Loeb v. The Queen, 78 DTC 6331, [1978] CTC 460 (FCA)

The Chief Justice:—This is an appeal from a judgment of the trial division dismissing an action appealing against the assessment of the appellant under part I of the Income Tax Act for the 1975 taxation year.

I am in agreement with the reasons given by the learned trial judge for dismissing the appeal against the assessment.

However, having regard to the fact that the matter is obviously a test case, I propose to state briefly in my own words, why, in my view, the appellant cannot succeed.

The situation is that

(a) the appellant is one of a group of teachers who went on strike for a period in the 1975 taxation year,

(b) each of the strikers were, prior to the strike period, contributors under a provincial statutory pension plan under which either teachers or officers of the union involved could be contributors,

(c) so as to avoid ceasing to be contributors under the pension plan during the strike period, each of the strikers entered into contracts of employment as officers of the union and paid contributions under the pension plan and other statutory contributions on the amounts that would otherwise have been received as strike pay on the basis that such amounts were received under such contracts of employment.

The appellant’s argument is, in effect, that her contract of employment with the union was a mere “technical form’’ to permit payment of contributions under the pension plan during the strike period, that there was no contract of employment in fact and that the amounts received from the union were “strike payments’’ and, as such, not taxable.* [1]

In so far as the appellant’s argument was based on lack of consideration for the employment contract, I am not sure that, on the pleadings, it is open to him. In any event, in my view, it is not supported by the facts. As it seems to me, the appellant cannot succeed unless the employment contract was a sham.

On the facts as found by the learned trial judge, the contract of employment was not a “sham’’,** [2] and it is admitted that, if there was, in reality, such a contract, the amounts paid by the union to the appellant were paid pursuant to that contract. If that is so, it follows, in my view, that the contract of employment created an employment relationship and that the amounts paid thereunder are income from employment. This is not a case where a contract can be a valid contract without being a source of profit for tax purposes such as a purchase and sale outside a trader’s business, as such.t [3] I know of no basis in law or in fact for a contract of employment creating the relationship of employer and employee for pension purposes but not for income tax purposes. Similarly, I know of no basis for holding that payments are salary for the purpose of pension contributions but are not income from employment for income tax purposes. If there is a contract of employment, by definition, remuneration thereunder is income for purposes of Part I of the Income Tax Act.t [4]