellant
and
the
blow
to
his
reputation.
These
losses
resulted
from
a
report
broadcast
by
Radio-Canada
that
mentioned
the
reasons
for
dismissal
given
by
the
new
general
manager
for
removing
the
appellant
from
his
duties
as
units
chief
of
Relais
Jeune
Est
of
Matane.
The
respondent's
reason
for
including
the
said
amount
of
$32,000
in
the
appellant's
income
is
that
it
constituted
a
retiring
allowance
within
the
meaning
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act").
2.
Burden
of
Proof
2.01
The
burden
is
on
the
appellant
to
show
that
the
respondent's
assessment
is
incorrect.
This
burden
of
proof
derives
from
several
judicial
decisions,
including
a
judgment
delivered
by
the
Supreme
Court
of
Canada
in
Johnston
v.
M.N.R.,
[1948]
S.C.R.
486;
[1948]
C.T.C.
195;
3
D.T.C.
1182.
3,
Facts
3.01
In
July
1976,
the
appellant
was
hired
as
an
educator
at
the
Villa
Dion
reception
centre
in
Matane.
3.02
In
October
1981,
he
filled
the
position
of
rehabilitation
units
chief
on
an
interim
basis.
3.03
In
December
1981,
he
was
offered
the
position
of
rehabilitation
units
chief
subject
to
a
six-month
probation
period.
3.04
In
April
1982,
the
appellant
was
informed
that
his
probation
period
had
been
positive.
At
that
time,
he
obtained
the
position
of
rehabilitation
units
chief
on
a
permanent
basis.
3.05
On
October
18,
1983,
the
new
general
manager
of
Relais
Jeune
Est
dismissed
the
appellant
for
the
following
reasons:
[Translation]
1.
Your
inability
to
ensure
an
organization
of
activities
and
a
general
system
of
life
that
meet
the
youths’
intellectual,
physical,
emotional
and
social
needs.
2.
Your
obvious
inability
to
participate
in
establishing
an
intervention
strategy
for
each
youth
at
the
individual,
social
and
family
levels.
3.
Your
lack
of
involvement
in
the
face
of
the
youths'
experiences
in
your
services.
4.
Your
poor
judgment
in
decisions
taken
in
response
to
the
behaviour
of
certain
youths.
5.
Your
inability
to
ensure
that
each
educator
has
an
educational
and
re-
educational
action
with
each
youth.
6.
Your
inability
to
ensure
supervision
and
the
availability
of
educators.
7.
Your
inability
to
establish
work
schedules
appropriate
for
your
staff
and
for
yourself.
8.
Your
lack
of
credibility
with
your
staff,
the
administration
and
various
agencies.
9.
Your
poor
judgment
in
selecting
educational
staff
for
your
units.
10.
Your
limited
participation
in
the
intermediate
officers
team.
11.
Your
eagerness
to
blame
others
rather
than
to
examine
your
own
conscience.
12.
Your
inability
to
control
costs
within
the
authorized
limits.
For
these
reasons,
I
am
dismissing
you
as
of
midnight
on
October
19,
1983.
3.06
On
October
19,
1983,
the
reasons
for
dismissal
made
the
headlines
of
the
television
and
radio
news
bulletins
of
Société
Radio-Canada.
3.0
7
On
November
3,
1983,
the
appellant
objected
to
his
dismissal
in
a
letter
to
the
general
manager
of
Relais
Jeune
Est.
He
also
demanded
reinstatement
to
his
duties
and
a
public
retraction
of
the
allegations
on
which
his
dismissal
was
supposedly
based.
This
letter
of
disapproval
also
brought
into
play
settlement
procedures
under
the
Regulation
respecting
measures
concerning
employment
stability
and
end
of
engagement
applicable
to
senior
and
intermediate
officers
of
public
establishments.
3.0
8
In
February
1984,
Viateur
Larouche
was
appointed
to
act
as
arbitrator
under
section
11
of
the
above
Regulation.
3.0
9
On
May
3
and
4,
1984,
the
appellant's
complaint
was
heard
by
the
arbitrator,
Viateur
Larouche.
3.10
At
the
hearing,
counsel
for
Relais
Jeune
Est
proposed
an
agreement
to
the
appellant;
when
Mr.
Bédard
assented
to
it,
the
agreement
was
ratified
by
the
arbitrator
of
the
dispute
on
May
7,
1984.
The
agreement
reads
as
follows:
[Translation]
1.
Louis-Philippe
Bédard
undertakes
to
make
no
statement
concerning
the
amount
to
be
paid
him.
