SUPREME COURT OF CANADA
The Queen v. Savage, [1983] 2 S.C.R. 428
Date: 1983-11-24
Her Majesty The Queen Appellant;
and
Elizabeth Joan Savage Respondent.
File No.: 16798.
1983: June 21 and 22; 1983: November 24.
Present: Ritchie, Dickson, McIntyre, Lamer and Wilson JJ.
ON APPEAL FROM THE FEDERAL COURT OF APPEAL
Taxation — Income tax — Sum paid by employer to taxpayer for successful completion of examinations — Computation of income — Income from a source — Whether sum is a benefit in respect of, in the course of, or by virtue of an office or employment — Whether sum is a "prize for achievement in a field of endeavour ordinarily carried on by taxpayer" — Income Tax Act, 1970-71-72 (Can.). c. 63, ss. 3(a), 5(1), 6(1)(a), 56(1)(n), as amended.
In 1976, during the course of her employment with Excelsior Life Insurance Company, respondent taxpayer took voluntarily and on her own time three courses designed to provide broad understanding of modern life insurance and life insurance company operations. She received from Excelsior $300 as a result of passing the examinations in accordance with a company policy designed to encourage self-upgrading of staff members. The taxpayer did not include the $300 in her income for the 1976 taxation year.
On being reassessed by the Minister, the taxpayer appealed to the Tax Review Board which allowed the appeal and referred the matter back to the Minister for reassessment. Appellant's appeal to the Federal Court, Trial Division, was allowed. The taxpayer's further appeal to the Federal Court of Appeal was allowed. Hence this appeal to determine whether the sum of $300 received by the taxpayer had to be included in the computation of income.
Held: The appeal should be dismissed.
Per Ritchie, Dickson, Lamer and Wilson JJ.: Income need not constitute remuneration for services in order that it be income from employment under ss. 5 and 6 of the Income Tax Act. Section 6(1)(a) taxes "benefits of any kind whatever ... received or enjoyed ... in respect of . . . an office or employment". The cash payment of $300 easily fell within the category of "benefit". The
[page 429]
payment was in respect of her employment because the employee took courses to improve her knowledge and efficiency in the company business and for better opportunity of promotion. The fact that the payment was income from employment made it income from a source under s. 3 of the Act.
That sum, however, was a prize for achievement in a field of endeavour ordinarily carried on by the taxpayer, within the meaning of s. 56(1)(n) of the Act. The word prize has to be construed in the context of the other words of the Act which give it color, meaning and content. It would place too narrow and inflexible a meaning on the words "prize for achievement" to hold that they necessarily connote an award for victory in a competition or contest with others. Section 56(1)(n) taxes prizes and other amounts that in aggregate exceed $500. The $500 exclusion in s. 56(1)(n) is an exemption from tax. Therefore the $300 payment is not taxable.
Per McIntyre J.: As the payment received by the taxpayer was less than $500 and a prize within the meaning of s. 56 (1)(n) of the Income Tax Act, it was exempted from income tax.
Phaneuf Estate v. The Queen, [1978] 2 F.C. 564; Ball (H. M. Inspector of Taxes) v. Johnson (1971), 47 Tax Cas. 155; Laidler v. Perry (Inspector of Taxes), [1965] 2 All E.R. 121; Hochstrasser (Inspector of Taxes) v. Mayes, [1960] A.C. 376; Ransom v. Minister of National Revenue, [1968] 1 Ex. C.R. 293; Seymour v. Reed, [1927] A.C. 554; Nowegijick v. The Queen, [1983] 1 S.C.R. 29; Paterson v. Chadwick, [1974] 2 All E.R. 772; R. v. Poynton, [1972] 3 O.R. 727; R. v. McLaughlin, [1979] 1 F.C. 470, referred to.
APPEAL from a judgment of the Federal Court of Appeal, [1981] C.T.C. 332, 37 N.R. 567, allowing the appeal from a judgment of the Federal Court, Trial Division, [1980] C.T.C. 103, allowing an appeal from a decision of the Tax Review Board. Appeal dismissed.
