Mogan, J.T.C.C. (orally):— This is an appeal commenced under the provisions of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") in respect of the appellant's 1987 taxation year. From 1972 to 1984, the appellant was a Member of Parliament. In the spring of 1984 the appellant was subject to a serious illness and he suffered an almost fatal pulmonary embolism. It was, therefore, necessary for him to seek some occupation which was less stressful than serving as a Member of Parliament. At the time, he sought a position in the federal public service which would allow him to use his talents but operate in a way that would not endanger his life.
He was offered a position as a member of the National Parole Board. After consulting with various persons concerning the nature of the work, he accepted that position. It is what is commonly referred to as an order-in-council appointment; that is to say, it is a special kind of appointment because it comes from the Cabinet. And while it was for a term of ten years, it is very difficult to take away the benefits of an order-in-council appointment once a person has received that kind of appointment.
He thought that he could serve on the National Parole Board and it would be reconcilable with his illness but, due to the nature of the work, which is mainly travelling and fairly extensive travelling, he was hospitalized far from his home in Ottawa. He concluded that he could not continue to perform his duties as a member of the National Parole Board because of his health Therefore, within a year of the appointment, he was required to seek some kind of relief from obligations and the burdens of his duties on the National Parole Board.
In 1985, he retained a lawyer to try and get some relief, or compensation, or whatever it might be called, for giving up this office. A letter which was entered in evidence as Exhibit A-1, was sent by the appellant’s lawyer on August 12, 1985 to the Prime Minister of the day reviewing his health problem and his inability to continue on the Parole Board, but seeking some kind of monetary compensation for giving up the office to which he was appointed by order-in- council. I will not set out the letter in its entirety, but the following passage is included in these reasons for judgment because of its relevance and it leads to what ultimately came as a letter of reply. Mr. McGuire, the solicitor for Mr. Blaker, stated at page 3 of his letter:
My client should seek alternative employment which will not bring about further serious physical deterioration resulting from stress and worry. We therefore respectfully suggest, without prejudice to his existing rights under his present appointment, that he receive an amount equal to two years salary, being approximately $134,000.00, plus the return of his National Parole Board pension contribution of approximately $4,000.00. In return, Mr. Blaker would surrender his appointment. When one considers Mr. Blaker’s background of public service, his serious medical condition and his non-insurability, we trust that you will find this request to be reasonable in the circumstances.
That letter was responded to in a brief fashion by two government officials in the period following August 1985.
What really happened was that in 1987 there was an arrangement made under which the appellant gave up the office and received an amount of $90,000. I do not want to beg the question by describing what it was for but it was all a part of one transaction. The relevant document is a letter dated March 13, 1987, signed by Jean-Pierre Kingsley, Deputy Secretary of Personnel Policy Branch of the Treasury Board of Canada, addressed to the appellant. The letter is short and, therefore, set out in its entirety: Dear Mr. Blaker:
I am writing to confirm the arrangements which have been agreed upon between you and the Government of Canada in consideration of which you will provide Her Majesty the Queen in right of Canada with a Release, the terms of which are contained in ANNEX "A".
1. It is agreed that you will resign your Governor-in-council appointment as a member of the National Parole Board effective March 27, 1987.
2. In consideration of said resignation and following approval of these arrangements by the Treasury Board, you will be paid a termination allowance in the amount of $90,000.
3. At your direction, a part of this allowance, up to the maximum amount allowable under the Income Tax Act, may be paid directly into a registered retirement savings plan of your choice. The amount remaining will be paid in two instalments; the first instalment payable in 1987, and a final payment to be made no later than January 5, 1988, in accordance with your direction.
4. The particulars of this settlement shall be held strictly confidential by the parties and shall not be disclosed to any person. However, you may make disclosure to your immediate family and your professional and financial advisors. Disclosure may also be made by the government to Treasury Board ministers and those public servants required to finalize and implement the settlement.
I would appreciate it if you would confirm your agreement with the above by signing below, and by signing the release attached hereto.
Yours sincerely,
Jean-Pierre Kingsley
Below Mr. Kingsley’s signature there is a line which the appellant has signed, “Roderick Brian Blaker". Attached to the letter is Annex A entitled "release"; which was worded as follows:
I, Roderick Brian Blaker, upon the performance in full by Her Majesty the Queen in right of Canada, of all her obligations undertaken in the letter of agreement dated March 13, 1987, between Her, acting through Mr. Jean-Pierre Kingsley, Deputy Secretary, Personnel Policy Branch, Treasury Board and me, a copy of which is attached hereto as ANNEX "B", recognize that I will have been provided with full, final and total compensation which I may have been entitled to following termination of my appointment as a member of the Parole Board. Subject to the same condition, I hereby release and forever discharge Her Majesty the Queen, in right of Canada, from any and all obligations which she may have incurred towards me relating to the termination of my employment.
Mr. Blaker signed this release on March 16, 1987.
