McNair,
).:—This
is
an
appeal
by
way
of
action
pursuant
to
section
172
of
the
Income
Tax
Act
from
a
notice
of
reassessment
dated
November
4,
1982
in
respect
of
the
plaintiff's
1981
taxation
year.
The
reassessment
was
confirmed
by
the
Minister
on
February
25,1983.
The
plaintiff
now
seeks
to
have
the
assessment
vacated.
The
facts
are
not
in
dispute
and
are
set
out
in
an
agreed
statement
of
facts,
filed
on
February
14,
1986,
which
reads
as
follows:
1.
The
Plaintiff
is
a
company
incorporated
under
the
laws
of
the
Province
of
Ontario,
having
its
head
office
in
the
City
of
Ottawa,
and
carrying
on
business
in
the
Regional
Municipality
of
Ottawa-Carleton.
2.
Prior
to
December
28th,
1973,
the
Plaintiff
owned
property
bearing
civic
address
number
113-115
Sparks
Street
in
the
City
of
Ottawa,
Province
of
Ontario
(hereinafter
referred
to
as
the
“Sparks
property”)
from
which
property
it
carried
on
its
business
as
a
retail
merchant
in
men’s
and
boys’
clothing
and
apparel.
3.
On
July
20,
1973
a
Notice
of
Intention
to
Expropriate
pursuant
to
the
Expropriation
Act,
R.S.C.
1970,
c.16
(1st
Supp.)
(the
“Expropriation
Act”)
was
registered
under
number
635288
against
the
Plaintiff’s
interest
in
the
Sparks
property
by
the
Minister
of
Public
Works
on
behalf
of
Her
Majesty
The
Queen
in
right
of
Canada.
4.
On
December
28th,
1973,
a
Notice
of
Confirmation
of
Intention
to
Expropriate
pursuant
to
the
Expropriation
Act
was
registered
under
number
645685
against
the
Plaintiff’s
interest
in
the
Sparks
property.
Under
the
provisions
of
the
Expropriation
Act,
the
“interest
confirmed
to
be
expropriated
becomes
and
is
absolutely
vested
in
the
Crown”,
that
is
the
Crown
became
legal
owner
of
the
expropriated
interest
of
the
Plaintiff
as
of
the
date
the
Notice
of
Confirmation
was
registered.
The
Plaintiff
was
informed
that
an
offer
of
compensation
for
its
interest
would
be
forthcoming
shortly.
5.
On
January
30th,
1974,
the
Minister
of
Public
Works
gave
Notice
of
Possession
to
the
Plaintiff,
pursuant
to
section
17
of
the
Expropriation
Act,
that
the
Crown
required
physical
possession
and
use
of
the
Sparks
property
on
and
after
the
1st
day
of
May,
1974.
The
Plaintiff
was
offered
the
opportunity
of
continuing
to
occupy
the
property
after
May
1,
1974
on
a
lease
basis
the
terms
of
which
were
to
be
the
subject
of
negotiation.
6.
On
February
21st,
1974,
the
Minister
of
Public
Works
made
a
conditional
offer
of
compensation
for
the
Sparks
property
pursuant
to
subsection
14(1)
of
the
Expropriation
Act
in
the
amount
of
$485,000.
The
Plaintiff
was
informed
that
it
could
accept
this
amount
without
prejudice
to
its
right
to
claim
additional
compensation
in
respect
of
its
expropriated
interest
and
further
that
such
acceptance
would
not
be
conditional
upon
the
Plaintiff
providing
any
release
of
its
rights
under
the
Expropriation
Act.
7.
On
April
11,
1974
the
Plaintiff
served
Notice
that
it
required
that
the
compensation
payable
for
its
interest
in
the
Sparks
property
expropriated
by
Her
Majesty
the
Queen
be
negotiated
in
accordance
with
the
provisions
of
section
28
of
the
Expropriation
Act.
8.
By
a
registered
letter
dated
November
4,
1974,
the
Plaintiff
was
advised
that
the
four
conditions
to
which
the
February
21,
1974
offer
of
compenstion
was
subject
were
no
longer
applicable.
9.