L. R. Olsson, Q.C., and Ian S. MacGregor, for the appellant.
Alan Schwartz, for the respondent.
[page 430]
The judgment of Ritchie, Dickson, Lamer and Wilson JJ. was delivered by
DICKSON J.—The question is whether the sum of $300 received by Elizabeth Joan Savage from her employer, Excelsior Life Insurance Company ("Excelsior"), for successful completion of the Life Office Management Association series of examinations, is subject to income tax.
I Background
Mrs. Savage was employed by Excelsior as a research assistant. During 1976, she took three Life Office Management Association courses: Life Insurance Law, Economics and Investment, and Life Insurance Actuary Mathematics. The courses are designed to provide a broad understanding of modern life insurance and life insurance company operations, including management practices and personnel needs. The courses were voluntarily taken by Mrs. Savage to improve her knowledge in the life insurance field. She received from Excelsior $300 ($100 per course) as a result of passing the examinations. Such payment per course was available to all employees of Excelsior in accordance with company policy, designed to encourage self-upgrading of staff members. The courses, in both study time required and complexity of material, were comparable to university courses. Approximately 61 per cent of those taking the examinations in 1976 in the United States and Canada passed. One hundred or so Excelsior employees wrote the examinations in the spring and fall of 1976; the percentage passing slightly exceeded the overall United States and Canadian average results.
Excelsior reported the amount of $300 on a T4A Supplementary under "Other Income", indicating it was a "Prize for passing LOMA examinations", and claimed it as an expense of doing business.
[page 431]
Receipt of a prize comes under s. 56(1)(n) of the Income Tax Act, 1970-71-72 (Can.), c. 63, which reads:
56. (1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,
[…]
SCHOLARSHIPS, BURSARIES, ETC.
(n) the amount, if any, by which
(i) the aggregate of all amounts received by the taxpayer in the year, each of which is an amount received by him as or on account of a scholarship, fellowship or bursary, or a prize for achievement in a field of endeavour ordinarily carried on by the taxpayer,
exceeds
(ii) $500; and
(Emphasis added.)
Mrs. Savage did not include the payment to her of $300 in the computation of her income for the 1976 taxation year. The Minister, by Notice of Reassessment, assessed the amount in the computation of her income on the basis that it constituted income of the taxpayer from an office or employment.
By Notice of Objection Mrs. Savage took issue with the assessment on the basis that the amount was a prize for achievement, and as it was less than $500 it did not have to be included in income.
The Minister confirmed the assessment by Notification "on the ground that the prize in the amount of $300 paid to you by your employer, the Excelsior Life Insurance Company, had been properly included in the computation of your income for the year in accordance with the provisions of Sections 3 and 5 of the Act". Section 3(a), s. 5(1), and another section to which reference will be made, s. 6(1)(a), read:
3. The income of a taxpayer for a taxation year for the purposes of this Part is his income for the year determined by the following rules:
(a) determine the aggregate of amounts each of which is the taxpayer's income for the year (other than a taxable capital gain from the disposition of a property)
[page 432]
from a source inside or outside Canada, including, without restricting the generality of the foregoing, his income for the year from each office, employment, business and property;
[…]
INCOME FROM OFFICE OR EMPLOYMENT
5. (1) Subject to this Part, a taxpayer's income for a taxation year from an office or employment is the salary, wages and other remuneration, including gratuities, received by him in the year.
AMOUNTS TO BE INCLUDED AS INCOME FROM OFFICE OR EMPLOYMENT
6. (1) 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) the value of board, lodging and other benefits of any kind whatever (except the benefit he derives from his employer's contributions to or under a registered pension fund or 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) received or enjoyed by him in the year in respect of, in the course of, or by virtue of an office or employment;
[…]
The key words, for the purpose of the present appeal, are underlined.
