Dagenais v. The Queen, 95 DTC 5318, [1995] 2 CTC 100 (FCTD)

Rouleau J.:-This is an appeal from a decision of the Minister of National Revenue’s assessment wherein it was determined that payments received under a "wage loss replacement plan" were taxable as income.

The plaintiffs were employees of Boise Cascade Canada Ltd., now known as Rainy River Forest Products Ltd., and are members of trade unions which, in the late 60s and early 70s, negotiated collective agreements with the employer. The agreements provided members with a number of fringe benefits including Ontario Health Insurance, semi-private hospital accommodation, prescription drugs plan, dental plan, vision care plan, accidental death as well as life insurance. In addition, members were entitled to short- and long- term wage indemnity in the event of illness or injury.

During the relevant years, none of the benefits were included in taxable income except the OHIP coverage. The issue to be determined in this appeal is whether the income received by the plaintiffs by way of wage indemnity arising from the collective agreement is taxable. All actions were tried together on common evidence and at the outset of trial counsel for the plaintiffs indicated that issues raised in the statement of claim relating to estoppel and the Charter would not be argued or relied upon.

The following is an agreed statement of facts submitted by the parties at trial:

1. The within actions are appeals of income tax assessments, instituted pursuant to subsection 172(2) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act”). The 1987 taxation year is in issue in each of the three appeals. The 1986 and 1988 taxation years are also in issue in the Dagenais appeal.

2. At all material times, the plaintiffs were employees of Boise Cascade Canada Ltd. ("Boise Cascade"). Prior to 1977, Boise Cascade was known as the Ontario-Minnesota Pulp and Paper Company Ltd. In 1994, the name of the company again changed and it is now known as Rainy River Forest Products Ltd.

3. Boise Cascade operates pulp and paper mills in Fort Frances and Kenora, Ontario.

4. Employees at the Fort Frances and Kenora mills of Boise Cascade are represented by a number of different unions:

Fort Frances

Skilled trades people - International Association of Machinists and Aerospace Workers ("LAM"), Lodge 771

Paper machine operators (papermakers) Communication, Energy and Paperworkers Union of Canada ("CEP"), Local

306

General Labourers - CEP Local 92

Electricians - International Brotherhood of Electrical

Workers ("IBEW"), Local 1744

Kenora

Skilled trades people - LAM, Lodge 490

Paper machine operators (papermakers) - CEP, Local 238

Genera] Labourers United Paperworkers International

Union (“UPIU"), Local 1330

Electricians - IBEW, Local 559

Stationary Engineers - International Union of Operating

Engineers ("TUOE"), Local 940

Office workers - Office and Professional Employees

International Union ("OPEIU"), Local 488

Prior to 1992, CEP had been known as the Canadian Paperworkers Union (“CPU"). Prior to becoming a part of CPU in approximately 1989, Local 92 (Fort Frances) has

been a part of UPIU.

5. At various times, the various unions described above formed a body known as the Council of Unions. The Council of Unions, with representatives from all of its member unions, collectively bargained with Boise Cascade with respect to the terms and conditions of employment for the members of the unions comprising the Council. Once negotiations were completed at this "main table" the individual unions and Boise Cascade entered into memoranda of agreement and separate collective agreements.

6. Between 1968 and 1970, the unions entered into collective agreements with Boise Cascade whereby employees would be covered for short-term “weekly indemnity" as well as for long term disability.

7. In satisfaction of its obligation to obtain weekly indemnity and long-term disability benefits for its employees, Boise Cascade entered into various agreements with an insurance company.

8. During 1986 to 1988, coverage was provided by the Maritime Life Assurance Company ("Maritime Life"). Boise Cascade had entered into the following agreements:

(a) regarding weekly indemnity, an agreement between the Maritime Life and Boise Cascade Canada Ltd., effective January 1, 1983;

(b) regarding long-term disability, insurance policy #901547 between Maritime Life and Boise Cascade, effective November 1, 1982.