On
January
27,
1975
the
Plaintiff
accepted
the
Crown's
offer
of
compensation
of
$485,000
on
the
understanding
that
the
acceptance
of
the
offer
was
not
condi-
tional
upon
the
provision
of
any
release
and
was
made
without
prejudice
to
its
right
to
claim
additional
compensation
in
respect
of
the
interest
expropriated
from
it.
The
solicitors
for
the
Plaintiff
further
advised
that
the
Plaintiff
was
accepting
the
payment
without
prejudice
to
its
right
to
claim
interest
under
section
33(4)
of
the
Expropriation
Act.
10.
On
February
24,
1975,
the
Plaintiff
executed
a
Receipt
and
Acknowledgement
form
acknowledging
receipt
of
the
amount
of
$485,000
from
Her
Majesty
The
Queen
without
prejudice
to
its
right
to
claim
additional
compensation.
11.
The
Plaintiff
and
the
Department
of
Public
Works
subsequently
negotiated
a
“lease
back”
whereby
the
Plaintiff
continued
to
occupy
the
Sparks
property
and
the
Plaintiff
commenced
paying
rent
therefor
on
the
24th
day
of
February,
1975.
The
rent
owing
for
the
period
May
1,
1974
until
February
23,
1975
was
agreed
between
the
parties
to
be
in
the
amount
of
$37,710.30.
12.
On
February
10th,
1976,
the
Plaintiff
filed
a
Statement
of
Claim
in
the
Federal
Court
of
Canada
against
Her
Majesty
the
Queen
and
the
Minister
of
Public
Works
with
respect
to
the
expropriation
of
its
interest
in
the
Sparks
property
and
subsequent
to
the
disposition
of
preliminary
motions
taken
by
Her
Majesty
the
Queen
and
the
Minister
of
Public
Works,
a
Statement
of
Defence
was
filed
on
April
1,
1977.
13.
The
above-captioned
Federal
Court
Action
did
not
proceed
to
trial,
as
the
amount
owing
to
the
Plaintiff
as
a
result
of
the
expropriation
of
its
interest
in
the
Sparks
property
was
settled
between
the
parties
on
the
following
basis:
—
Real
Estate
Market
value
(ss.
24(3)(b)(i)
|
of
the
Expropriation
Act)
|
$510,000.00
|
|
—
Business
Disturbance
(ss.
24(3)(b)
(ii)
|
|
|
of
the
Expropriation
Act)
|
$
38,250.00
|
|
—
Interest
at
basic
rate
on
the
amount
|
|
|
by
which
the
settlement
amount
|
|
|
exceeded
the
offer
(548,250
—
485,000
|
|
|
=63,250)
(ss.
33(3)(a)
of
the
|
|
|
Expropriation
Act)
|
$
29,962.43
|
|
—
Interest
at
the
basic
rate
on
$548,250
|
|
|
from
the
date
of
possession
May
1,
1974
|
|
|
(ss.
33(3)
of
the
Expropriation
Act)
|
$
33,871.34
|
|
—
Interest
at
the
rate
of
5
percent
per
annum
|
|
|
on
$548,250
as
the
amount
of
the
offer
(485,000)
|
|
|
was
less
than
90%
$548,250
(ss.
33(3)(b)
of
|
|
|
the
Expropriation
Act)
|
$144,172.43
|
|
Total
|
$756,256.20
|
14.
On
April
30,
1980
the
Plaintiff
received
the
amount
of
$233,545.90
calculated
as
follows:
|
Total
Amount
Owing
to
Plaintiff
|
$756,256.20
|
|
Less:
Amount
Paid
|
$485,000.00
|
|
$271,256.20
|
|
Less:
|
|
|
Rent
Owed
by
Plaintiff
(See
Para.
11
hereof)
|
$
37,710.30
|
|
Final
Amount
Owing
|
$233,545.90
|
The
Plaintiff
further
subsequently
received
its
reasonable
costs
of
appraisal
and
legal
fees
pursuant
to
the
Expropriation
Act.
15.