II The Tax Review Board
Mrs. Savage appealed the Minister's reassessment to the Tax Review Board. A hearing was held before Delmer E. Taylor, C.A., a member of the Board. The gist of the Board's judgment is found in the following two sentences:
It has often been said by the Courts that where no particular meaning has been attributed to a word or phrase in a taxing statute, it (the word or phrase) should be given its ordinary meaning, and Courts have shown a great reluctance to distort that ordinary meaning. I can think of no more appropriate definition for the $300 amount in issue here than "a prize for achievement in a field of endeavour ordinarily carried on by the taxpayer".
[page 433]
The Board allowed Mrs. Savage's appeal and referred the matter back to the Minister for reassessment.
IIl The Federal Court, Trial Division
The Crown appealed the Tax Review Board's decision to the Federal Court. Grant D.J. allowed the appeal. After referring to two dictionary definitions of the word "prize" he held:
In the present case each course was available to all employees of the Insurance Company and each one who successfully passed the examination was entitled to the same amount of $100 for each course in which he was successful. There was therefore no contest or competition among the employees and superiority in the examination played no part in the receipt of such money.
The crucial fact, in the view of Grant D.J., was that there was no competition to determine the winner of the prize. The judge went on to consider, and reject, the taxpayer's contention that the $300 payment did not fall within the language of either s. 5 or s. 6 of the Act, taxability being governed entirely by s. 56(1)(n). He held:
The purpose of the company in offering such education or training in respect of insurance business and the payment of $100 for each course in which the employee was successful, was that their services would thereby become more learned and valuable in their work with it. The employee took such course to improve her knowledge and efficiency in the company business and for better opportunity of promotion. The employee therefore received such payment "in respect of, in the course of, or by virtue of her employment".
and:
Paragraph 56(1)(n) is not an exclusionary provision. It only provides for inclusion of that portion of the amount described therein which exceeds $500. Section 8 of the Act sets out the various deductions which may be made in computing a taxpayer's income from an office or employment. No such deduction as the $300 which is the subject of this appeal is therein contained. Subsection 8(2) provides that except as permitted by the section no deduction shall be made in computing a taxpayer's income from an office or employment in any taxation year. The effect of accepting the taxpayer's
[page 434]
interpretation of paragraph 56(1)(n) would be to provide an employer with an opportunity of increasing the statutory exemption of each of his employees by the sum of $500 in any year.
With respect, I have considerable doubt that the sweep of the taxpayer's interpretation of s. 56(1)(n) is as broad as the final sentence of the foregoing passage would suggest. Be that as it may, if the taxpayer's interpretation, based on the legislation and the circumstances of this particular case, is correct, the fact that it may open doors, hitherto regarded as closed, should not dictate rejection of that interpretation.
IV The Federal Court, Appeal Division
Mrs. Savage appealed to the Federal Court of Appeal. She contended in that Court, as she has contended here, that the sum of $100 received by her from her employer for the successful completion of each of the three Life Office Management Association courses was "a prize for achievement in a field of endeavour ordinarily carried on by the taxpayer", within the meaning of s. 56(1)(n) of the Income Tax Act. The total of such payments did not, therefore, have to be included as income for 1976 since it was less than the $500 excluded by s. 56(1)(n).
The Crown contended in this Court, as in the Federal Court of Appeal, that the sum of $300 received by Mrs. Savage was not a prize within the meaning of s. 56(1)(n); even if it were, it was required to be included in the computation of her income because it was income from an employment or otherwise income from a source, within the meaning of ss. 3, 5(1) and 6(1)(a) of the Act.
Mrs. Savage says in response that even if the sum received by her is not a prize within the meaning of s. 56(1)(n) it is not taxable as income from an employment or otherwise from a source.
Le Dain J. of the Federal Court of Appeal held that the sum received was not a prize within the meaning of s. 56(1)(n). In his view, "prize" connoted a reward for superiority in a contest or competition with others:
[page 435]
The sum that was paid in this case was obviously intended to encourage employees to take a course and successfully complete it but was not intended to reward relative merit in the course.
