Date: 20010419
Docket: 1999-756-IT-G
BETWEEN:
IRENE WHITNEY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Bowman, A.C.J.
[1]
These appeals are from assessments for the appellant's 1996
and 1997 taxation years. In those years she received $25,291.52
and $18,477.04 respectively from her employer as the result of a
work related injury. The question is whether these amounts are to
be included in her income under paragraph 56(1)(v) of
the Income Tax Act and are therefore deductible from
income in computing taxable income under
paragraph 110(1)(f).
[2]
Paragraph 56(1)(v) requires the inclusion in income
of
compensation received under an employees' or workers'
compensation law of Canada or a province in respect of an injury,
a disability or death.
[3]
Paragraph 110(1)(f) permits the deduction in
computing taxable income of, inter alia, any amount that
is
(ii)
compensation received under an employees' or workers'
compensation law of Canada or a province in respect of an injury,
disability or death, except any such compensation received by a
person as the employer or former employer of the person in
respect of whose injury, disability or death the compensation was
paid.
[4]
The French versions of these provisions read as follows
56(1)v)
une indemnité reçue en vertu d'une loi sur les
accidents du travail du Canada ou d'une province à
l'égard d'une blessure, d'une
invalidité ou d'un décès.
110(1)f)(ii)
une indemnité reçue aux termes d'une loi
fédérale ou provinciale sur les accidents du
travail pour blessure, invalidité ou décès,
à l'exception d'une indemnité qu'une
personne reçoit à titre d'employeur ou
d'ancien employeur de la personne pour laquelle une
indemnité pour blessure, invalidité ou
décès a été payée.
[5]
The respondent says that the payments received by
Ms. Whitney fall into neither paragraph 56(1)(v)
nor paragraph 110(1)(f), but are taxable under
section 5 of the Income Tax Act as income from
employment.
[6]
The parties filed as Exhibit A-R-1 a partial agreed
statement of facts, which reads
1.
The Appellant, IRENE WHITNEY, resides in Saint John, New
Brunswick, and is employed as a school custodian in Saint John,
by School District 8 of the Department of Education of the
Province of New Brunswick.
2.
As such, her terms and conditions of employment are governed by a
collective agreement between Canadian Union of Public Employees,
Local 1253, and Board of Management of the Province of New
Brunswick, her statutory employer.
3.
The Appellant was injured at her workplace on September 24, 1993.
The claim was forwarded to the Workplace Health and Safety
Commission and after investigation, the Commission advised Ms.
Whitney that her claim was accepted.
4.
As a result, Ms. Whitney remained on compensation and off work
from September 23, 1993 until November 8, 1997, when she was able
to return to her normal duties for the school district in a
reduced workday.
5.
The Province of New Brunswick which employs civil servants and
other public employees including school district employees such
as Ms. Whitney, is a self-insured employer for the purposes of
application of benefits available to injured workers under the
Workers Compensation Act.
6.
Under the collective agreement between Local 1253 and Board of
Management, Article 27.01 provides as follows (at all times
material both before and after the 1992 amendments)
"ARTICLE 27 - WORKERS' COMPENSATION:
27.01 (a) For the period
determined by the Workers' Compensation Board that an
employee is unable to perform his or her normal duties because of
work-related injury or illness the employee shall receive his or
her regular pay from the Employer. The Employer obligation shall
not be applicable once the employee is determined eligible for
extended earnings loss status by the Workers' Compensation
Board.
Where it is determined under the Workers' Compensation Act
that an employee cannot or is not entitled to return to his/her
position or portion thereof the employee shall be laid off and
any resulting vacancy shall be posted and filled in accordance
with Article 12.01. The laid off employee shall retain the rights
provided in paragraph 5 of the Letter of Intent re articles 13,
15, and 18.
(b) Where a School Bus Driver is unable to perform his or her
duties because of work-related injury or illness, and where, due
to lack of work the School Bus Driver would have been laid off
(July and August) such employee shall not receive his or her
regular pay from the school board for this period (i.e., July
and/or August). Where it is anticipated a School "Bus Driver
will be on Workers' Compensation benefits during July and/or
August the Employer shall notify the Workers' Compensation
Board in advance.""
See Exhibit 13
7.