On
April
29,
1980
the
Plaintiff
executed
a
Deed
in
favour
of
Her
Majesty
the
Queen
in
Right
of
Canada
whereby
the
Plaintiff,
inter
alia,
(i)
released
all
its
claims
upon
the
Sparks
property
to
Her
Majesty
the
Queen
in
Right
of
Canada,
(ii)
acknowledged
that
the
Sparks
property
had
been
duly
expropriated
by
Her
Majesty
the
Queen
in
Right
of
Canada,
(iii)
released
Her
Majesty
the
Queen
in
Right
of
Canada
from
all
claims
and
demands
for
severance,
depreciation,
injurious
affection,
compensation,
damages
or
other
matter
or
thing
arising
out
of
or
connected
with
the
expropriation.
The
Deed
was
registered
in
the
Land
Registry
Division
of
Ottawa-Carleton
on
July
16,
1980.
16.
In
reporting
its
income
for
tax
purposes
for
its
1981
taxation
year
the
Plaintiff,
with
respect
to
the
expropriation
of
the
Sparks
property,
(i)
included
the
amounts
of
$29,962.43
and
$33,871.34
being
the
amounts
received
by
it
pursuant
to
ss.
33(3)(a)
and
33(3)
of
the
Expropriation
Act
respectively
as
interest,
(ii)
included
the
amount
of
$31,625
as
a
taxable
capital
gain
calculated
as
follows:
|
Proceeds
of
disposition
|
$510,000
|
|
Less:
Adjusted
cost
base
|
485,000
|
|
Capital
Gain
|
$25,000
|
|
Compensation
for
Business
|
$
38,250
|
|
Disturbance
|
|
|
Less:
Adjusted
cost
base
|
|
|
Capital
Gain
|
$38,250
|
|
Total
Capital
Gain
|
$63,250
|
|
TAXABLE
CAPITAL
GAIN
|
$31,625
|
(iii)
did
not
include
in
the
computation
of
it’s
[sic]
taxable
capital
gain
or
in
the
computation
of
it’s
[sic]
income
at
all
the
amount
of
$144,172.43
received
by
it
pursuant
to
the
provisions
of
ss.
33(3)(b)
of
the
Expropriation
Act.
17.
The
Minister
of
National
Revenue
reassessed
the
Plaintiff
for
its
1981
taxation
year
Notice
of
which
was
dated
November
4,
1982
so
as
to
increase
the
taxable
capital
gains
reported
by
the
Plaintiff
by
$72,086
being
50%
of
the
sum
of
$144,172.43
received
by
the
Plaintiff
pursuant
to
the
provisions
of
ss.
33(3)(b)
of
the
Expropriation
Act.
18.
The
Plaintiff
objected
to
the
said
reassessment,
Notice
of
Objection
of
which
was
dated
November
22,
1982
and
the
Minister
of
National
Revenue
by
Notice
dated
February
25,
1983
confirmed
his
reassessment.
The
issue
in
the
case
is
whether
the
sum
of
$144,172.43
received
by
the
plaintiff
in
accordance
with
paragraph
33(3)(b)
of
the
Expropriation
Act
is
taxable
in
the
hands
of
the
plaintiff.
The
Crown's
position
is
that
it
forms
part
of
the
proceeds
of
disposition
of
the
Sparks
Street
property
or,
alternatively,
is
interest
income
or
income
from
property
and
is
therefore
taxable.
The
plaintiff
contends
that
the
said
amount
constitutes
a
"tax-free”
receipt
or
windfall
that
does
not
have
to
be
included
in
income
for
tax
purposes.
Subsections
33(1),
(2)
and
(3)
of
the
Expropriation
Act
provide:
33.(1)
In
this
section
“basic
rate”
means
a
rate
determined
in
the
manner
prescribed
by
any
order
made
from
time
to
time
by
the
Governor
in
Council
for
the
purposes
of
this
section,
being
not
less
than
the
average
yield,
determined
in
the
manner
prescribed
by
such
order,
from
Government
of
Canada
treasury
bills;
“compensation”
means
the
amount
of
the
compensation
adjudged
by
the
Court
under
this
Part
to
be
payable
in
respect
of
an
expropriated
interest;
“date
of
possession”
means
the
day
upon
which
the
Crown
became
entitled
to
take
physical
possession
or
make
use
of
the
land
to
which
a
notice
of
confirmation
relates;
“date
of
the
offer”
means
the
day
upon
which
an
offer
was
accepted;
“offer”
means
an
offer
under
section
14.