2.
Louis-Philippe
Bédard
renounces
any
form
of
subsequent
prosecution
or
appeal.
3.
In
return,
the
Relais
Jeune
Est
reception
centre
will
pay
Louis-Philippe
Bédard
his
salary
for
the
months
of
November
and
December
1983
as
well
as
for
the
months
of
January,
February,
March
and
April
1984
(6
months).
4.
In
addition,
the
Relais
Jeune
Est
reception
centre
will
pay
an
amount
of
thirty-
two
thousand
($32,000.00)
dollars
(net)
by
way
of
compensation
for
damage
suffered.
This
cheque
will
be
paid
"to
the
order
of"
Tremblay
&
Tremblay,
Lawyers—
100
St-Pierre
Street,
Matane.
3.11
According
to
the
appellants
testimony,
he
was
never
again
able
to
find
permanent
employment
in
his
field
of
expertise
after
the
dismissal
of
which
he
was
the
victim
(Exhibit
A-8).
3.12
The
appellant
also
stated
several
times
in
his
testimony
that
the
amount
of
$32,000
was
meant
to
be
tax-free
compensation.
According
to
him,
the
wording
"an
amount
of
$32,000
net”
was
to
show
clearly
the
need
for
the
damages
granted
him
to
be
exempt
from
any
payment
of
income
tax.
3.13
According
[to]
the
appellants
testimony,
the
outcome
of
the
dispute
between
himself
and
his
former
employer
(3.10)
shows
beyond
any
doubt
that
the
reasons
for
dismissal
were
unjustified.
3.14
The
appellant
said
that
the
amount
of
$32,000
granted
him
was
intended
to
compensate
for
two
types
of
damage:
(1)
Economic
loss
resulting
from
a
dismissal
the
professional
consequences
of
which
will
probably
cause
his
income
to
fall
for
a
certain
period
of
time.
(2)
Moral
harm
resulting
from
the
blow
to
his
reputation
suffered
by
the
appellant.
4.
Act—Case
Law—Analysis
4.01
Act
The
provisions
raised
in
this
case
are
subparagraph
56(1)(a)(ii)
and
subsection
248(1)
of
the
Income
Tax
Act
(hereinafter
referred
to
as
the
Act),
which
read
as
follows:
56.
(1)
Without
restricting
the
generality
of
section
3,
there
shall
be
included
in
computing
the
income
of
a
taxpayer
for
a
taxation
year,
(a)
any
amount
received
by
the
taxpayer
in
the
year
as,
or
on
account
or
in
lieu
of
payment
of,
or
in
satisfaction
of,
(i)
a
superannuation
or
pension
benefit
(other
than
the
portion
thereof
received
out
of
or
under
an
employee
benefit
plan
that
is
required
by
paragraph
6(1)(g)
to
be
included
in
computing
his
income
for
the
year,
or
would
be
required
to
be
so
included
if
that
paragraph
were
read
without
reference
to
subparagraph
(ii)
thereof),
including,
without
limiting
the
generality
of
the
foregoing,
(A)
the
amount
of
any
pension,
supplement
or
spouse's
allowance
under
the
Old
Age
Security
Act
and
the
amount
of
any
similar
payment
under
a
law
of
a
province,
and
(B)
the
amount
of
any
benefit
under
the
Canada
Pension
Plan
or
a
provincial
pension
plan
as
defined
in
section
3
of
that
Act,
(ii)
a
retiring
allowance,
other
than
an
amount
received
out
of
or
under
an
employee
benefit
plan,
(iii)
a
death
benefit,
(iv)
a
benefit
under
the
Unemployment
Insurance
Act,
1971,
(v)
a
benefit
under
regulations
made
under
an
Appropriation
Act
providing
for
a
scheme
of
transitional
assistance
benefits
to
persons
employed
in
the
production
of
products
to
which
the
Canada-United
States
Agreement
on
Automotive
Products,
signed
on
January
16,
1965
applies,
or
(vi)
a
benefit
under
the
Labour
Adjustment
Benefits
Act;
248.
(1)
In
this
Act,
“retiring
allowance”
means
an
amount
(other
than
a
superannuation
or
pension
benefit
or
an
amount
received
as
a
consequence
of
the
death
of
an
employee)
received
(a)
upon
or
after
retirement
of
a
taxpayer
from
an
office
or
employment
in
recognition
of
his
long
service,
or
(b)
in
respect
of
a
loss
of
an
office
or
employment
of
a
taxpayer,
whether
or
not
received
as,
on
account
or
in
lieu
of
payment
of,
damages
or
pursuant
to
an
order
or
judgment
of
a
competent
tribunal
by
the
taxpayer
or,
after
his
death,
by
a
dependant
or
a
relation
of
the
taxpayer
or
by
the
legal
representative
of
the
taxpayer;
4.02
Case
Law
The
respondent
has
referred
to
the
following
cases:
1.