On May 21, 1992, amendments were made to the statutes governing
the workers' compensation scheme in New Brunswick.
8.
A copy of the Act with the relevant changes are attached as
Schedule "A".
9.
In 1996, the Appellant was in receipt of $25,291.52 from her
employer. She also received a payment of $14,350.00 from the WHSC
Commission as a lump sum payment.
10.
In 1997, the Appellant was in receipt of $18,477.04 from her
employer. She also received $2,151.00 from the WHSC Commission as
a long term disability pension.
11.
The Appellant did not claim the amounts of $25,291.52 and
$18,477.04 as taxable income.
See Exhibits 6 and 7
12.
On July 10, 1998, Revenue Canada advised the Appellant that they
proposed to reassess her for 1996 and 1997 on the following
basis:
"Upon reviewing the above-mentioned returns it has been
noticed that the employment earnings received from the Province
of New Brunswick was not fully reported as taxable income. The
Workers' Compensation Act was changed in 1992 with changes
taking effect as of January 1, 1995. The new rules affect
employees of self insured employers such as the Provincial and
Federal Governments. Workplace Health Safety and Compensation
Commission state that provincial employees do not qualify for
compensation benefits therefore, your employment earnings are
fully taxable."
See Exhibit 5
13.
On July 20, 1998, Revenue Canada provided the Appellant with
Notices of Reassessments for both 1996 and 1997.
See Exhibits 8 and 9
14.
On July 31, 1998, the Appellant filed Notices of Objection in
regard to both reassessments.
See Exhibits 10 and 11
15.
On November 3, 1998, Revenue Canada sent a Notice of Confirmation
to the Appellant which was received on November 8, 1998.
16.
On February 1, 1999, the Appellant filed her Notice of
Appeal.
[7]
Attached as Schedule A to the Exhibit A-R-1 is a copy
of the amended Workers' Compensation Act of New
Brunswick (the "WC Act").
Subsections 38.2(1) to 38.2(2.6) read
38.2(1)
Where a worker is injured or suffers a recurrence of an injury on
or after January 1, 1982, but before January 1, 1993, the
compensation payable under this Part shall be awarded as set out
in this section.
38.2(1.1)
Where a worker is injured or suffers a recurrence of an injury on
or after January 1, 1993, the compensation payable under this
Part shall be awarded as set out in this section.
38.2(2)
Where injury or recurrence of an injury to a worker referred to
in subsection (1) results in a loss of earnings beyond the day of
the injury, the Board shall estimate the loss of earnings
therefrom and shall, subject to subsection (4.1), pay
compensation to the worker in an amount equal to ninety per cent
of the estimated loss of earnings.
38.2(2.1)
Where injury or recurrence of an injury to a worker referred to
in subsection (1.1) results in a loss of earnings beyond the day
of the injury, the Board shall estimate the loss of earnings from
the day of the injury and shall pay compensation to the worker in
an amount equal to eighty per cent of the estimated loss of
earnings for the first thirty-nine weeks from the day of the
injury or recurrence of the injury and thereafter in an amount
equal to eighty-five per cent of the estimated loss of
earnings.
38.2(2.2)
Notwithstanding subsection (2.1), the Board shall not pay
compensation under subsection (2.1) until the worker who is
injured or has suffered a recurrence of an injury has not
received any remuneration from the employer or any income
replacement or supplement benefit from the employer or from an
employment-related source for a period of time after the injury
or recurrence of the injury that is equivalent to three working
days.
38.2(2.3)
The Board shall not pay compensation to a worker in respect of
the period of time referred to in subsection (2.2) except as
provided for in subsection (2.4).
38.2(2.4)
Where a worker is disabled as a result of an injury or recurrence
of an injury for more than thirty working days, the Board shall
pay compensation to the worker in respect of the period of time
referred to in subsection (2.2).