Mr. Justice Le Dain, however, found in favour of Mrs. Savage on the ground that the sum received by her from her employer was not income from her employment within the meaning of s. 5(1); more particularly, it was not a benefit received by her "in respect of, in the course of, or by virtue of" employment within the meaning of s. 6(1)(a). Mr. Justice Le Dain said: "To be income from an employment within the meaning of subsections 5(1) and 6(1)(a) the payment must in my opinion be for services as an employee".
Kelly D. J., with whom McKay D. J. concurred, agreed the awards aggregating $300 did not constitute income made subject to tax by ss. 3, 5 and 6 of the Act, adding:
I do not find it necessary to decide and refrain from deciding whether any or all of the aforesaid awards is a "prize for achievement in a field of endeavour ordinarily carried on by the taxpayer". Whether or not all or any one of the awards were such prizes, the aggregate of the awards received by the taxpayer in the taxation year in question did not exceed $500 and would not be income within the meaning of section 56(1)(n).
Thus the $300 minnow has escaped the taxman's net in two of the three tribunals which have, to date, given thought to the matter. Two main questions arise (i) were the payments "salary, wages and other remuneration" within s. 5(1) or a benefit "in respect of, in the course of, or by virtue of an office or employment", within s. 6 (1)(a); (ii) were the payments a "prize for achievement in a field of endeavour ordinarily carried on by the taxpayer", within s. 56(1)(n).
V A Benefit in Respect of Employment
As I noted, all members of the Federal Court of Appeal concluded the payments aggregating $300 were not within ss. 5(1) or 6(1)(a) because they were not payments "for services as an employee". Le Dain J. said:
[page 436]
The sum of $100 paid to the appellant for successful completion of a course was not a payment for services rendered as an employee. It was not related in any way to her services as an employee. The courses were taken voluntarily, on her own time. There was no obligation as an employee to take them. The interest of the employer was that the courses would make her a more valuable employee. The payment was in the nature of a gift to encourage employees to take the courses and successfully complete them. The employment was certainly a condition of being able to receive the payment, but the payment was not received by reason of the employment but by reason of the successful completion of the course.
Le Dain J. relied on Phaneuf Estate v. The Queen, [1978] 2 F.C. 564 (T.D.) and Ball (H.M. Inspector of Taxes) v. Johnson (1971), 47 Tax Cas. 155 (Ch.D.).
The Ball case was much like the one at bar. The Midland Bank expected its staff, among whom was Mr. Johnson, to study and sit for examinations of the Institute of Banks, to qualify themselves better as bankers. The bank paid cash awards to those who passed, including Johnson. It was held the reason for the payments was Johnson's personal success in passing the examinations and they were not remuneration for his services with the bank. The case is of little relevance, however, because of the language of Rule 1 of Schedule E of the Income Tax Act, 1952, 15 & 16 Geo. 6 & 1 Eliz. 2, c. 10. The tax, if any, arose under s. 156 of that Act, as amended by s. 10 of the Finance Act, 1956, .4 & 5 Eliz. 2, c. 54. The relevant parts of s. 156 were as follows:
156. The Schedule referred to in this Act as Schedule E is as follows
1. Tax under this Schedule shall be charged in respect of any office or employment on emoluments therefrom
[…]
The result reached by the Court was unexceptional having regard to the language being construed and in particular "emoluments therefrom". The significance of these words, not found in our
[page 437]
Act, was touched on by Lord Reid in Laidler v. Perry (Inspector of Taxes), [1965] 2 All E.R. 121 (H.L.) at p. 124:
Section 156 however, applies only to "emoluments therefrom", i.e. from the office or employment of the recipient, and it is well settled that not every sum or other profit received by an employee from his employer in the course of his employment is to be regarded as arising from the employment. So the question in this case is whether these profits or emoluments of X10 did or did not arise from the taxpayer's employment.
There is a wealth of authority on this matter and various glosses on or paraphrases of the words in the Act of 1952 appear in judicial opinions, including speeches in the House. No doubt they were helpful in the circumstances of the cases in which they were used, but in the end we must always return to the words in the statute and answer the question—did this profit arise from the employment? The answer will be no if it arose from something else.