The oral testimony of Mr. Blaker is that he did, in fact, receive all of the $90,000 in 1987. A portion of it was put into a registered retirement savings plan (“RRSP”). And at some later time, it is not clear from the evidence whether it was in 1987 or a subsequent year, that portion was withdrawn. In any event, the amount that was put into the RRSP is not relevant because the issue in this appeal is whether the amount of $90,000 has the character of income under the provisions of the Income Tax Act.
In substance, it is the appellant's position that the whole amount should be free of tax because an order-in-council or a Governor-in-council appointment is a unique type of appointment in the whole Canadian scene; it is unlike any other appointment, employment or office because the person holding such an appointment has a security of tenure different from any other kind of employment. Mr. Blaker argues that he had what he called a "basket full of rights"; and that he received his $90,000 by surrendering this “basket full of rights". Therefore, it was a capital payment in consideration for such surrender, and not taxable.
For a taxation year prior to 1981, the argument would have had more weight and there were some judicial authorities to support it. But, as frequently happens, the Minister of National Revenue and the Minister of Finance can, through amendments to the Income Tax Act, reach out to bring within the ambit of income amounts which hitherto might not have been regarded as income. Counsel for the Minister of National Revenue in this appeal relies on the definition of "retiring allowance” as it appears in section 248 of the Income Tax Act. From that definition I will quote only the relevant words.
"retiring allowance” means an amount. . . received
(a) upon or after retirement of a taxpayer from an office or employment in recognition of his long service, or
(b) in respect of a loss of an office or employment of a taxpayer, whether or not received as, on account or in lieu of payment of, damages or pursuant to an order or judgment of a competent tribunal
by the taxpayer. . . .
Counsel for the respondent argues that the amount of $90,000 described in the correspondence between the appellant’s lawyer and the Treasury Board fits within the four corners of "retiring allowance" as defined in section 248. In support of that argument, counsel refers to the definition of "employment" also in 248 which reads as follows:
"employment" means the position of an individual in the service of some other person (including Her Majesty or a foreign state or sovereign) and "servant" or "employee" means a person holding such a position. . . .
In my view, the position taken by the respondent is well-founded. The amount here does, in fact, clearly fall within the all-embracing provisions of "retiring allowance". That is to say, it was an amount received "in respect of a loss of an office or employment". And as can been seen from the definition of "employment", it is the position of a person in the service of some other. I can find nothing that would make an appointment by the Governor in Council different from an office or employment in any other sense.
The letter of March 13, 1987 from the Treasury Board to the appellant really is in the form of an agreement because, in the last three lines of that letter, the writer states "I would appreciate it, if you would confirm your agreement with the above by signing below and by signing the release attached hereto". He then provides a line with the appellant’s name, Roderick Brian Blaker, typed under the line. Mr. Blaker signed above the line.
By signing page 2 of that letter, the appellant has entered into an agreement with the Treasury Board. The substance of the agreement is captured in the first two numbered paragraphs which I will repeat:
1. It is agreed that you will resign your Governor-in-Council appointment as a member of the National Parole Board effective March 27, 1987.
2. In consideration of said resignation and following approval of these arrangements by the Treasury Board, you will be paid a termination allowance in the amount of $90,000.
I cannot construe the terms of that letter of March 13, 1987 as anything but an agreement for an amount to be paid to the appellant within paragraph (b) of the definition of "retiring allowance”, in respect of a loss of an office or employment. In every way, the payment of the $90,000 falls within the four corners of the definition of "retiring allowance" in section 248.
What brings it within the ambit of income for purposes of the Income Tax Act is the provision of subsection 56(1) which states (reading only the relevant parts):
56(1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for taxation year,
(a) any amount received by the taxpayer in the year as, on account or in lieu of payment of, or in satisfaction of,
(ii) a retiring allowance, other than an amount received out of or under an employee benefit plan, a retirement compensation arrangement or a salary deferral arrangement. . . .
This $90,000 amount does not fall within any of the exceptions in subparagraph 56(1 )(a)(ii). It falls within the definition of “retiring allowance" in section 248 and, therefore, in my view is an amount that is required to be included in computing the appellant's income for the 1987 taxation year.
In closing, I should say that the appellant referred me to the decision of this Court in Peel v. M.N.R., [1987] 1 C.T.C. 2373, 87 D.T.C. 268, a decision of Taylor, J. I find no criticism with the decision of Taylor, J. but, in my opinion, the facts in Peel are quite different. Mr. Peel had brought an action following his disability. He sued the insurance company which carried disability insurance with respect to his employment. He won that action against the insurance company, and this Court found that the amount recovered from the insurance company was not taxable. The simple distinction in my view between Peel, supra, and the present case is that the amount paid to Peel was not paid by his employer, nor was it paid in what has been called an ex gratia circumstance for the loss of employment.
The wording of “retiring allowance” in section 248 makes it perfectly clear that whether an amount is paid ex gratia or as the result of a legal action against a former employer, that amount is still going to be caught within the definition of “retiring allowance” and will be required to be included in computing income under subsection 56(1). For these reasons the appeal is dismissed, in the circumstances, without costs.
Appeal dismissed.