Cook v. The Queen, 95 DTC 853, [1995] 1 CTC 2251 (TCC)

Taylor J.T.C.C.:-This is an appeal heard under the informal procedure in Toronto, Ontario on September 7, 1994 against an income tax assessment in which the respondent included an amount of $12,000 as income subject to tax. The imputed assessment read as follows:

..the amount of $12,000 received by you in the year pursuant to the Wage Loss Replacement Plan paid by the Great-West Life Assurance Company has been included in computing your income in accordance with the provisions of paragraph 6(1)(F) of the Income Tax Act.

For the respondent, the assessment was based on this assumption:

The amount was received by the appellant in 1991, pursuant to a disability plan which was payable to her on a periodic basis in respect of the loss of all or part of her income from an office or employment.

The respondent relied on section 3 and paragraphs 6(1 )(a) and 6(1)(f) of the Income Tax Act. R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") as amended for the 1991 taxation year.

The payment came from Great-West Life Insurance Company after the appellant had been refused benefits which she claimed under the policy and then proceeded to launch legal action requesting:

- A declaration that the Defendant is in breach of its policy of insurance;

- A declaration that a valid policy or insurance exists covering the Plaintiff;

— Damages for long-term disability benefits from August 17, 1989 to date of trial;

- General damages in the sum of $100,000;

— Aggravated damages in the sum of $50,000;

- Punitive and exemplary damages in the sum of $50,000;

- Pre-judgment and post-judgment interest pursuant to the Courts of Justice Act, S.O., 1984;

- Her costs of this action on a solicitor and client basis;

- Such further and other relief as this Honourable Court may deem just.

Although no actual Court action ensued, the settlement of payment followed upon agreement and signature of the following:

FULL AND FINAL RELEASE

KNOW ALL MEN BY THESE PRESENTS that I, JULIE ANN COOK, in consideration of the payment to me of $15,000 inclusive of all claims, interest and costs, which I direct be made payable to my solicitors Morris, Waxman, Carpenter-Gunn, in Trust, the receipt of which is hereby acknowledged, do hereby remise, release and forever discharge THE GREAT-WEST LIFE ASSURANCE COMPANY, its servants, successors and assigns, of and from all manner of actions, causes of actions, claims and demands of whatsoever nature and kind which against the said THE GREAT-WEST LIFE ASSURANCE COMPANY, I now have, have had or hereafter can, shall or may have for or by reason of any matter or thing of whatever nature and kind and, in particular, but without restricting the generality of the foregoing arising out of my claims, past and future, for disability benefits pursuant to a policy of insurance issued to the Hamilton Street Railway Company by the Great-West Life Assurance Company bearing policy number 44296GHB, which claims were the subject matter of an action commenced in the Supreme Court of Ontario under Court File No. 10836/90 in which I was plaintiff and The Great-West Life Assurance Company was defendant.

IT IS UNDERSTOOD AND AGREED that the said payment is deemed to be no admission whatsoever of the validity of my claims under the aforesaid policy of insurance.

The testimony and evidence arising from examination and cross- examination amplified the known facts but mostly served to highlight the differences in perspective between the parties.

Argument and analysis

The argument presented by counsel for the appellant relied heavily on the case of Peel v. M.N.R., [1987] 1 C.T.C. 2373, 87 D.T.C. 268 (T.C.C.), particularly the very similar circumstances and facts of that case when compared with the results as indicated on page 2384 (D.T.C. 276) thereof:

Had Mr. Peel been finally successful in the Court Action, and been awarded the $2,312.50 per month on the basis that he was totally disabled, the result with respect to the income tax liability thereon, might be different. But that is not the point before this Court, even though it was the claim originally placed before the Supreme Court of Ontario. On the basis of that which has been brought before me I am not prepared to find that the fact Mr. Peel could sue to obtain his "rights" under the insurance contract constituted a "benefit" which should be included "in respect of” his employment contract, I have read the legal opinions expressed by both counsel regarding the fact that Mr. Peel did not sue his former employer (or join that employer in the suit), but I am not prepared to agree that the mere fact his former employer simply allowed Mr. Peel to exercise his right to sue Constellation should be seen as "taxable benefit" emanating from that employer. Paragraph 6(1 )(a) does not serve the Minister’s purpose.