And in Hochstrasser (Inspector of Taxes) v. Mayes, [1960] A.C. 376 (H.L.) Viscount Simonds adopted, at p. 388, the language of Upjohn J., before whom the matter first came:
"Indeed, in my judgment, the authorities show that to be a profit arising from the employment the payment must be made in reference to the services the employee renders by virtue of his office, and it must be something in the nature of a reward for services past, present or future." In this passage the single word "past" may be open to question, but apart from that it appears to me to be entirely accurate.
The Hochstrasser case and Ball v. Johnson are of little assistance. The provisions of s. 156 of the Income Tax Act, 1952 of England are not unlike s. 5(1) of the Canadian Income Tax Act but our Act goes further in s. 6(1)(a). In addition to the salary, wages and other remuneration referred to in s. 5(1), s. 6(1)(a) includes in income the value of benefits "of any kind whatever .. . received or enjoyed ... in respect of, in the course of, or by virtue of an office or employment".
[page 438]
In Phaneuf, supra, the issue was whether Mr. Phaneuf was liable for income tax in respect of a benefit received by him on the purchase of shares. He acquired the shares in Charles Ogilvy Limited, his employer, pursuant to a bequest of the Company's principal shareholder. The bequest gave the right to the Company's employees to acquire a number of shares at par value. The Company's Board of Directors revised the list of employees entitled to purchase shares and approved a formula for distribution based on service to some extent. Mr. Phaneuf bought shares of a par value of $2 although they had a market value at the time of $17.25. In the Federal Court, Mr. Justice Thurlow, then A.C.J. of the Trial Division, held that the benefit was conferred on Mr. Phaneuf as a person and not as an employee and as a personal gift rather than as remuneration, and hence not a taxable benefit. Thurlow A.C.J. followed Ransom v. Minister of National Revenue, [1968] 1 Ex. C.R. 293. In Ransom Noël J. referred to the difference between Rule I of Schedule E of the English statute and the provisions of our Income Tax Act and then observed, at p. 307:
I now come to section 5(1)(a) and (b) of the Act which, as already mentioned, is couched in language which appears to be wider than the English taxation rule on which the taxpayers in Hochstrasser v. Mayes [[1959] 1 Ch. D. 22] and Jennings v. Kinder [[1958] 3 W.L.R. 215] were held not to be taxable. The Canadian taxation section indeed uses such embracing words that at first glance it appears extremely difficult to see how anything can slip through this wide and closely interlaced legislative net.
In order, however, to properly evaluate its intent it is, I believe, necessary to bear in mind firstly, that section 5 of the Act is concerned solely with the taxation of income identified by its relationship to a certain entity, namely, an office or employment and in order to be taxable as income from an office or employment, money received by an employee must not merely constitute income as distinct from capital, but it must arise from his office or employment. Similar comments were made in Hochstrasser v. Mayes with reference to the English legislation by Viscount Simonds at p. 705 and by Lord Radcliffe, at p. 707. Secondly, the question whether a
[page 439]
payment arises from an office or employment depends on its causative relationship to an office or employment, in other words, whether the services in the employment are the effective cause of the payment. I should add here that the question of what was the effective cause of the payment is to be found in the legal source of the payment, and here this source was the agreement which resulted from the open offer of the employer to compensate its employee for his loss and the acceptance by him of such offer. The cause of the payment is not the services rendered, although such services are the occasion of the payment, but the fact that because of the manner in which the services must be rendered or will be rendered, he will incur or have to incur a loss which other employees paying taxes do not have to suffer.
Thurlow A.C.J. adopted that passage and the following words of Viscount Cave L.C. in Seymour v. Reed, [1927] A.C. 554 (H.L.) at p. 559:
The question, therefore, is whether the sum of 939 1. 16s. fell within the description, contained in r. 1 of Sch. E, of "salaries, fees, wages, perquisites or profits whatsoever therefrom" (i.e., from an office or employment of profit) "for the year of assessment," so as to be liable to income tax under that Schedule. These words and the corresponding expressions contained in the earlier statutes (which were not materially different) have been the subject of judicial interpretation in cases which have been cited to your Lordships; and must now (I think) be taken as settled that they include all payments made to the holder of an office or employment as such, that is to say, by way of remuneration for his services, even though such payments may be voluntary, but that they do not include a mere gift or present (such as a testimonial) which is made to him on personal grounds and not by way of payment for his services. The question to be answered is, as Rowlatt J. put it: "Is it in the end a personal gift or is it remuneration?" If the latter, it is subject to the tax; if the former, it is not.