(2)
Interest
is
payable
by
the
Crown
at
the
basic
rate
on
the
compensation,
from
the
date
of
possession
to
the
date
judgment
is
given,
except
where
an
offer
has
been
accepted.
(3)
Where
an
offer
has
been
accepted,
interest
is
payable
by
the
Crown
from
the
date
of
the
offer
to
the
date
judgment
is
given,
(a)
at
the
basic
rate
on
the
amount
by
which
the
compensation
exceeds
the
amount
of
the
offer,
and
in
addition
(b)
at
the
rate
of
five
per
cent
per
annum
on
the
compensation,
if
the
amount
of
the
offer
is
less
than
ninety
per
cent
of
the
compensation;
and
where
an
offer
has
been
accepted
after
the
date
of
possession,
interest
is
payable
at
the
basic
rate
on
the
compensation,
from
the
date
of
possession
to
the
date
of
the
offer.
Clause
54(c)(ii)(B)
and
subparagraph
54(h)(iv)
of
the
Income
Tax
Act
provide:
54(c)
“Disposition”
of
property.
—
“disposition”
of
any
property
except
as
expressly
otherwise
provided,
includes
(ii)
any
transaction
or
event
by
which
(B)
any
debt
owing
to
a
taxpayer
or
any
other
right
of
a
taxpayer
to
receive
an
amount
is
settled
or
cancelled.
54(h)
“Proceeds
of
disposition.”
—
“proceeds
of
disposition”
of
property
includes,
(iv)
compensation
for
property
taken
under
statutory
authority
or
the
sale
price
of
property
sold
to
a
person
by
whom
notice
of
an
intention
to
take
it
under
statutory
authority
was
given,
Paragraph
12(1
)(c)
of
the
Income
Tax
Act
reads:
(c)
Interest.
—
Any
amount
received
by
the
taxpayer
in
the
year
or
receivable
by
him
in
the
year
(depending
upon
the
method
regularly
followed
by
the
taxpayer
in
computing
his
profit)
as,
on
account
or
in
lieu
of
payment
of,
or
in
satisfaction
of,
interest;
The
plaintiff
argues
that
the
compensation
paid
for
the
Sparks
Street
property
was
$548,250
and,
by
virtue
of
paragraph
54(h)
of
the
Income
Tax
Act,
that
amount
is
the
final
proceeds
of
disposition
on
which
the
plaintiff
is
required
to
pay
tax.
The
amount
of
$144,172.43
received
by
the
plaintiff
in
accordance
with
paragraph
33(3)(b)
of
the
Expropriation
Act
is,
according
to
the
plaintiff,
a
penalty
payable
by
the
Crown
in
the
circumstance
where
it
has
made
an
offer
of
less
than
90
per
cent
of
the
amount
subsequently
determined
to
be
proper
compensation.
Accordingly,
it
should
not
be
added
to
the
plaintiffs
proceeds
of
disposition
as
defined
by
paragraph
54(h)
of
the
Act.
The
plaintiff
submits
that
the
payment
received
pursuant
to
paragraph
33(3)(b)
of
the
Expropriation
Act
is
not
compensation
which
is
referable
in
any
way
to
the
property
in
question.
The
argument
is
simply
that
the
plaintiff
did
not
receive
the
payment
because
of
any
loss
it
suffered;
rather
the
payment
is
one
that
is
clearly
earmarked
as
a
penalty
against
the
expropriating
authority.
The
plaintiff
relies
on
a
line
of
cases
which
deal
with
“windfall
payments”,
so
called.
Generally
speaking,
a
windfall
payment
is
a
payment
of
an
unusual
or
extraordinary
nature
which
cannot
be
characterized
as
income
from
a
business,
property
or
any
other
source
because
it
is
unrelated
to
the
business
of
the
taxpayer
or
to
any
exertion
on
his
part
to
produce
income
or
profit
and
because
the
payment
is
not
of
a
recurrent
nature
or
related
to
the
productive
potential
of
the
property.
Finally,
the
plaintiff
submits
that
the
legislature
has
seen
fit
to
exact
a
penalty
against
the
expropriating
authority
when
it
fails
to
make
a
reasona-
ble
offer
and
that
to
permit
such
penalty
to
be
taxable
as
income
would
thwart
the
legislative
intention.
