Date: 20071114
Docket: A-196-07
Citation: 2007 FCA 362
CORAM: LÉTOURNEAU
J.A.
NOËL
J.A.
TRUDEL
J.A.
BETWEEN:
MARC FOREST
Appellant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
NOËL J.A.
[1]
This is an
appeal from a decision of the Tax Court of Canada, which dismissed the
appellant’s appeal of an assessment issued by the Minister of National Revenue
(the Minister) under the Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1
(the Act), for the 2003 taxation year. In so doing, the Tax Court judge
concluded that the amount of $152,969 paid by the Ville de Shawinigan to the
appellant during his 2003 taxation year constituted a retiring allowance within
the meaning of subsection 248(1) of the Act that must be included in computing
income under section 56 of the Act.
[2]
The
appellant, who is representing himself, is asking this Court to set aside the
judgment of the Tax Court of Canada on the ground that the payment was received
as damages and is not a retiring allowance under the Act.
RELEVANT FACTS
[3]
From
January 2000 to December 2003, the appellant, who is a lawyer, was employed by
the Ville de Shawinigan-Sud. He held the position of Clerk and Director of
Human Resources from January 2000 to the end of 2001.
[4]
In January
2002, when towns and cities were amalgamated, the new city of Shawinigan was formed, comprising seven
municipalities including Shawinigan-Sud. The transition committee, responsible
for executive appointments for the new city,
declared the appellant to be a surplus executive and assigned him the position
of Assistant Clerk. His applications for the positions of Director of Human
Resources, Clerk and Legal Advisor were not successful.
[5]
Following
this reclassification, on May 9, 2002, the appellant filed a remedy for unjust
dismissal before the Commission des relations du travail, but it declined
jurisdiction. On June 5, 2002, the appellant filed an application for
judicial review of this decision with the Québec Superior Court.
[6]
Along with
that application, the appellant brought an accessory motion for an order that
the Ville de Shawinigan pay his lawyer’s fees and disbursements. On November
29, 2002, the Québec Superior Court granted the accessory motion. On February
26, 2003, the Québec Court of Appeal set aside the judgment of the Superior
Court. On June 26, 2003, the Supreme Court of Canada dismissed Mr. Forest’s
application for leave to appeal. On October 22, 2003, the Supreme Court of
Canada rendered a decision on the taxation of the bill of costs in favour of
the Ville de Shawinigan.
[7]
As a
result of the numerous proceedings commenced by the appellant against the Ville
de Shawinigan, he contends that his managers began harassing him. In 2003, the
appellant, who was still working for the Ville de Shawinigan, brought an action
in the Québec Superior Court against the Ville de Shawinigan for $240,000 in
moral damages and $100,000 in exemplary damages, as well as extra-judicial
professional fees and other professional disbursements in the order of $40,000
(Amended motion to institute proceedings, at para. 14, Appeal Book, at
p. 67).
[8]
At the end
of December 2003, the appellant and the Ville de Shawinigan signed a Settlement
and Release (“the settlement”) discontinuing the action in damages before the
Québec Superior Court (File No. 410-17-000175-039). According to the
settlement, the Ville de Shawinigan, without admitting liability, agreed
- to
pay the sum of $165,000 to the appellant in accordance with the following terms
and conditions:
(a) $12,031 directly to
his lawyers as judicial and extra-judicial fees; and
(b) $152,969 less the
requisite statutory deductions, to the order of Charles-Grenon & Dion,
solicitors in trust (Settlement para. 2, Appeal Book at p. 14);
- to
waive its claim against the appellant for memoranda of costs due pursuant to
the decisions of the Court of Appeal and the Supreme Court (Settlement para. 3,
Appeal Book at p. 14);
- to
pay the allowances for vacation and other days owed to the appellant
(Settlement para. 4, Appeal Book at p. 14).