Mr. Justice Thurlow then said, at p. 572:
While the language of the statutes differ, the test expressed by Viscount Cave L.C. (supra) appears to me to express, as well as it can be expressed, the essence of what falls within the taxing provision of the Income Tax Act. Is the payment made "by way of remuneration for his services" or is it "made to him on personal grounds
[page 440]
and not by way of payment for his services"? It may be made to an employee but is it made to him as employee or simply as a person. Another way of stating it is to say is it received in his capacity as employee, but that appears to me to be the same test. To be received in the capacity of employee it must, as I see it, partake of the character of remuneration for services. That is the effect that, as it seems to me, the words "in respect of, in the course of or by virtue of an office or employment" in paragraph 6(1)(a) have.
I agree that the appropriate test in Phaneuf was whether the benefit had been conferred on Mr. Phaneuf as an employee or simply as a person. It would seem that Mr. Phaneuf received, as a person, the right to acquire the shares and therefore the case was correctly decided. With great respect, however, I do not agree with the latter part of the passage last quoted and in particular the statement that, to be received in the capacity of employee, the payment must partake of the character of remuneration for services. Such was the conclusion in the English cases but based on much narrower language. Our Act contains the stipulation, not found in the English statutes referred to, "benefits of any kind whatever . . . in respect of, in the course of, or by virtue of an office or employment". The meaning of "benefits of whatever kind" is clearly quite broad; in the present case the cash payment of $300 easily falls within the category of "benefit". Further, our Act speaks of a benefit "in respect of" an office or employment. In Nowegijick v. The Queen, [1983] l S.C.R. 29 this Court said, at p. 39, that:
The words "in respect of" are, in my opinion, words of the widest possible scope. They import such meanings as "in relation to", "with reference to" or "in connection with". The phrase "in respect of" is probably the widest of any expression intended to convey some connection between two related subject matters.
See also Paterson v. Chadwick, [1974] 2 All E.R. 772 (Q.B.D.) at p. 772.
[page 441]
I agree with what was said by Evans J.A. in R. v. Poynton, [1972] 3 O.R. 727 at p. 738, speaking of benefits received or enjoyed in respect of, in the course of, or by virtue of an office or employment:
I do not believe the language to be restricted to benefits that are related to the office or employment in the sense that they respresent [sic] a form of remuneration for services rendered. If it is a material acquisition which confers an economic benefit on the taxpayer and does not constitute an exemption, e.g., loan or gift, then it is within the all-embracing definition of s.3.
It is difficult to conclude that the payments by Excelsior to Mrs. Savage were not in relation to or in connection with her employment. As Mr. Justice Grant said, the employee took the course to improve his or her knowledge and efficiency in the company business and for better opportunity of promotion.
As Crown counsel submits, the sum of $300 received by Mrs. Savage from her employer was a benefit and was received or enjoyed by her in respect of, in the course of or by virtue of her employment within the meaning of s. 6(1)(a) of the Income Tax Act; it was paid by her employer in accordance with company policy upon the successful completion of courses "designed to provide a broad understanding of modern life insurance and life insurance company operations" and "to encourage self-upgrading of staff members"; the interest of the employer "was that the courses would make her a more valuable employee"; Mrs. Savage took the courses to "improve [her] knowledge and efficiency in the company business and for better opportunity for promotion". Distinguishing this case from Phaneuf, there was no element of gift, personal bounty or of considerations extraneous to Mrs. Savage's employment.
I would hold that the payments received by Mrs. Savage were in respect of employment. That, of
[page 442]
itself, makes them income from a source under s. 3 of the Act.