The
defendant
submits
that
the
sum
of
$144,172.43
constitutes
proceeds
of
the
disposition
of
the
Sparks
Street
property
within
the
meaning
of
paragraph
54(h)
of
the
Income
Tax
Act.
The
defendant
relies
on
clause
54(c)(ii)(B)
above
referred
to,
which
provides
that
a
disposition
of
property
includes
any
transaction
or
event
by
which
any
right
of
a
taxpayer
to
receive
an
amount
is
settled
or
cancelled.
Paragraph
54(h)
then
defines
proceeds
of
disposition
as
including
compensation
for
property
taken
under
statutory
authority.
It
is
the
defendant's
position
that
the
plaintiff
had
a
right
to
receive
the
amount
under
paragraph
33(3)(b)
of
the
Expropriation
Act
because
it
received
an
offer
of
compensation
which
was
less
than
90
per
cent
of
the
amount
finally
agreed
upon.
That
right
was
settled
in
return
for
the
sum
of
$144,172.43
which,
pursuant
to
clause
54(c)(ii)(B)
of
the
Income
Tax
Act,
constitutes
a
disposition
of
property.
The
defendant
relies
on
the
rules
of
statutory
interpretation
for
taxation
statutes
and
submits
that
in
interpreting
the
provisions
applicable
to
the
case
at
bar
regard
must
be
had
to
the
scheme
and
intent
of
the
capital
gains
regime
introduced
in
1971.
The
defendant
maintains
that
one
must
look
to
the
reality
of
the
situation,
which
is
that
the
plaintiffs
property
was
expropriated
and
in
the
culmination
of
the
settlement
of
that
expropriation
the
plaintiff
received
proceeds
of
disposition
of
$144,172.43.
The
defendant
further
submits
that
while
there
is
no
dispute
that
the
payment
pursuant
to
paragraph
33(3)(b)
of
the
Expropriation
Act
is
penal
in
nature,
it
is
nevertheless
characterized
in
that
Act
as
interest
payable
in
a
case
where
the
amount
of
an
offer
of
compensation
turns
out
to
be
less
than
90
per
cent
of
the
compensation
actually
found
due.
As
such,
the
amount
is
taxable.
Although
the
intent
of
the
provision
is
to
encourage
the
Crown
to
make
reasonable
offers
of
compensation
and
to
penalize
the
Crown
when
it
does
not,
the
interest
penalty
is
still
taxable
in
the
hands
of
the
plaintiff.
As
mentioned,
the
plaintiff
relies
heavily
on
a
line
of
cases
dealing
with
payments
in
the
nature
of
windfall
receipts.
The
leading
case
is
The
Queen
v.
Cranswick,
[1982]
C.T.C.
69;
82
D.T.C.
6073
(F.C.A.).
There
a
taxpayer
shareholder
in
a
Canadian
company
received
a
payment
from
a
majority
shareholder
after
a
corporate
reorganization.
In
order
to
avoid
a
potentially
controversial
issue
amongst
the
shareholders,
the
majority
shareholder
made
an
offer
to
minority
shareholders
to
buy
their
shares
or
make
a
payment
on
their
shareholdings.
The
taxpayer
accepted
the
payment
offer
and
the
Minister
included
the
amount
received
in
the
taxpayer's
income.
The
taxpayer
appealed
to
the
Federal
Court,
Trial
Division,
which
held
that
the
voluntary
payment
was
received
by
the
taxpayer
as
a
windfall.
The
Crown
appealed
to
the
Federal
Court
of
Appeal,
which
upheld
the
judgment
at
trial
and
dismissed
the
appeal.
LeDain,
J.,
summarized
the
indiciae
for
windfall
payments
as
follows,
although
taking
pains
to
point
out
that
while
all
were
relevant
no
one
by
itself
was
conclusive:
(a)
The
Respondent
had
no
enforceable
claim
to
the
payment;
(b)
There
was
no
organized
effort
on
the
part
of
the
Respondent
to
receive
the
payment;
(c)
The
payment
was
not
sought
after
or
solicited
by
the
Respondent
in
any
manner;
(d)
The
payment
was
not
expected
by
the
Respondent,
either
specifically
or
customarily;
(e)
The
payment
had
no
foreseeable
element
of
recurrence;
(f)
The
payer
was
not
a
customary
source
of
income
to
the
Respondent;
(g)
The
payment
was
not
in
consideration
for
or
in
recognition
of
property,
services
or
anything
else
provided
or
to
be
provided
by
the
Respondent;
it
was
not
earned
by
the
Respondent,
either
as
a
result
of
any
activity
or
pursuit
of
gain
carried
on
by
the
Respondent
or
otherwise.