Chartier
v.
Foley,
[1938]
R.L.
277;
2.
Tracey
v.
Hyde,
[1943]
C.S.
272,
275;
3.
Swanick
v.
M.N.R.,
[1985]
2
C.T.C.
2352;
85
D.T.C.
630
(T.C.C.);
4.
Young
v.
M.N.R.,
[1986]
2
C.T.C.
2111;
86
D.T.C.
1567
(T.C.C.);
5.
Viau
v.
M.N.R.,
[1986]
1
C.T.C.
2570;
86
D.T.C.
1437
(T.C.C.).
4.03
Analysis
This
case
really
raises
only
a
single
problem:
whether
the
amount
of
$32,000
granted
Mr.
Bédard
by
way
of
the
arbitration
decision
should
be
included
in
whole
or
in
part
in
the
appellants
income
as
a
retiring
allowance.
This
question
of
a
general
nature
raises,
after
the
definition
of
"retiring
allowance”
in
subsection
248(1)
of
the
Act
has
been
read,
a
second
question
that
could
be
worded
as
follows:
was
the
compensation
granted
the
appellant
directly
related
to
the
loss
of
his
employment?
It
is
possible
by
reproducing
the
English
and
French
versions
of
the
definition
of"
retiring
allowance”
to
show
the
importance
of
this
search
for
causality
in
determining
the
applicability
of
that
definition:
“retiring
allowance”
means
an
amount
(other
than
a
superannuation
or
pension
benefit
or
an
amount
received
as
a
consequence
of
the
death
of
an
employee)
received
(a)
upon
or
after
retirement
of
a
taxpayer
from
an
office
or
employment
in
recognition
of
his
long
service,
or
(b)
in
respect
of
a
loss
of
an
office
or
employment
of
a
taxpayer,
whether
or
not
received
as,
on
account
or
in
lieu
of
payment
of,
damages
or
pursuant
to
an
order
or
judgment
of
a
competent
tribunal
by
the
taxpayer
or,
after
his
death,
by
a
dependant
or
a
relation
of
the
taxpayer
or
by
the
legal
representative
of
the
taxpayer.
.
.
"allocation
de
retraite"
désigne
une
somme
(sauf
une
prestation
de
retraite
ou
d’autres
pensions
ou
une
somme
reçue
en
raison
du
décès
d’un
employé)
reçue
(a)
en
reconnaissance
de
longs
états
de
service
d’un
contribuable
au
moment
où
il
prend
sa
retraite
ou
par
la
suite,
ou
(b)
à
l'égard
de
la
perte
par
un
contribuable
d'une
charge
ou
d'un
emploi,
qu'elle
ait
été
reçue
ou
non
à
titre
ou
au
titre
de
dommages
ou
conformément
à
une
ordonnance
ou
sur
jugement
d’un
tribunal
compétent,
par
le
contribuable
ou,
après
son
décès,
par
une
personne
qui
était
à
sa
charge
ou
qui
lui
était
apparentée,
ou
par
un
représentant
légal
du
contribuable;
Moreover,
the
meaning
given
the
expression
“in
respect
of"
in
Norman
v.
M.N.R.,
[1987]
2
C.T.C.
2261;
87
D.T.C.
556,
confirms
the
appropriateness
of
this
causality
test.
The
relevant
passage
from
that
decision
is
the
following
(at
2264
(D.T.C.
558)):
“The
phrase
‘in
respect
of’
is
probably
the
widest
of
any
expression
intended
to
convey
some
connection
between
two
related
subject
matters.”
The
issue
in
the
present
case
is
to
decide
what
portion
of
the
amount
of
$32,000
is
related
to
the
loss
of
employment
suffered
by
the
appellant.
To
do
so,
it
is
essential
to
refer
to
the
text
of
the
agreement
proposed
by
Mr.
Bédard’s
former
employer,
which
was,
after
he
assented
to
it,
ratified
by
the
arbitrator,
Viateur
Larouche.
A
reading
of
the
text
of
the
agreement
reveals
that
the
appellant
was
granted
six
months
of
salary.
In
addition,
an
amount
of
$32,000
was
also
to
be
paid
by
way
of
compensation
for
damage
suffered.