I conclude on this point that, unless s. 56(1)(n) of the Income Tax Act relieves, Mrs. Savage is subject to income tax in respect of the $300 which she received from her employer.
VI A Prize for Achievement
I turn then to the question of whether the sum received by Mrs. Savage was a prize within the meaning of s. 56(1)(n) of the Income Tax Act. The Crown takes two points: (i) the word "prize" connotes a reward for superiority in a contest or competition with others, and (ii) in any event, s. 56(1)(n) is not an exemption provision and does not affect payments which fall within the other taxing provisions of the statute.
On the first point, the case of R. v. McLaughlin, [1979] 1 F.C. 470 is cited. The taxpayer had been given $10,000 as an award for his achievements as chairman of the Ontario Milk Marketing Board. Judge Marceau upheld the decision of the Tax Review Board which had held that the award did not come within the terms of s. 56(1)(n) of the Act, because it was not a prize for an endeavour ordinarily carried on by the taxpayer:
In my opinion, the word "prize" connotes something striven for in a competition, in a contest, and I don't think there can be a competition, or a contest in the real sense without the participants being aware that they are involved.
The word "prize", in ordinary parlance, is not limited to a reward for superiority in a contest with others. A "prize" for achievement is nothing more nor less than an award for something accomplished. There is no need to pluck the word "prize" out of context and subject it to minute philological examination, or to think of "prize" in the context of the medal or book one may have won at an earlier date on a field day or at school or in a music competition.
[page 443]
The word "prize" is surrounded in the Income Tax Act by other words which give it colour and meaning and content. I repeat them: "as or on account of a scholarship, fellowship, or bursary, or a prize for achievement in a field of endeavour ordinarily carried on by the taxpayer".
Three comments. First, s. 56(1)(n) is not concerned with the identity of the payer or the relationship, if any, between donor and donee. There is nothing in the section which renders the scholarship, fellowship, bursary or prize taxable on the ground that the donor or payer is the employer of the taxpayer. Second, the words "scholarship, fellowship or bursary", with which the word "prize" is associated, are normally employed in speaking of educational attainments, usually in the sphere of advanced studies, and "polite" learning. Third, the prize must be for "achievement", defined in the Shorter Oxford Dictionary (3rd ed.) as "the action of achieving, anything achieved, a feat, a victory". "To achieve" is variously defined, including "to carry out successfully", "to attain". The "achievement" must be in a field of endeavour ordinarily carried on by the taxpayer. This rules out, for example, prizes won in games of chance or at a costume party or for athletic achievement. We are concerned with the field of endeavour ordinarily carried on by the taxpayer, in this instance, the life insurance business.
Funk and Wagnalls Standard College Dictionary (Canadian Edition) defines "prize" as:
1. That which is offered or won as an honor and reward for superiority or success, as in a contest; an award.
2. Anything to be striven for…
[page 444]
Black's Law Dictionary, (5th ed.) gives, among others, this definition of a "prize": "An award or recompense for some act done; some valuable thing offered by a person for something done by others". This is broad language.
In my view, a "prize for achievement" does not necessarily connote an award for victory in a competition or contest with others. That places too narrow and inflexible a meaning on the words. In the case at bar the award was in recognition of bona fide accomplishment, successful completion of course studies, and examinations in a challenging and difficult field of endeavour, in which about 61 per cent of those writing were successful and about 39 per cent failed. Only the successful candidates were eligible to receive a prize.
It is important also to say that it is not suggested here that the system of awards was introduced as a colourable device intended to provide the employer with an opportunity of increasing the statutory exemption of employees by $500 per year. If and when such a case arises it can be considered on its facts.
