Merrins v. MNR, 91 DTC 699, [1991] 2 CTC 2045 (TCC)

Sobier. T.C.J.:—Prior to the hearing of the appeal, the appellant objected to the filing of the reply to the notice of appeal by the Minister invoking Rule 7 of the Rules of the Tax Review Board which read as follows.

7. If no Reply to a Notice of Appeal has been filed within 60 days from the date on which the Registrar of the Board has transmitted the Notice of Appeal to the Minister of National Revenue, the appellant may make an application to the Registrar to have the appeal entered on the list of appeals to be called for hearing at the next sitting of the Board in the appellant's district and, upon the making of such application, no Reply shall thereafter be filed without leave of the Board.

The appellant claims that the following letter dated October 11, 1990, constituted an application under Rule 7:

Re: Appeal in respect of Notification of Conformation by the Minister dated 90-03-07-Rejection of Objection to Assessment of Income Tax for Tax Year 1988- Appeal Number 90-1348(IT)

Dear Sir:

Further to the Notice of Appeal dated 18th May 1990 in the above matter, I have been expecting to receive notification of a date set for hearing. Can you please confirm when this Appeal can be heard. I would appreciate an early date at the convenience of the Court.

Yours truly,

Hugh Merrins

The Minister purported to deliver a reply to notice of appeal the week prior to the hearing and the Minister has not sought for leave to file the reply to notice of appeal. The Court ruled that the reply to notice of appeal having been purportedly delivered after the making of an application under section 7 and the Minister not having made application for leave to file a reply, the matter was heard in accordance with the provisions of Rule 8 of the Tax Review Board which read as follows:

8. Where no Reply to a Notice of Appeal has been filed, the Board may dispose of the appeal on the basis that the allegations of fact contained in the Notice of Appeal are true.

It was in this fashion that the hearing of the appeal was carried on.

The appellant appeals from an assessment of income tax for his 1988 taxation year in which the respondent included in the appellant's income for 1988 the sum of $60,000 as a payment under subparagraph 56(1)(a)(ii) [1] of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") as a retiring allowance as that term is defined in subsection 248(1) of the Act. [2]

As a result of his being laid off by his employer, Atomic Energy of Canada Ltd. (“AECL”), the appellant filed a grievance under the collective agreement between AECL and the Society of Professional Engineers and Associates (the "Union"). Matters proceeded for some time and an offer of settlement was made by AECL. The offer provided for two alternatives: the first was rejected and therefore not relevant. The second alternative was to instruct the arbitrator to deliver an award between $0 and $100,000.

In his letter to the arbitrator of November 19, 1987, counsel for AECL stated that a settlement with the Union had been reached which was confirmed by counsel for the Union. Counsel agreed that the arbitrator may be constituted a mediator to determine what consideration, if any, was appropriate having regard to the parameters set out in counsel correspondence.

In a letter from counsel for the Union, it again was pointed out that one of the alternatives would be for the arbitrator to be requested to act as a mediator and, if necessary, an arbitrator to decide the amount that would be paid to the appellant in full settlement of his grievance.

Pursuant to an award dated April 7, 1988 made by the arbitrator/mediator, AECL was directed to pay $60,000 to the appellant. This award was made in accordance with the parties' settlement resolving the arbitration dispute and the parameters defined, i.e., between $0 and $100,000.

The appellant contends that this award was not made either pursuant to the Canada Labour Code or the collective agreement because it is his contention that no such award could be made under the collective agreement and for the arbitrator to do so would be outside of his powers. In this regard, the appellant referred to certain authorities including Ass'n of Radio & Television Employees of Canada (CUPE-CLC) v. Canadian Broadcasting Corp., [1975] 1 S.C.R. 118; 40 D.L.R. (3d) 1 (S.C.C.); Port Arthur Shipbuilding Co. v. Arthurs, [1969] S.C.R. 85; 70 D.L.R. (2d) 693 (S.C.C.) and R. v. Lane ex parte Green (no citation given).

What we have in this instance is an agreement to appoint and constitute the arbitrator as a mediator to determine the amount of compensation. This was not an action within the collective agreement but was an agreement between the grieving parties, i.e., the Union and AECL to step outside the arbitration process and have the arbitrator constituted a mediator. It follows that he could not be acting outside his mandate under the collective agreement since by agreement that process was abandoned in favour of an agreed process, i.e., mediation within given parameters.

The mediator awarded $60,000 in accordance with the award of April 7, 1988. The award is set out in full below:

In accordance with the parties’ settlement resolving this arbitration dispute and the parameters that have been defined for awarding the grievor an absolute sum of money less the usual deductions, I order and direct the employer to pay:

Sixty Thousand Dollars ($60,000)

The proceedings are hereby terminated.

Dated this 7th day of April, 1988.

David H. Kates

The appellant states that in using the words "The proceedings are hereby terminated”, his right to grieve and have arbitration are extinguished and accordingly the payment of $60,000, as he states in the notice of appeal, "is an amount paid for the extinction of my right to have my grievance arbitrated. . .”

and therefore a capital receipt. The appellant also referred to R. v. R.B. Atkins, [1976] C.T.C. 497; 76 D.T.C. 6258 for the proposition that such payments are not taxable as damages relating to employment. However, the new definition of retiring allowance in subsection 248(1) of the Act includes damages.

The Court cannot accept the first argument. There being an agreement on a method of settlement the award was given and the matter put to an end. That is how the words "The proceedings are hereby terminated" are to be interpreted.

Counsel for the respondent argues that the payment was a retiring allowance as defined since the root of the payment goes back to the appellant's layoff. The appellant lost his employment, sought reinstatement, was not reinstated, agreed through his representative that there be mediation to determine his compensation and received the award of $60,000. What could be more clear?

Recent jurisprudence has concluded that the words in subsection 248(1) of the Act “in respect of" must be given the widest possible scope. See The Queen v. Savage, [1983] C.T.C. 393; 83 D.T.C. 5409 (S.C.C.) and Nowegijick v. The Queen, [1983] C.T.C. 20; 83 D.T.C. 5041 (S.C.C.) where the Supreme Court of Canada through Dickson, J., as he then was, dealt with those words as follows at page 25 (D.T.C. 455):

The words “in respect of" are, in my opinion, words of the widest possible scope. They import such meanings as "in relation to", “with reference to" or “in connection with”. The phrase in “respect of" is probably the widest of any expression intended to convey some connection between two related subject matters.

The use of those words conveys a connection between the amount received and the loss of employment by the appellant.

The Court has determined that the payment to the appellant of the $60,000 was not an extinguishment of a right to litigate or to arbitrate, was not a tax-free receipt for damages for wrongful dismissal but was payment in respect of his loss of office or employment and therefore properly included as a retiring allowance under subparagraph 56(1)(a)(ii) of the Act.

For the above reasons, the appeal is dismissed.

Appeal dismissed.