It
is
necessary,
however,
to
determine
for
what
types
of
loss
this
amount
was
intended
to
compensate.
Unfortunately,
the
wording
of
the
agreement
is
silent
on
this
point.
Clause
4
of
the
agreement
reads
as
follows:
4.
In
addition,
the
Relais
Jeune
Est
reception
centre
will
pay
an
amount
of
thirty-
two
thousand
($32,000.00)
dollars
(net)
by
way
of
compensation
for
damage
suffered.
This
cheque
will
be
paid
”
to
the
order
of”
Tremblay
&
Tremblay,
Lawyers
-
100
St-Pierre
Street,
Matane.
Nevertheless,
legal
theorists
and
the
case
law
(4.02(1),
4.02(2))
appear
to
recognize
the
possibility
of
turning
to
testimony
to
interpret
the
ambiguous
terms
of
a
written
instrument.
Two
factors
behind
the
employer's
decision
to
grant
that
amount
in
the
agreement
can
be
drawn
from
Mr.
Bédard's
testimony.
On
the
one
hand,
the
appellant
mentioned
several
times
the
serious
blow
to
his
reputation
resulting
from
the
public
disclosure
by
way
of
Société
Radio-Canada
of
the
reasons
for
his
dismissal.
On
the
other
hand,
Mr.
Bédard
also
mentioned
that
this
amount
was
also
enabling
him
"to
turn
around”
in
order
to
provide
his
family
with
an
acceptable
lifestyle
while
waiting
to
find
a
new
job
in
his
field
of
expertise.
In
the
light
of
the
appellant's
testimony,
this
compensatory
amount
was
therefore
granted
partly
to
make
up
for
the
defamation
of
which
Mr.
Bédard
was
the
victim
and
partly
to
compensate
for
the
financial
damage
suffered
by
the
appellant
and
his
family
after
Mr.
Bédard
had
lost
his
job.
In
the
Court's
opinion,
the
following
extract
from
the
letter
of
disapproval
written
by
the
appellant
after
his
dismissal
(Exhibit
A-5)
corroborates
this
testimony:
[Translation]
I
therefore
demand
to
be
reinstated
to
my
duties
as
soon
as
possible
without
loss
of
any
of
the
benefits
related
to
my
position—and
retroactively
to
October
19,
1983—because
I
feel
for
the
reasons
given
above
that
there
was
no
reason
for
my
dismissal.
I
also
hereby
renounce
any
other
appeal
against
the
Corporation
on
the
condition
that
you
publicly
retract
the
allegations
conveyed
by
the
radio
and
television
news
bulletins
broadcast
by
Radio-Canada's
Matane
station
on
October
19.
Must
these
two
types
of
damage
be
classed
as
a
retiring
allowance
within
the
meaning
of
subsection
248(1)
of
the
Act?
The
Court
is
of
the
opinion
that
the
lawmakers
obviously
did
not,
in
adopting
the
definition
of
"retiring
allowance",
intend
it
to
include
damages
for
defamation
that
might
be
suffered
by
the
occasional
victim
of
a
dismissal.
The
cause
linking
the
loss
of
employment
to
the
granting
of
damages
must
be
efficient
and
not
purely
occasional.
In
short,
while
an
amount
granted
to
an
employee
after
his
dismissal
may
include
damages
for
defamation,
it
is
clear
to
the
Court
that
any
such
part
of
the
compensation
granted
belongs
to
an
entirely
different
order
of
compensation
that
is
manifestly
not
covered
by
the
definition
of"
retiring
allowance”.
At
this
point
in
our
analysis,
it
is
necessary
to
show
how
the
legal
theory
and
case
law
submitted
by
counsel
for
the
respondent
might
support
its
claim
that
all
of
the
compensation
granted
the
appellant
must
be
included
in
his
income.
On
the
one
hand,
the
legal
theory
that
has
been
produced
only
repeats
the
terms
of
the
definition
contained
in
subsection
248(1)
of
the
Act.
Interpretation
Bulletin
IT-337R2
is,
for
the
reasons
given
above,
hardly
more
useful.
On
the
other
hand,
only
the
Young
case,
supra,
has
broached
the
problem
raised
in
the
present
case:
which
damages
must
be
included
in
income
as
a
retiring
allowance.
The
Swanick
and
Viaucases,
supra,
mainly
concerned
the
question
of
retroactivity
of
application
of
the
definition
of
retiring
allowance.
The
Court
cannot
see
how,
as
counsel
for
the
respondent
claims,
those
decisions
implicitly
answer
the
problem
before
us.