[9]
In
consideration of the undertakings given by the Ville de Shawinigan, the
appellant agreed
a. to tender his
resignation from his position as Assistant Clerk, thus terminating the
employment relationship with the Ville de Shawinigan effective as of the date
of signing the settlement; (Settlement para. 5, Appeal Book at p. 14);
b. to give a
full, final and definitive release from any past, present or future action or
cause of action before any court, quasi-judicial tribunal or administrative
tribunal by reason of his employment with the Ville de Shawinigan or such other
circumstances as are contemplated in the proceedings referred to and from his
conditional CSST claim filed on or about November 6, 2003, [and] from any claim
for principal, interest and costs of any salary, vacation pay, severance pay,
pay in lieu of notice, notice, overtime . . . (Settlement para. 6, Appeal Book
at p. 15);
c. to waive any
right to reinstatement, and [he] confirms that all proceedings, complaints and
claims referred to in the preamble hereof are completely discontinued, without
costs, and that counsel for the parties are mandated to declare that they are
settled out of court (Settlement para. 8, Appeal Book at p. 15).
[10]
Federal
income tax of $22,945.31 was deducted from the payment of $152,969, as
indicated in the T4A form issued by the Ville de Shawinigan.
[11]
In issuing
the impugned assessment, the Minister assumed that the $152,969 that was paid
to the appellant was a retirement allowance and, as such, was taxable.
[12]
After
objection and confirmation, the assessment was appealed to the Tax Court of
Canada, and on April 3, 2007, judgment was rendered confirming the Minister’s
assessment. This is the decision under appeal.
DECISION OF THE TAX COURT OF CANADA
[13]
The Tax
Court judge began his analysis by indicating that if the evidence established
that the settlement amount was paid so that the appellant would discontinue his
harassment action, he would find that the settlement amount did not constitute
a retiring allowance and was not taxable. On the other hand, if the settlement
amount was paid to convince the appellant to resign from his position as
Assistant Clerk, he would make the opposite finding on both these points
(Reasons, at para. 9).
[14]
The Tax
Court judge then dismissed the appellant’s argument that the entire payment was
made in settlement of his harassment action. According to the judge, the
settlement probably had two purposes, i.e., to indemnify the appellant for the
loss of his employment and to obtain a discontinuance of his harassment action
(Reasons, at para. 12).
[15]
In saying
this, the Tax Court judge acknowledged that the settlement was reached in the
Superior Court file and ended the action for psychological harassment that the
appellant had filed in that court. At the same time, however, the judge noted
the wording of the settlement, which provided expressly that “in consideration
of the fulfilment of the commitments made . . . by the City, Forest tenders his
resignation” (section 5) and that “in consideration of the fulfilment of the
commitments made by the City, Forest acknowledges that he shall no longer have
any employment relationship with the City” (section 8). According to the judge,
these provisions show that at least part of the settlement amount was paid in
consideration for the appellant resigning from his employment.
[16]
Despite
this, the judge concluded that the entire amount should be treated as a
retiring allowance, since the appellant had failed to establish which part of
the settlement amount was related to the discontinuance of his harassment
action (Reasons, at para. 12):
Since the
Appellant has not satisfied me that the entire Settlement Amount that he
was paid was related solely to his dropping of the harassment lawsuit, and
since the evidence that he has presented to me does not enable me to determine
clearly which part of the allowance is related to this commitment, I find that
the entire Settlement Amount is a retiring allowance within the meaning of
subsection 248(1) of the Act and must therefore be included in computing
the Appellant's income for his 2003 taxation year under
subparagraph 56(1)(a)(ii) of the Act.
ALLEGED ERRORS IN THE DECISION UNDER
APPEAL
[17]
The appellant
submits that the Tax Court judge erred in fact and in law in not considering
his testimony according to which the entire amount related to the settlement of
his psychological harassment action.
[18]
To the
extent that only part of the amount related to the settlement of the
psychological harassment file, the appellant contends that it is incumbent on
the Minister to allocate this amount. In the absence of evidence on this point,
the entire amount must be considered to have been paid as damages. On this point,
the appellant relies on the Supreme Court of Canada decision in Schwartz v.
the Queen, [1996] 1 S.C.R. 254 (Schwartz).