For the respondent, the argument was founded on sections 3, 4 and 5 of the Act as well as dealing with the related paragraphs 6(1 )(a) and 6(1)(f). For counsel the "source" of the payment provided the taxation at issue and counsel argued the policy under review called for payments on a ’’periodic basis”. Considerable jurisprudence other than Peel, supra, was advanced by the parties — but in my view the counsels simply restated and reargued Peel, supra, and added little enlightenment. Just as I was satisfied in Peel, supra, that the condition in paragraph 6(1 )(f) payable on a "periodic basis" was not met, I am satisfied in the instant appeal that it cannot be met by this lump sum payment and section 6(1 )(f) unhappily relied on solely in the assessment, does not meet the respondent’s needs to support the assessment. Equally, the efforts of counsel for the appellant to exclude the amount from the clutches of paragraph 6(1 )(a) as an amount covered by "in respect of, in the course of, or by virtue of an officer in employment", were unconvincing. While counsel for the respondent expanded at length on the view that the "source" argument should cover the matter, she did not adequately answer the position I took in the Peel, supra noted above. At the conclusion of the trial, I noted for the parties that Peel, supra should be read in the light of one significant case, which, to my surprise had not been raised therein by counsel in Peel, supra — R v. Savage, [1983] 2 S.C.R. 428, [1983] C.T.C. 393, 83 D.T.C. 5409, and that again it had not been raised in this matter. Reference was made to Savage, supra in a recent 1994 Federal Court of Appeal judgment - Phillips v. M.N.R., [1994] 1 C.T.C. 383, 94 D.T.C. 6177. I also pointed out to the parties that some assistance might be gained from comments in Phillips, supra even though leave to appeal to the Supreme Court of Canada had been requested. I also pointed out that I intended to review Savage, supra.

In the end analysis, I am satisfied that Peel, supra closely parallels the significant facts in this appeal, and if it were not for the great reliance which I am now satisfied must be placed on the critical remarks in Savage, supra I would reach the same result. I do not believe that the comment above from Peel, supra — "Paragraph 6(1 )(a) does not serve the Minister’s purpose", can withstand the logic in Savage, supra which has now become virtually the standard in analyzing such cases. In Peel, supra, at page 2384 (D.T.C. 276), I noted that:

"In summary therefore, on this point - Mr. Peel could sue Constellation Life to obtain a judgment, perhaps establishing his right to disability insurance, perhaps even the amounts he claimed, perhaps both, and it can be that "right", and only that right, as I see it, that the Minister must be able to posit as a "benefit" under paragraph 6(1 )(a) of the Act."

I do not believe it is necessary in this matter for this Court to reach a conclusion on the source of Ms. Cook’s '’right" to sue Great-West — a point, which nevertheless was forcefully argued at the trial. Even if that is all she had — a right to commence legal action — I am satisfied that right, even if it only arose out of the contract between her former employer and GreatWest, that Savage, supra is sufficiently broad in its interpretation for this Court to make the connection from Cook to Great-West to Hamilton Steel Railway, her employer at the time she alleges she became disabled. It is not for this Court to examine the view of Great-West, that she was not qualified for the disability payments sought. Nor is it for this Court to question whether the payment of $12,000 (net after legal fees) at issue was an award for damages and therefore - as argued by counsel for the appellant — non-taxable. That appears to me to be aside from the main point of issue, irrespective of whether "damages" as such are now taxable or non taxable. The significant and the simple point is whether the amount is founded in the appellant’s rights under an employment contract, and it is so founded. The amount is taxable because of the provisions of paragraph 6(1 )(a) of the Act.

The appeal is dismissed.

Appeal dismissed.