The French version of s. 56(1)(n) of the Income Tax Act as amended by 1973-74 (Can.), c. 14, s. 15 should be read. It is, it seems to me, in terms at least as broad as the English version:
56. (1) Sans restreindre la portée générale de l'article 3, sont à inclure dans le calcul du revenu d'un contribuable pour une année d'imposition,
[…]
(n) la fraction, si fraction il y a,
(i) du total de toutes les sommes reçues dans l'année par le contribuable et dont chacune est une somme qu'il a reçue à titre ou au titre de bourse d'études, de bourse de perfectionnement (fellowship) ou de récompense couronnant une oeuvre remarquable réalisée dans son domaine d'activité habituel,
qui est en sus de
(ii) $500; et
[…]
[page 445]
The payment which Mrs. Savage received falls well within the words "récompense couronnant une oeuvre remarquable réalisée dans son domaine d'activité habituel".
For the foregoing reasons the Crown's contention, that the word "prize" in s. 56(1)(n) has application only in a contest or competition with others, in my opinion, fails.
The further submission on the part of the Crown is that, in any event, the $500 exclusion in s. 56(1)(n) is not an exemption, and does not affect payments which fall within other taxing provisions of the statute. In terms of this case, the Crown's position is that even if the $300 is a prize not taxable under s. 56(1)(n), the $300 is nonetheless taxable under ss. 5 and 6 as income from employment.
It is true that the opening words of s. 56(1) speak in terms of inclusion and not exclusion:
56. (1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year, .. .
Section 56 falls within Division B, Subdivision d headed "Other Sources of Income", The section enumerates examples of income that fall within s. 3, repeated below for ease of reference, as constituting "income . . . from a source":
3. The income of a taxpayer for a taxation year for the purposes of this Part is his income for the year determined by the following rules:
(a) determine the aggregate of amounts each of which is the taxpayer's income for the year (other than a taxable capital gain from the disposition of a property) from a source inside or outside Canada, including, without restricting the generality of the foregoing, his income for the year from each office, employment, business and property;
I agree with counsel for Mrs. Savage that the opening words "Without restricting the generality of section 3", in subs. 56(1) would seem to have been inserted to defeat an argument of "expressio unius est exclusio alterius", in order to relate income items contained in subs. 56(1) to the arithmetical
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calculation set out in s. 3. Income can still be income from a source if it does not fall within s. 56. Moreover, s. 56 does not enlarge what is taxable under s. 3, it simply specifies.
When s. 56 is seen in this context, it is clear the Crown's submission cannot be sustained. The Crown's position, to repeat, is that a prize for achievement in a field of endeavour ordinarily carried on by the taxpayer, if less than $500, and if obtained in respect of, in the course of, or by reason of an office or employment, is taxable under ss. 5 and 6, notwithstanding s. 56(1)(n). Section 56(1)(n) makes it clear that a prize for achievement is income from a source under s. 3 just as income from an office or employment is income from a source under s. 3. If a prize under $500 would still be taxable under ss. 5 and 6, it would have to follow on the Crown's argument that a prize under $500 would equally be taxable under s. 3. That cannot be right. That would mean that a prize over $500 would be taxable under s. 56(1)(n) and a prize up to $500 would be taxable under s. 3. The $500 exclusion in s. 56(1)(n) would never have any effect. It seems clear that the first $500 of income received during the year falling within the terms of s. 56(1)(n) is exempt from tax. Any amount in excess of $500 falls under s. 56(1)(n) and is taxable accordingly. If that is not the effect, what purpose is served by the subsection?
I would dismiss the appeal. Pursuant to the terms on which leave to appeal to this Court was granted, the respondent is entitled to her costs on a solicitor and client basis. The matter is referred back to the Minister of National Revenue for appropriate action in accordance with these reasons for judgment.
The following are the reasons delivered by
MCINTYRE J.—I agree with my colleague Dickson J. that the $300 payment received by the
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respondent was a prize "for achievement in a field of endeavour ordinarily carried on by the taxpayer" within the meaning of s. 56(1)(n) of the Income Tax Act. Since it is less than $500, it is exempt from tax. I would therefore dismiss the Crown's appeal without expressing any opinion on the other matters referred to by my colleague.
Appeal dismissed with costs.
Solicitor for the appellant: R. Tassé, Ottawa.
Solicitors for the respondent: Fasken & Calvin, Toronto.
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