[19]
Last, the
appellant submits that the judge wrongly interpreted the term “retiring
allowance”. In order to constitute a retiring allowance, a sum must be paid
after long years of service and must be intended to compensate for a loss of
income. According to the appellant, the amount in question here does not meet
these requirements because he was employed by the Ville for only a short period
of time and lost nothing as a result of losing his employment.
STATUTORY FRAMEWORK
[20]
Subsection
248(1) of the Act reads as follows:
|
248. (1)
"retiring allowance" means an amount (other than a superannuation
or pension benefit, an amount received as a consequence of the death of an
employee or a benefit described in subparagraph 6(1)(a)(iv)) received
(a) on or
after retirement of a taxpayer from an office or employment in recognition of
the taxpayer’s 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 the taxpayer’s death, by a dependant or a relation of
the taxpayer or by the legal representative of the taxpayer;
|
248. (1)
«allocation de retraite » Somme, sauf une prestation de retraite ou de
pension, une somme reçue en raison du décès d’un employé ou un avantage visé
au sous-alinéa 6(1)a)(iv), reçue par un 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:
a) soit
en reconnaissance de longs états de service du contribuable au moment où il
prend sa retraite d’une charge ou d’un emploi ou par la suite;
b) soit à
l’égard de la perte par le contribuable d’une charge ou d’un emploi, qu’elle
ait été reçue ou non à titre de dommages ou conformément à une ordonnance ou
sur jugement d’un tribunal compétent.
|
[Emphasis is mine.]
[21]
Subparagraph
56(1)(a)(ii) of the Act reads 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,
Pension
benefits, unemployment insurance benefits, etc.
(a)
any amount received by the taxpayer in the year as, on account or in lieu of
payment of, or in satisfaction of,
(ii) a retiring allowance, other than an
amount received out of or under an employee benefit plan, a retirement
compensation arrangement or a salary deferral arrangement,
|
56. (1) Sans
préjudice de la portée générale de l’article 3, sont à inclure dans le calcul
du revenu d’un contribuable pour une année d’imposition:
Pensions,
prestations d’assurance-chômage, etc.
a) toute
somme reçue par le contribuable au cours de l’année au titre, ou en paiement
intégral ou partiel:
(ii) d’une allocation de retraite, sauf s’il
s’agit d’un montant versé dans le cadre d’un régime de prestations aux
employés, d’une convention de retraite ou d’une entente d’échelonnement du
traitement,
|
ANALYSIS AND DECISION
[22]
As can be
seen from reading the definition in section 248, a “retiring allowance”
includes not only amounts paid in recognition of long service but also amounts
paid in respect of a loss of employment of a taxpayer. In this case, despite
the fact that the appellant had only been employed by the Ville for three
years, there is no doubt that he was entitled to an indemnity on leaving his
employment. This type of payment, whether or not paid as damages, constitutes a
“retiring allowance” within the meaning of subsection 248(1) of the Act. The
Tax Court judge did not err in his interpretation of the term “retiring
allowance”.
[23]
The
appellant also placed considerable emphasis on the fact that his testimony that
the payment had only one purpose was not contradicted by any other witness.
That is no doubt the case. But, as we indicated several times at the hearing,
that was not the only evidence before the trial judge and, considering the
wording of the settlement, we can only conclude that the payment had at least
two purposes.
[24]
Nor does Schwartz,
supra, have the effect that the appellant attributes to it. In that case,
because the Minister had advanced an alternative argument with respect to which
he had to exceptionally bear the burden of proof (Schwartz, supra, at
paragraphs 1, 17). That is why the Minister had to suffer the consequences of
the absence of evidence as to apportionment of the payment in that case. In the
case before us, this onus is on the appellant since the only argument advanced
in support of the assessment is that the entire settlement amount is a retiring
allowance.