38.2(2.5)
Notwithstanding subsection (2.1), where a worker has not received
remuneration from the employer or any income replacement or
supplement benefit from the employer or from an
employment-related source in respect of the injury or recurrence
of the injury for a period of time after the injury or recurrence
of the injury that is equivalent to three working days and where
the worker commences to receive compensation under subsection
(2.1), there shall be payable to the worker only that portion of
compensation which, when combined with the amount of any
remuneration received by the worker from the employer or any
income replacement or supplement benefit received by the worker
from the employer or from an employment-related source, does not
exceed
(a)
in the first thirty-nine weeks from the day of the injury or
recurrence of the injury, eighty per cent of the worker's
pre-accident net earnings calculated for the same period of time
as that during which compensation is paid, and
(b)
thereafter, eighty-five per cent of the worker's pre-accident
net earnings calculated for the same period of time as that
during which compensation is paid.
38.2(2.6)
Where a collective agreement, arbitral award or contract of
employment is in effect on January 1, 1993 and provides for
remuneration from the employer or for an income replacement or
supplement benefit to be paid to a worker by the employer or from
an employment-related source where the worker suffers an injury
or recurrence of an injury, subsections (2.2) to (2.5) do not
apply until a successor collective agreement, arbitral award or
contract of employment commences or until January 1, 1995,
whichever occurs first.
[8]
The appellant was a member of the Canadian Union of Public
Employees ("CUPE") and an employee of School
District 8 of the Department of Education of New Brunswick.
When she was injured at work she received her regular pay from
her employer in accordance with article 27.01 of the
collective agreement and not from the Workers' Compensation
Board ("WCB"). The payments commenced immediately after
the injury and not after a three-day delay as was required in the
case of payment from the WCB. Moreover, she received 100% of her
regular pay rather than 85%, the amount paid by the WCB (I have
used 85% although the percentage varied over time from 80% to
90%).
[9]
The practice of the Department of National Revenue prior to the
amendment to the WC Act was to allow the injured worker to
deduct under paragraph 110(1)(f) the portion of the
amount paid to him or her that was equal to the amount that would
have been paid by the WCB.
[10] The
Province of New Brunswick did not pay premiums under the WC
Act. It was described as "self insured", and it
paid workers compensation benefits directly to the injured
employee. The arrangement between the province and the WCB seems
to have been an extra-statutory one. The definition of employer
in the WC Act includes the Crown in right of New
Brunswick, and any boards, commissions or corporations created by
the province.
[11] The
procedure followed in cases of work related injuries of employees
of such "self insured" employers was that the claim
would be reported in the usual way, the matter would be referred
to the WCB who would determine the entitlement to compensation on
the basis of such medical tests and the period for which it would
be paid. The only difference from the case where the compensation
is paid directly by the WCB is that the compensation would be
paid by the employer. In the present case, under the collective
agreement, the injured employee was paid 100% of her wages or
salary.
[12] The
question is whether such amount is "compensation received
under an employees' or workers' compensation law of
Canada or a province in respect of an injury, disability or death
...." within the meaning of
paragraph 110(1)(f).
[13] The
French version of paragraph 110(1)(f) uses the words
"aux termes d'une loi ..." whereas the French
version of paragraph 56(1)(v) uses the words "en
vertu d'une loi". The English term "under" is
used in both provisions.
[14] The
reason for denying the deduction under
paragraph 110(1)(f) of payments received by the
appellant is set out in the letter of December 20, 1995 from
R.G. D'Aurelio, Revenue Canada, to I. MacKinnon,
Benefit Programs, Province of New Brunswick. It is based upon the
amended WC Act set out above. Mr. D'Aurelio's
letter reads
We are writing further to our telephone discussions and faxes
concerning the income tax implications of the recent amendments
to the New Brunswick Workers' Compensation Act with respect
to self-insured employers and compensation for on the job
injuries. We apologize for the delay of our response which was
necessitated by a review of the workers' compensation
legislation.
It is our understanding that subsection 38.2(2.1) of the new
legislation states that the Workers' Compensation Board (WCB)
can only pay compensation whenever the worker has not received
any remuneration from the employer for a period of three working
days after the injury. If the employer pays remuneration for any
or all the three days, the employee is not entitled to
workers' compensation benefits. Normally, in the case of a
self-insured employer, an employee, who is injured on the job,
would continue to receive regular remuneration. Once the claim
for WCB benefits is adjudicated, the remuneration is then
categorized as WCB benefits for income tax purposes and a T5007
for this amount would be issued by the WCB.