9. Weekly indemnity coverage was self-insured by Boise Cascade. Longterm disability coverage commenced upon the expiration of the weeklyindemnity benefits; it was insured by Maritime Life. Benefits under both plans were payable on a periodic basis in respect of the loss of income from employment.

10. In both cases premiums were paid by Boise Cascade. These premiums were not included in the income of the employees covered by the plans.

11. The plaintiffs were employed at the Fort Frances mill. During 1986 to 1988, the plaintiff Dagenais was employed as a brown stock washer/operator. During 1987, the plaintiff York was employed as a paper maker and the plaintiff Halwachs was employed as a pipe fitter. At that time, the plaintiff Dagenais was a member of the UPIU-Local 92, the plaintiff York was a member of the CPU-Local 306 and the plaintiff Halwachs was a member of the IAM-Lodge 771.

12. During those years, the plaintiffs were eligible for benefits under these disability insurance plans. The plaintiff Dagenais was covered as a class II beneficiary whereas the plaintiffs Halwachs and York were covered as class III beneficiaries.

13. The plaintiffs received the following amounts as benefits under the plans:

	1986	1987	1988
Dagenais	$4,297.32	$10,166.28	$18,487.30
Halwachs	N/A	$13,852.72	N/A
York	N/A	$ 2,092.80	N/A

Paragraphs 6(1 )(a) and 6(1 )(f) of the Income Tax Act are the relevant statutory provisions in this appeal. They provide as follows:

6(1) Amounts to be included as income from office or employment -There shall be included in computing the income of a taxpayer for a taxation year as income from an office or employment such of the following amounts as are applicable:

(a) Value of benefits -the value of board, lodging and other benefits of any kind whatever received or enjoyed by the taxpayer in the year in respect of, in the course of, or by virtue of an office or employment, except any benefit

(i) derived from the contributions of the taxpayer’s employer to or under a registered pension plan, group sickness or accident insurance plan, private health services plan, supplementary unemployment benefit plan, deferred profit sharing plan or group term life insurance policy,

(ii) under a retirement compensation arrangement, an employee benefit plan or an employee trust,

(iii) that was a benefit in respect of the use of an automobile,

(iv) derived from counselling services in respect of

(A) the mental or physical health of the taxpayer or an individual related to the taxpayer, other than a benefit attributable to an outlay or expense to which paragraph 18( 1 )(1) applies, or

(B) the re-employment or retirement of the taxpayer, or

(v) under a salary deferral arrangement, except to the extent that the benefit is included under this paragraph because of subsection (11);

(f) Employment insurance benefits -the aggregate of amounts received by him in the year that were payable to him on a periodic basis in respect of the loss of all or any part of his income from an office or employment, pursuant to

(i) a sickness or accident insurance plan,

(ii) a disability insurance plan, or

(iii) an income maintenance insurance plan

to or under which his employer has made a contribution, not exceeding the amount, if any, by which

(iv) the aggregate of all such amounts received by him pursuant to the plan before the end of the year and

(A) where there was a preceding taxation year ending after 1971 in which any such amount was, by virtue of this paragraph, included in computing his income, after the last such year, and

(B) in any other case, after 1971,

exceeds

(v) the aggregate of the contributions made by the taxpayer under the plan before the end of the year and

(A) where there was a preceding taxation year described in subparagraph (iv), after the last such year, and

(B) in any other case, after 1967;

In April 1979, Revenue Canada issued Interpretation Bulletin IT- 428, which provides a detailed explanation and interpretation of paragraphs 6(1 )(a) and 6(1 )(f) of the Act. Paragraph 16 of the bulletin reads as follows:

Employee-Pay-All Plans

16. An employee-pay-all plan is a plan the entire premium cost of which is paid by one or more employees. Except as indicated under 21 below, benefits out of such a plan are not taxable even if they are paid in consequence of an event occurring after 1973, because an employee-pay-all plan is not a plan within the meaning of paragraph 6(1 )(f).