The
learned
judge
agreed
with
the
trial
judge
and
concluded
that
the
extraordinary
payment
in
question
“was
in
the
nature
of
a
windfall”.
Counsel
for
the
plaintiff
submits
that
all
of
the
above
criteria,
with
the
possible
exception
of
the
first
one,
apply
to
the
case
at
bar.
The
payment
was
unsolicited
and
unanticipated.
It
lacked
any
foreseeable
element
of
recurrence.
There
was
no
consideration
for
it,
and
it
was
unearned.
In
essence,
it
was
unique
and
extraordinary
and
bore
all
the
earmarks
of
a
windfall.
Counsel
acknowledges
that
the
plaintiff
did
have
an
enforceable,
statutory
right
to
the
payment
contrary
to
the
first
indicia
but
he
contends
nevertheless
that
this
is
not
at
all
fatal,
relying
particularly
on
Mr.
Justice
LeDain's
conclusion
that
no
single
indicia
is
necessarily
conclusive.
Another
case
relied
on
by
the
plaintiff
is
Reiss
v.
M.N.R.,
[1985]
1
C.T.C.
2196;
85
D.T.C.
217
(T.C.C.).
The
taxpayer
received
compensation
for
the
expropriation
of
his
land.
The
expropriation
was
afterwards
abandoned
and
the
taxpayer
was
required
to
return
the
compensation,
but
without
interest.
The
taxpayer
received
$10,000
as
damages
for
the
loss
of
his
land
for
six
months.
On
reassessment,
the
Minister
included
the
$10,000
damages
and
interest
earned
on
the
compensation
award
in
the
taxpayer’s
taxable
income.
Counsel
for
the
plaintiff
pressed
the
argument
before
me
that
the
$10,000
damages
was
a
non-taxable
capital
receipt
or
a
windfall.
With
respect,
I
must
disagree.
The
issue
before
the
court
in
Reiss
was
whether
the
$10,000
damages
was
taxable
as
income
or
on
account
of
capital.
The
Court
found
that
the
damages
were
capital
and
not
income.
The
interest
was
held
to
be
interest
and
taxable
as
such.
Clearly,
the
damages
were
held
to
be
capital.
There
was
no
finding
that
they
were
a
windfall.
In
any
event,
the
case
is
currently
under
appeal.
The
plaintiff
also
relies
on
the
decision
in
Manley
v.
The
Queen,
[1984]
C.T.C.
8;
83
D.T.C.
5440
(F.C.T.D.)
wherein
the
issue
was
whether
damages
awarded
in
a
court
action
for
breach
of
warranty
of
authority
were
assessable
as
income
from
an
adventure
in
the
nature
of
trade.
Collier,
J.,
held
that
the
damages
recovered
were
akin
to
a
windfall
and
not
income
by
reason
that
nothing
was
risked
nor
bought
and
sold
and
that
the
transaction
lacked
the
attributes
of
a
commercial
enterprise.
The
Crown
appealed
to
the
Federal
Court
of
Appeal
which
held
that
the
award
of
damages
was
an
income
receipt:
see
The
Queen
v.
Manley,
[1985]
1
C.T.C.
186;
85
D.T.C.
5150.
The
Court
held
that
the
learned
trial
judge
had
erred
in
holding
that
the
transaction
was
not
in
the
nature
of
a
commercial
enterprise
because
nothing
had
been
risked
or
used
nor
had
anything
been
bought
or
sold.
On
the
trial
judge's
other
conclusion
that
the
fact
that
the
damages
awarded
to
the
plaintiff
were
measured
by
the
amount
he
might
have
been
paid
as
"finder's
fee”
did
not
automatically
make
the
receipt
"income”,
Mr.