It is also our understanding that the intent of the legislation
is to have the remuneration received by employees of
self-insurers taxed by disqualifying it as WCB benefits. We agree
that the legislation achieves the objective of ensuring that
employees of self-ensured employers would not, in accordance with
this subsection, be entitled to a WCB benefit.
Paragraph 56(1)(v) of the Income Tax Act (the Act)
defines workers' compensation as "compensation received
under an employees' or workers' compensation law of
Canada or a province in respect of an injury, a disability or
death" and by virtue of this section the amount received is
included in income and an offsetting deduction is available under
paragraph 110(1)(f) of the Act. However, in order for the
amount to benefit from this inclusion and offset, it would have
to constitute "workers' compensation", which it
would not in situations where the WCB, as a result of subsection
38.2(2.2), does not pay compensation.
In cases where an employee is in receipt of employment related
remuneration in addition to being entitled to compensation under
the New Brunswick legislation, there shall be payable to the
injured worker only that portion of compensation which, when
combined with the amount of any employment related remuneration
does not exceed certain levels. Any excess amount ("top
up") would not qualify as income under paragraph 56(1)(v) of
the Act and would be taxable pursuant to the applicable
provision, as salary, wages, unemployment insurance benefits,
etc.
We trust that this will be of assistance.
[15] This
ruling generated more correspondence and memoranda. A memorandum
was issued by the Director, Pensions and Insured Benefits of New
Brunswick as follows
Employees of Parts 1 and 2 of the Public Service receive 100%
salary continuation for injury/accident on duty under the
Workers' Compensation Act and are not subject to the three
day non-payment period.
We are in receipt of correspondence from Revenue Canada
indicating that payments made under this arrangement are not
subject to exemption from taxable income under the Income Tax
Act. For this reason, no adjustments will be made to T4 slips,
nor will the W.H.S.C.C. be issuing letters indicating a portion
of benefit as non-taxable income for benefits received in 1995
and after.
[16] A
memorandum to the same effect was sent to the employees in
receipt of workers' compensation benefits of School District
No. 8.
[17] On
May 2, 1996 the Legal and Legislative Representative of CUPE
wrote to Mr. D'Aurelio as follows
I am writing in regard to your letter dated December 20, 1995,
to Isaobel MacKinnon, Manager of Benefit Programs with the New
Brunswick Department of Finance, and the repercussions
therefrom.
For your information, attached is a memorandum dated January
23, 1996, from Cyril Theriault, Director of Pensions and Insured
Benefits which refers to correspondence from Revenue Canada --
your letter.
CUPE is of the view that this change in exemption from taxable
income is legally incorrect, and should be corrected. Here is
why.
Perhaps you are not aware of the entire background, which I
will highlight using Council of School Board Unions (CUPE 1253)
as an example. This concerns a self-insured employer in Part II
of the Public Service Labour Relations Act.
Prior to 1995 implemented changes to the Workers'
Compensation Act, when a worker's compensation claim was made
by a school board employee (member of CUPE 1253), the
Workers' Compensation Board ("WCB") would
adjudicate the claim and determine if the matter was
compensable.
Once a compensable injury was found, then Article 27 of the
Collective Agreement (between the Board of Management and CUPE
1253) would kick in. It reads in part:
Article 27 – WORKERS' COMPENSATION
27.01(a) For the period determined by the Workers'
compensation Board that an employee is unable to perform his or
her normal duties because of work-related injury or illness the
employee shall receive his or her regular pay from the Employer.
The Employer obligation shall not be applicable once the employee
is determined eligible for extended earnings loss status by the
Workers' Compensation Board.
Also, once a compensable injury was found, the employee would
be entered into the system at the Workers' Compensation Board
(now the Workplace Health Safety and Compensation Commission)
("WHSCC").
As far as the Employer was concerned, the employee was then on
workers' compensation. A letter would be sent from the
Workers' Compensation Board ("WBC") to the Employer
indicating: claim number; general information; effective date of
payment; whether it was minor, major, or other; whether the
employee was receiving full salary from the employer; and a
return to work date. A sample letter, dated December 10, 1991, is
enclosed for your information.
Under this arrangement prior to 1995, the WCB did not issue
cheques; the School Board did. And the WCB never determined the
amount to pay.