Counsel for the plaintiffs maintains the benefits plan in the present case is an "employee pay all plan" and accordingly, the amounts received by the plaintiffs on a periodic basis in respect of the loss of wages, are exempt from taxation. It is submitted there is no evidence that the employer contributed any money towards funding either the short-term indemnity arrangement nor did it subsidize the purchase of the long-term insurance coverage. The only evidence relating to funding of the benefits package it is argued, came from the trade union representatives who testified that when collective agreements are negotiated, employers are generally prepared to make available a predetermined or fixed amount of funds in order to reach a settlement. It is then up to the union representatives to determine what portion should go to wages and what portion to benefits. If the employees are seeking improvements to their benefits package, they will usually accept a lesser wage increase.

In further support of their position, the plaintiffs rely on documents exchanged between the employer, the employees and the Anti-Inflation Board. In 1984, the AIB determined that the combined wages and benefits paid to employees exceeded the imposed guidelines. In order to comply with the guidelines, employees agreed in the second year of their contract, to delay for a period of 27 weeks, an increase in wages negotiated as part of a three year collective agreement. It is submitted this is absolute evidence that the benefits are considered part of the employees’ wage package and they are the sole contributors to the plan.

Counsel for the plaintiffs urged this Court to apply the reasoning of the Supreme Court of Canada in Cooper v. Miller, (indexed as Cunningham v. Wheeler, Cooper v. Miller, Shanks v. McNeel), 113 D.L.R. (4th) 1. In that case, a personal injuries matter, the issue was whether an injured party who had received disability benefits under a collective agreement, could claim the amount against a tortfeasor or was required to deduct it from the wage claim against defendants. Cory J., writing for the majority of the Court, relied on the prevailing view in the U.K., Australia and Canada, that if an individual has a private insurance policy, amounts recovered for wage indemnity are exempt from deduction in the recovery. The decision states at page 10 as follows:

I can see no reason why a tortfeasor should benefit from the sacrifices made by a plaintiff in obtaining an insurance policy to provide for lost wages. Tort recovery is based on some wrongdoing. It makes little sense for a wrongdoer to benefit from the private act of forethought and sacrifice of the plaintiff.

[Emphasis added.]

When discussing situations where disability coverage is in place, not privately, but pursuant to a collective bargaining agreement, Cory J. stated at page 12:

The Court of Appeal refused to exempt the disability payments received by the plaintiff because they were obtained as a result of a collective bargaining agreement, rather than by way of a direct deduction from his pay. That, I think, is too narrow an exception. They were bargained for and obtained as a result of a reduction in the hourly rate of pay. These benefits were therefore obtained and paid for by the plaintiff just as much as if he had bought and privately paid for a policy of disability insurance.

[Emphasis added.]

The defendant maintains that, in accordance with paragraph 6(1 )(f) of the Act, amounts received by a taxpayer in respect of loss of all or part of income from employment derived from (i) a sickness or accident insurance plan; (ii) a disability insurance plan; or, (iii) an income maintenance insurance plan, to which an employer has made a contribution are taxable. It is argued the present case clearly does not involve an individual who has insured himself against wage loss outside the boundaries of a collective agreement. In order to be exempt from taxation, the Court must be satisfied that it is in fact an employee-pay-all-plan, which means the entire premium must be paid by the employees. The onus of satisfying the Court that this is so rests with the plaintiff. Here, there is no evidence the employer did not contribute to the plan. During the years in question, none of the benefits package was added as taxable income except for OHIP coverage. The defendant agrees that where the employee’s remuneration included an amount for benefits which would be subject to tax and subsequently reduced by an amount withheld and remitted by the employer to pay the insurer the premiums, an exception as envisaged in paragraph 6(1 )(a) would be created. In the case at bar however, it is apparent that the employer did not deduct a specific amount from the employees wages and remit it on their behalf to an insurer.