Thus,
in
the
Court's
opinion,
Taylor,
T.C.J.
did
not
in
the
Young
case,
supra,
rule
out
the
possibility
that
amounts
granted
as
compensation
for
the”
mental
distress"
suffered
by
the
appellant
might
not
be
regarded
as
a
retiring
allowance.
Taylor,
T.C.J.
merely
stated
that
the
evidence
adduced
by
counsel
for
the
appellant
was
insufficient
to
show
how
the
amount
received
had
been
granted
as
compensation
for
a
type
of
damage
other
than
that
resulting
from
the
loss
of
his
employment.
The
following
passage
from
the
judgment
illustrates
this
position
clearly
(at
pages
2112-13
(D.T.C.
1568-69)
):
Mr.
Horwitz
in
his
argument
had
neither
acknowledged
nor
denied
that
there
was
any
direct
connection,
chronological
or
otherwise,
between
the
“
dismissal”,
and
the
"exemplary
damages"
or
the
amount
for
"mental
distress".
The
Court
recognized
that
it
might
well
be
a
reasonable
assumption
by
the
Minister.
The
"Agreed
Statement
of
Fact”
(supra),
does
not
contain
a
specific
assumption
by
the
Minister
with
regard
to
the
origin
of
the
amounts
at
issue.
But
the
words
"were
considered
to
be
a
retiring
allowance
as
defined
by
subsection
248(1)
of
the
Income
Tax
Act”,
(emphasis
mine)
in
paragraph
6,
of
that
agreed
statement,
I
regard
to
be
clear
enough
to
delineate
the
task
of
the
appellant.
As
I
read
the
Act,
it
would
have
taken
some
direct
evidence
or
testimony
to
fulfill
the
appellant's
total
obligation
thereunder,
and
the
critical
question
of
the
origin
of
the
amounts
at
issue
was
not
addressed
by
the
appellant.
The
amounts
at
issue—$12,500
for
exemplary
damages,
and
$12,500
for
mental
distress,
were
not
shown
to
be
outside
of
the
parameters
of
subsection
248(1)
of
the
Act,
and
therefore
the
Minister
in
assessing
them
as
"termination
payments",
did
not
act
improperly.
The
question
to
be
answered
in
the
present
case
is
what
part
of
the
$32,000
in
compensation
constitutes
compensation
for
the
defamation
suffered
by
Mr.
Bedard.
In
the
Court's
opinion,
this
delicate
question
can
be
answered
in
the
light
of
the
testimony
presented
to
it
by
taking
into
consideration
the
extent
of
the
blow
to
the
appellant's
reputation.
Such
a
procedure
will
make
it
possible
to
try
to
determine
the
intention
of
the
parties
involved
in
the
agreement
when
the
compensation
of
$32,000
was
granted.
For
this
purpose,
it
is
well-known
that
Mr.
Bédard
lives
in
a
mainly
rural
area.
The
extent
of
the
blow
to
his
reputation
resulting
from
disclosure
of
the
reasons
for
his
dismissal
in
television
and
radio
news
bulletins
will
surely
be
greater
than
it
would
in
an
urban
area.
Moreover,
the
fact
that
Relais
Jeune
Est
is
the
only
rehabilitation
centre
of
its
kind
in
the
Matane
area
considerably
reduces
his
chances
of
finding
similar
employment.
Finally,
in
spite
of
the
retraction
of
the
defamatory
words
spoken
about
Mr.
Bédard,
it
is
likely
to
take
the
appellant
several
years
to
re-establish
credibility
in
the
educational
field
in
the
area
where
he
lives.
The
ambiguous
wording
of
the
agreement
in
combination
with
the
scope
given
by
this
Court
to
the
definition
of"
retiring
allowance”
leads
the
Court
to
hold
that
only
an
amount
of
$16,000
should
be
included
in
the
appellant's
income.
This
amount
constitutes
the
compensation
granted
Mr.
Bédard
after
he
lost
his
job.
As
for
the
balance,
it
constitutes
damages
for
the
defamation
suffered
by
Mr.
Bédard.
An
amount
such
as
this
cannot
be
classed
as
income
from
a
retiring
allowance.
For
all
these
reasons,
the
appeal
must
be
allowed
in
part.
5,
Conclusion
The
appeal
is
allowed
in
part
and
the
matter
is
referred
back
to
the
respondent
for
reconsideration
and
reassessment
in
accordance
with
the
above
reasons
for
judgment.
Appeal
allowed
in
part.
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