Justice
Mahoney
had
this
to
say
at
191
(D.T.C.
5155):
.
..
The
damages
for
breach
of
warranty
of
authority,
which
he
received
from
Benjamin
Levy
pursuant
to
a
legal
right,
were
compensation
for
his
failure
to
receive
the
finder’s
fee
from
the
Levy
family
shareholders.
Had
the
respondent
received
that
finder’s
fee
it
would
have
been
profit
from
a
business
required
by
the
Income
Tax
Act,
to
be
included
in
his
income
in
the
year
of
its
receipt.
The
damages
for
breach
of
warranty
of
authority
are
to
be
treated
the
same
way
for
income
tax
purposes.
Finally,
the
plaintiff
relies
on
the
authority
of
Jack
Cewe
Ltd.
v.
Jorgenson,
[1980]
1
S.C.R.
812;
[1980]
C.T.C.
314;
80
D.T.C.
6233.
In
this
case,
the
respondent
succeeded
in
an
action
for
wrongful
dismissal
against
the
company
which
employed
him
and
was
awarded
one
year's
salary
as
damages.
The
principal
issue
was
whether
a
deduction
should
have
been
made
therefrom
for
income
tax.
The
appellant’s
submission
rested
on
the
premise
that
the
respondent
was
not
liable
to
income
tax
on
the
damages
awarded.
This
was
based
on
a
judgment
of
the
Federal
Court
of
Appeal,
The
Queen
v.
Atkins,
[1976]
C.T.C.
497;
76
D.T.C.
6258.
The
Supreme
Court
dismissed
the
company's
appeal,
casting
doubts
on
the
correctness
of
the
decision
in
Atkins,
where
severance
pay
of
$18,000
was
held
not
to
be
taxable
because
it
was
a
settlement
of
a
breach
of
contract
and
not
a
benefit
under
it.
Pigeon,
J.,
dealt
with
this
point
at
315
(D.T.C.
6234):
I
have
grave
doubt
as
to
the
validity
of
this
reasoning.
Damages
payable
in
respect
of
the
breach
of
a
contract
of
employment
are
certainly
due
only
by
virtue
of
this
contract,
I
fail
to
see
how
they
can
be
said
not
to
be
paid
as
a
benefit
under
the
contract.
They
clearly
have
no
other
source.
Even
if
the
respondent
were
to
escape
income
tax
on
the
damages
awarded,
the
Court
concluded
that
it
would
be
illogical
to
allow
the
employer
a
deduction
for
income
tax
not
payable.
I
fail
to
see
how
this
case
is
of
any
assistance
to
the
plaintiff.
Applying
these
principles
to
the
matter
immediately
at
hand,
I
am
left
unconvinced
by
the
plaintiff's
argument
that
the
amount
of
$144,172.43
paid
pursuant
to
paragraph
33(3)(b)
of
the
Expropriation
Act
is
a
windfall
for
three
reasons.
Firstly,
the
payment
falls
squarely
within
the
capital
gains
regime
of
the
Income
Tax
Act.
Secondly,
it
fails
to
meet
the
essential
criteria
enunciated
in
the
Cranswick
case,
supra.
Finally,
the
taxation
of
the
payment
in
the
hands
of
the
plaintiff
does
not
thwart
the
legislative
scheme
of
the
Expropriation
Act.
I
will
elaborate
briefly
on
these
findings
of
fact.
In
my
opinion,
the
payment
of
$144,172.43
is
clearly
attributable
to
a
disposition
of
property
and
the
proceeds
of
disposition
thereof
within
the
meaning
of
clause
54(c)(ii)(B)
and
paragraph
54(h)
of
the
Income
Tax
Act.
It
was
paid
to
the
plaintiff
as
the
result
of
a
transaction
or
event
by
which
the
right
of
the
taxpayer
to
receive
the
amount
was
settled.
The
total
amount
received
by
the
plaintiff
in
consideration
for
the
expropriation
of
his
interest
in
the
Sparks
Street
property
was
$756,256.20.
This
was
the
culmination
of
the
transaction
whereby
the
whole
amount
falls
within
the
definition
of
proceeds
of
disposition
in
paragraph
54(h)
of
the
Income
Tax
Act
inasmuch
that
it
was
compensation
for
property
taken
under
statutory
authority.