Counsel for the defendant emphasizes there is no evidence to show precisely how much the employees contributed to the wage loss benefit plan nor any evidence to show what amount in the benefits package could be specifically attributed to premiums. These employees were not in a situation where they were taxed on the gross amount of their income, including benefits, before deductions for payment of premiums.

In Morin v. The Queen, [1991] 2 C.T.C. 2645, 92 D.T.C. 1069, the taxpayer argued that employees had accepted lower wages in order to obtain their benefit package, and therefore amounts received from the plan should not be included as income. The Tax Court rejected that contention, stating at page 2647 (D.T.C. 1071) as follows:

I should out of deference to the careful and reasoned argument presented by Mr. Morin deal briefly with two further contentions that he made. The first was that paragraph 6(1 )(f) does not apply because in substance the employer did not contribute to the plan. Mr. Morin testified that, at the time that unionized employees were receiving substantial increases in pay, non-unionized employees such as himself received only a two per cent increase. He argued that in essence by accepting lower wage or salary increases non-unionized employees were making it possible for the employer to contribute on their behalf to the plan. Although there may be a certain rough and ready economic logic to this reasoning, I do not think that I can realistically draw this inference or make the casual connection that he suggests. The fact that one group of employees receives a lower percentage increase in salary or wages than another group does not justify the conclusion that the employees who receive the lower increase are in fact contributing to or subsidizing benefit plans that are in fact and in law contributed to by the employer.

In Shuett v. M.N.R., 80 D.T.C. 1168, the taxpayer maintained that since half the contributions to his benefit plan were made by himself, and the other half by his employer, only half should be included in the calculation of his income. The Tax Review Board held that once the employer made a contribution to the plan, all benefits were taxable:

The intention of the Act is to be derived from the words used by parliament. It is plain that it was the intention of Parliament that any contribution by the employer has the effect of "contaminating" the plan.

Once it is found that the employer has made a contribution, the proportion in which contributions are made by employer and employee ceases to have relevance. The scheme of the Act is then to tax all benefits received subject to the limitation found by the application of subparagraphs (iv) and (v) formula.

I am satisfied that when the amendments to the relevant sections of the Income Tax Act were promulgated in the early 1970s, it was Parliament’s intention that various benefits received by employees, including employment insurance benefits, are to be included in income unless they qualify as an exemption. There is no ambiguity created by the language used in section 6 of the Act. In particular, paragraph 6(1 )(f), is clear and unambiguous that benefits, such as those in the present case, are to be included in computing a taxpayer’s income.

In order to succeed in their submission, that the benefits package in question was an employee-pay-all-plan, it was incumbent on the plaintiffs to establish that they paid for its entire cost. However, there is simply no evidence to substantiate a claim of that nature. Although there was some suggestion the employees accepted a lower hourly rate increase in order to gain improvements to their benefit package, no evidence was proffered with respect to any concise or exact amount which the employees allegedly paid for the benefits package. Neither was there was any evidence as to the amounts which may have been contributed to the plan by the employee or the employer. In the absence of any indications to the contrary, I am unable to conclude that it was only the employees who contributed to the plan in question.

Counsel for the plaintiff attempted to persuade me that Cooper v. Miller, supra, should be applied to the case at bar. However, as the defendant pointed out, tort law is not binding, and may not even be helpful, when interpreting the Income Tax Act. I agree with Cory J. that a plaintiff who has insured himself privately against lost wages has made a sacrifice for which he should not be required to suffer while a tortfeasor benefits. However, I cannot ascertain any sacrifice on the part of the plaintiffs here. Had the benefits in question been included as taxable income, I may have arrived at a different conclusion. But employees, who for years have enjoyed the protection of a costly benefits package, cannot be seen to have made any sacrifice. On the contrary, they enjoy a tax advantage over those individuals who are required to protect themselves by incurring the cost of private insurance. This interpretation reflects the true intention of Parliament as evinced by the clear and unambiguous language used in section 6 of the Income Tax Act.

For the above reasons, the appeal is dismissed.

Appeal dismissed.