Under that system employees properly received from the School
Board their T5/letter of exemption for Revenue Canada's
purposes (a sample dated 95/01/11 is enclosed).
The changes implemented in 1995 should be a non-issue in this
arrangement. They do not change anything insofar as the T5/letter
of exemption is concerned.
An employee must still fulfill the statutory definition under
the Workers' Compensation Act. The question of whether
or not an injury is compensable under the Workers'
Compensation Act is still adjudicated upon by the WHSCC. A
sample letter from a School Board dated March 6, 1996, is
enclosed. The employer would not be paying compensation if the
employee were not entitled to workers' compensation.
In your December 20, 1995, letter to Isaobel MacKinnon, you
quote paragraph 56(1)(v) of the Income Tax Act, which
defines workers' compensation as "compensation received
under an employees' or workers' compensation law of
Canada or a province in respect of an injury, a disability or
death". In order for monies to be included in income and an
offsetting deduction, this definition must be met. It is. The
fact that the WHSCC (formerly the Workers' Compensation
Board) does not actually make the payments does not alter the
characterization of these monies as workers' compensation.
The statutory definitions in the Workers' Compensation
Act (WCA) must still be met, the claim adjudicated
upon the WHSCC, pursuant to the WCA, etc. before monies
are paid. Therefore, these monies do qualify as workers'
compensation under the Income Tax Act. Nothing in the
WCA states otherwise.
Revenue Canada, Taxation Interpretation Bulleting No. IT-202R2
dated September 19, 1985, supports this interpretation. Under
paragraphs 4 and 5 it states:
4.
For the purpose of paragraph 56(1)(v) the amount of compensation
may be received either from a compensation board or from the
employer or former employer of the person entitled thereto. An
employee may, under the terms of an employment contract or
collective agreement, or by reason of being granted injury leave
with pay under the Financial Administration Act, be entitled to
receive salary or wages during a period in which the employee is
also entitled to compensation. Where, in these circumstances, the
employee receives no payment from a compensation board, the
amount received from his or her employer, to the extent that it
does not exceed the compensation amount, will be included in the
employee's income for the year, as compensation, under
paragraph 56(1)(v). The excess, if any, will be included in the
employee's income under subsection 5(1).
Deduction in Computing Taxable Income
5.
For 1982 and subsequent taxation years, any compensation received
by a taxpayer in a taxation year, that was included in the
taxpayer's income under paragraph 56(1)(v), any, by virtue of
subparagraph 110(1)(f)(ii), be deducted in computing the
taxpayer's taxable income for the year, except any such
compensation received by the taxpayer as the employer or former
employer of the person in respect of whom the compensation was
paid.
We are further of the view that the Employer is obliged to
provide this workers' compensation information on Form T5007
or "exemption letter" and reflect it on the T4
Supplementary slip. Right now, I am advised, the Employer is not
doing this. We ask that you take immediate steps to require the
Employer to give full T4 information showing workers'
compensation paid, like it used to.
As you can appreciate, we are committed to ensuring that
injured workers receive their tax exemption for workers'
compensation. The plight of injured workers is already bad enough
without making them suffer even further.
Thank you very much for your attention to this important
issue, and please do not hesitate to contact me if you require
any additional information.
[18] The
letter did not avail. Mr. D'Aurelio wrote back as
follows on May 15, 1996
We are writing in reply to your letter of May 2, 1996, in which
you disagree with the position expressed in our letter of
December 20, 1995, to Ms. I. MacKinnon of New Brunswick Finance,
concerning the tax status of compensation received by an employee
from a self-insured employer, as a result of on-the-job
injuries.
In this regard, it is your opinion that the changes to the New
Brunswick Workers' Compensation Act should be a
non-issue and that the amount to be reported on Form T5007 should
to be affected.
Where a self-insured employer continues to pay an employee
regular remuneration in the case of a work-related injury, the
employee would not, in our view, be entitled to workers'
compensation as a result of new subsection 38.2(2.3)[1] of the New Brunswick
Workers' Compensation Act which states, in part, that:
... the Board shall not pay compensation under subsection
(2.1) until the worker who is injured ... has not received
any remuneration from the employer ... or from an
employment-related source for a period of time after the injury
... that is equivalent to three working days. This
provision is effective on the earlier of January 1, 1995, and the
date that collective agreements, arbitral awards or contracts of
employment that were in effect on January 1, 1993, were
replaced.