Nor
am
I
persuaded
by
the
plaintiff's
argument
that
the
payment
of
$144,172.43
made
by
the
Crown
pursuant
to
the
said
paragraph
33(3)(b)
of
the
Act
stands
by
itself
in
isolation
and
is
not
referable
in
any
way
to
the
Sparks
Street
property.
The
situation,
as
it
seems
to
me,
is
just
the
converse.
Without
the
expropriation
of
the
Sparks
Street
property,
there
would
have
been
no
payment
at
all.
The
payment
was
partial
consideration
for
and
in
recognition
of
the
plaintiff’s
property
interest.
The
plaintiff
had
an
enforceable,
statutory
right
to
receive
$144,172.43
because
the
Crown
made
an
offer
below
90
per
cent
of
the
amount
which
was
eventually
paid
to
the
plaintiff
as
compensation
for
the
expropriated
property.
The
payment
was
part
and
parcel
of
the
proceeds
of
disposition.
Finally,
I
am
unable
to
agree
with
plaintiff’s
counsel
that
the
taxation
of
the
interest
penalty
would
serve
to
thwart
the
legislative
intention.
He
cites
in
support
of
this
submission
Interpretation
Bulletin
No.
IT-104R,
which
sets
out
the
Department's
views
on
the
deductibility
of
fines
and
penalties
under
paragraph
18(1
)(a)
of
the
Income
Tax
Act.
The
gist
of
the
Bulletin
is
that
courts
have
generally
disallowed
as
a
matter
of
public
policy
the
deduction
of
fines
and
penalties
in
computing
income
except
in
those
exceptional
circumstances
where
they
have
been
necessarily
incurred
in
day
to
day
business
operations
calculated
to
produce
income
and
their
deduction
would
not
transgress
public
policy.
Counsel
for
the
Crown
was
quick
to
point
out
that
the
subject
matter
of
the
Bulletin
has
to
do
with
fines
or
penalties
incurred
as
the
result
of
illegal
acts
or
the
carrying
on
of
illicit
businesses
and
that
the
penalty
in
this
instance
falls
outside
that
proscription.
In
my
view,
the
point
is
well
taken.
The
purpose
of
paragraph
33(3)(b)
of
the
Expropriation
Act
was
to
encourage
the
Crown
to
make
reasonable
offers
of
compensation
and
I
fail
to
see
how
the
taxation
of
the
interest
penalty
in
the
hands
of
the
recipient
could
thwart
or
inhibit
this
desirable
policy
objective.
The
Minister
reassessed
the
plaintiff
for
$72,086
of
taxable
capital
gain,
being
one-half
the
interest
penalty
of
$144,172.43.
Having
found
that
this
sum
represented
the
proceeds
of
disposition
of
property,
it
is
unnecessary
to
deal
definitively
with
the
alternative
defence
pleas
that
the
said
sum
constituted
interest
or
income
from
property
or
a
source
within
the
meaning
of
the
Income
Tax
Act.
I
expressed
some
concern
at
trial
that
the
subject
matter
of
the
appeal
was
the
Minister’s
assessment
and
that
the
effect
of
the
alternative
pleas
in
paragraphs
8,
9
and
10
of
the
defence
might
well
suggest
that
the
Minister
was
appealing
from
his
own
assessment,
contrary
to
the
principle
stated
in
Vineland
Quarries
and
Crushed
Stone
Limited
v.
M.N.R.,
[1970]
C.T.C.
12;
70
D.T.C.
6043
and
other
authorities.
Crown
counsel
assured
me
that
this
was
not
the
case
and
that
any
reassesment
for
interest
or
income
from
property
or
a
source
would
have
to
be
limited
to
$72,086
and
not
the
full
amount
of
$144,172.43.
If
that
is
so
then
better
practice
would
seem
to
dictate
that
paragraphs
8,
9
and
10
of
the
defence
should
have
contained
some
words
to
the
effect
that
the
amounts
respectively
referred
to
therein
were
“limited
in
any
event
to
$72,086
and
no
more".
For
the
foregoing
reasons,
the
plaintiff's
appeal
is
dismissed
with
costs.
Appeal
dismissed.
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