[25]
However, Schwartz
also teaches us that once it has been established that a payment has a dual
purpose, the bar for determining apportionment must not be set too high. As Mr. Justice La Forest explains (Schwartz, supra,
at paragraph 41), the party that has the burden (in that case, the Minister)
. . . should not
have the burden of presenting, in every case where the apportionment of a
general award is at issue, specific evidence amounting to an explicit
expression of the concerned parties' intention with respect to that
question. However, there must be some evidence, in whatever form,
from which the trial judge will be able to infer, on a balance of
probabilities, which part of that general award was intended to compensate for
specific types of damages.
[26]
I conclude
from this passage that, to the extent that there is some evidence from which
the trial judge can reasonably identify what a global amount is composed of,
that evidence should be accepted. This result, if supported by the evidence, is
clearly preferable to the situation where, as in this case, it is acknowledged
that part of the money received—most of it, if we consider the fact that the
appellant was employed by the Ville for only three years—is not taxable but tax
is imposed on the entire amount because it cannot be apportioned.
[27]
In the
present matter, the Tax Court judge found that the appellant’s evidence did not
enable him to “clearly” determine this apportionment (see the excerpt from the
reasons cited in paragraph 16, above). In saying this, the Tax Court judge, in
my view, set the bar too high. As the Supreme Court explains, the evidence
should be examined to see whether there is some evidence on which the judge can
identify which part of the amount relates to each of the purposes referred to
in the settlement.
[28]
The
evidence before the Tax Court included a document from the Ville de Shawinigan
indicating how compensation was determined for the municipal employees who left
their employment following the 2002 amalgamation. This program, which was
available to the employees of the new Ville who agreed to leave their
employment and to waive any right to reinstatement, established the scale of
amounts that the new Ville was prepared to pay as severance pay. Under this
program, an employee was entitled to a severance payment equivalent to one
month of salary for each year of service, with a minimum of three months and a
maximum of eighteen months (Voluntary Leave Program, Appeal Book, at p. 97).
[29]
The
benchmark salary for purposes of this calculation was the salary for the last
year of service (specifically, the salary that was payable on the first day of
the sixth month prior to the departure) excluding premiums, bonuses or other
remuneration (Voluntary Leave Program, idem). The T-4 slip issued by the
Ville de Shawinigan for 2003 indicates that the appellant’s salary was $104,691
during his last year of service, which would include the seven weeks’ vacation
that had to be paid to him under paragraph 4 of the settlement. Excluding the
amounts attributable to those seven weeks (i.e., $1,773 per week or a total of
$12,411), the appellant’s annual salary was approximately $92,200, and,
therefore, under the compensation policy established by the Ville, he was
entitled to severance pay of $23,050.
[30]
This
evidence constitutes an objective basis from which it is possible to reasonably
allocate the amount that the appellant received, and the Tax Court judge should
have taken this into consideration. In my opinion, the fact that the Ville was
prepared to pay only $23,050 to obtain the appellant’s voluntary departure
suggests, by deduction and on the balance of probabilities, that this was the
approximate amount that was paid to the appellant so that he would agree to
leave his employment and that the balance was paid in consideration of the
appellant discontinuing his harassment action.
[31]
The
conclusion that I have arrived at takes into account not only the short period
of time that the appellant was employed by the Ville but also the numerous
proceedings underlying the psychological harassment action, its apparent
seriousness and the seemingly compelling interest that the Ville had in having
the appellant discontinue it.
[32]
For these
reasons, I would allow the appeal, set aside the judgment of the Tax Court of
Canada and, rendering the judgment that it should have given, I would allow the
appellant’s appeal before the Tax Court of Canada in part, and I would refer
the assessment to the Minister for re-assessment on the basis that only the
amount of $23,050 received by the appellant pursuant to the settlement
negotiated in December 2003 constitutes a retiring allowance. I would grant the
appellant his disbursements before us and before the Tax Court of Canada.
“Marc
Noël”
“I
concur.
Gilles Létourneau J.A.”
“I
concur.
Johanne Trudel J.A.”
Certified
true translation
Mary Jo Egan,
LLB
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