The amount received by the employee in this situation would not
be considered to have been received under an employees' or
workers' compensation law of Canada or a province as noted in
paragraph 56(1)(v) of the Income Tax Act. It follows that
the employee would not be entitled to the offsetting deduction
under paragraph 110(1)(f); this amount would be included in the
employees' income pursuant to subsection 5(1) of the
Income Tax Act and should be reported as such.
We trust that this will be of assistance.
[19] This
correspondence is important for two reasons. It is an articulate
explanation of the reasoning that lies behind the conflicting
positions, and it demonstrates the importance and far-reaching
effect of the change in policy by the Department of National
Revenue.
[20] For the
reasons that follow, I have concluded that notwithstanding the
able argument by counsel for the respondent, the legally correct
view is the one advanced by CUPE and by Mr. Brown on behalf of
the appellant. Essentially there are four reasons for this
conclusion.
(a) I
do not think it is necessary to go beyond the plain meaning of
the words, as set out above in both French and English.
"Under" is a common English word of reasonable
elasticity. Where the entitlement to workers' compensation is
made by the WCB under the WC Act the receipt of that
compensation constitutes a receipt under an employees' or a
workers' compensation law of a province. The Province of New
Brunswick is an employer within the meaning of the WC Act.
All of the procedures for claiming compensation by an injured
employee conform to the WC Act, which determines the
entitlement and duration of the compensation. The right to be
paid compensation by the employer in accordance with
article 27 of the collective agreement is entirely dependent
upon the direction of the WCB.
(b)
The overall scheme of paragraphs 56(1)(v) and
110(1)(f) of the Income Tax Act is that payments of
compensation to injured employees who cannot work are not
taxable. The Crown's position would, in my view, run counter
to this legislative scheme. I find support for this approach in
the words of Cartwright J. (as he then was) in Highway
Sawmills Ltd. v. M.N.R., 66 DTC 5116 at 5120
(S.C.C.)
The answer to the question what tax is payable in any given
circumstances depends, of course, upon the words of the
legislation imposing it. Where the meaning of those words is
difficult to ascertain it may be of assistance to consider which
of two constructions contended for brings about a result which
conforms to the apparent scheme of the legislation.
(c)
Moreover, the Crown's interpretation, if adopted, would lead
to an absurdity in that it would mean that a member of CUPE who
was employed by a self insured employer would have his or her
compensation amount taxed simply because the right to
compensation was determined under the WC Act but the
compensation is paid by the employer under a collective
agreement, whereas one who worked for a private employer and was
paid 85% of his or her salary by the WCB and had that
compensation "topped up" by the employer to an amount
equal to his regular salary would not be taxed on the 85%. Where
the two interpretations are possible and one leads to an
absurdity and one does not, the latter must be chosen:
Victoria City v. Bishop of Vancouver Island, [1921]
2 A.C. 384 at 388 (P.C.).
(d)
If there were any ambiguity or doubt in the application or
interpretation of the legislation, that doubt must be resolved in
favour of the subject. (Fries v. The Queen,
90 DTC 6662 (S.C.C.))
[21] I have
carefully read the reasoning contained in the two letters from
Mr. D'Aurelio. With respect, I do not think that the
amendments to the WC Act contained in
subsections 38.2(2.1), (2.2) and (2.3) warrant the rejection
of the beneficial and legally correct position that prevailed
before the amendments. I cannot, however, justify allowing a
greater deduction than would have been available had the payments
come directly from the WCB.
[22] The
appeals are allowed with costs and the assessments are referred
back to the Minister of National Revenue for reconsideration and
reassessment on the basis that of the workers' compensation
received from the employer amounts equal to the amounts that
would have been received directly from the Workers'
Compensation Board calculated in accordance with
subsection 38.2(2.1) of the Workers' Compensation
Act are to be included in the appellant's income under
paragraph 56(1)(v) of the Income Tax Act and
deducted from the appellant's income under
paragraph 110(1)(f) of the Income Tax Act.
Signed at Vancouver, Canada, this 19th day of April 2001.
"D.G.H. Bowman"
A.C.J.
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