Leonard v. The Queen, 96 DTC 6518, [1996] 3 CTC 265 (FCTD)

Joyal J.T.C.C.: — This is an appeal by way of a trial de novo from a judgment of the Tax Court of Canada dated October 21, 1986. In that judgment, the Tax Court confirmed an earlier assessment by the defendant, declaring amounts of $1,325 and $5,339 received by the plaintiff in the years 1979 and 1982 respectively as being taxable income.

Background:

In the course of the relevant taxation years, the plaintiff had been employed by a Prince George, B.C., brewery. The plaintiff was a member of the plant union — Brewery, Winery and Distillery Workers Union, Local 300. The brewery and the union had from time to time entered into collective agreements in respect of the many and various conditions of employment at the plant.

Some of the conditions in the collective agreements in force in 1979 and 1982 were in respect of certain welfare benefits. In particular, Article X, Section 7, called upon the brewery to pay premiums to Occidental Life Insurance for weekly indemnities payable to employees in case of sickness or injury. In the years 1979 and 1982, the plaintiff received $1,325 and $5,339 from the insurer on account of illness or injuries.

The plaintiff, in his tax returns for these two years, took the view that the payments made to him did not constitute taxable income. The plaintiff argued that the premiums paid by the employer were part of the plaintiffs wages as per Sub-Section 6(3) of the Income Tax Act (the “Act”), and that in fact, the said payments were paid by the plaintiff as wages and the Brewery was only acting as a trustee in disbursing what were the plaintiffs funds.

The defendant Crown did not agree with the plaintiffs position and consequently reassessed the plaintiff by including the amounts received as taxable income and taxing the plaintiff accordingly. The defendant Crown took the position that the plaintiff, by reason of his illness, had received these amounts from the insurer, that he was paid on a periodic basis in respect of the loss of part of his income from employment, pursuant to a sickness or accident insurance plan to which his employer had contributed, but to which he, as employee, had not.

Proceedings by the plaintiff by way of Notice of Objection and by way of appeal to the Tax Court of Canada were unsuccessful. Hence the appeal to this Court.

Statutory Provisions:

These provisions, coming out of any number of amendments to cope with what the defendant Crown considered loop-holes, now read like something which resembles a Marseilles bouillabaisse.

The key section is, of course, Section 6 of the Act, which reads as follows:

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) Value of benefits — the value of board, lodging and other benefits of any kind whatever received or enjoyed by the taxpayer in the year in respect of, in the course of, or by virtue of an office or employment, except any benefit

(i) derived from the contributions of the taxpayer’s employer to or under a registered pension 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.

The plaintiff also refers to subsection 6(3) of the Act, which provides for an exclusion from income of any amount received for services when it cannot be reasonably be regarded as having been received:

6(3)[ … ]

(c) as consideration or partial consideration for accepting the office or entering into the contract of employment,

(d) as remuneration or partial remuneration for services as an officer or under the contract of employment, or

(e) in consideration or partial consideration for a covenant with reference to what the officer or employee is, or is not, to do before or after the termination of employment.

In turn, the defendant relies on concurrent provisions of the Act which read as follows:

6(1 )(f) Employment insurance benefits the aggregate of amounts received by him in the year that were payable to him on a periodic basis in respect of the loss of all or any part of his income from an office or employment pursuant to:

(i) a sickness or accident insurance plan,

(ii) a disability insurance plan, or

(iii) an income maintenance insurance plan to or under which his employer

has made a contribution, not exceeding the amount, if any, by which

(iv) the aggregate of all such amounts received by him pursuant to the plan before the end of the year [ ... ]

Findings:

The provisions of Section 6 of the Act are not easily analyzed in the context of income tax liability. The more complex the forms of payment received by a taxpayer, the more elaborate have become the rules of the courts so as to ensure a true, tested and objective approach to income taxation in order to avoid aberrations or inconsistencies.

The plaintiff submits that the payments he received are not taxable, arguing that while paragraph 6(1 )(f) of the statute stipulates that payments must be on a periodic basis, the payments he received were not. Counsel for the plaintiff cites the case of Supreme Legion Select Knights of Canada, Re., [1899] 29 O.R. 708 (H.C.), wherein ’periodical payments’ were defined as “payments which are made periodically, recurring at fixed times, not at variable periods, nor in the exercise of the discretion of one or more individuals, but from some antecedent obligations”.

I am not convinced that this definition is apt in the case at bar. In my view, a payment on a periodic basis, if it should be on account of illness or accident, must necessarily be during “periods” of illness or injury. The actual amounts will of course vary, depending as they do on the current wage levels of the employee. Furthermore, on the strength of R. v. Sills, a Federal Court of Appeal decision at [1985] 1 C.T.C. 49, 85 D.T.C. 5096, it may be added that so long as the contract or agreement calls for payments to be made on a periodic basis, the periodic character of the payments is not changed by the fact that they were not paid on time.

The other thrust of the plaintiff’s case is that in fact, the premium payments by the employer to the insurer is the plaintiff’s money which would otherwise have been paid to him as wages or salary. This approach follows that of Cory J., on behalf of the Supreme Court of Canada, in Cunningham v. Wheeler, [1994] 1 S.C.R. 359, [1994] 113 D.L.R. (4th) 1, where he suggested at pages 407-8 (D.L.R. 15) that payments made by an employer pursuant to a collective agreement might be regarded as having been, in fact, paid by the employee if the latter has foregone higher wages or other benefits. Any benefits derived therefrom in the event of accident or illness would not fall within the provisions of paragraph 6(1 )(f). Cory J. is quick to point out, however, that there must be evidence that in the collective bargaining process, there were trade-offs and that higher wages or other benefits were foregone in favour of the disability benefits. In the case at bar, there is little substantive evidence leading me to conclude that the disability plan was a trade-off. Furthermore, I venture to suggest that any benefit plan under a collective agreement could easily be regarded as a trade-off, in which case paragraph 6(1 )(f) would never apply to unionized employees enjoying disability or other benefits under their collective agreement.

The question of evidence and the weight to be given to it was raised by my colleague Rouleau J. in Dagenais v. R. (sub nom. Dagenais v. Canada), [1995] 2 C.T.C. 100, 95 D.T.C. 5318, where it was alleged by the taxpayers that the benefit plan involved was an “employee pay-all” plan and benefits received were tax exempt. Rouleau J. was called upon to analyze the evidence of a trade-off which, in his words, at page 105 (D.T.C. 5320):

Came from trade union representatives who testified that when collective agreements are negotiated, employees are generally prepared to make available a predetermined or fixed amount of funds in order to reach a settlement. It is then up to the union representatives to determine what portions should go to wages and what portion to benefits.

Rouleau J. further found that to avoid any liability on the benefits package in question, it was incumbent on the plaintiffs to establish that they paid for its entire cost. There was no evidence as to precise or exact amounts allegedly paid by the employees for the benefits package.

Finally, Rouleau J. noted that the issue in that case was one of tort law, that tort law is not binding and may not even be helpful when interpreting the Income Tax Act.

Conclusions:

It is my view that the intent of Parliament under section 6 of the Act is to include as taxable income all moneys received by a taxpayer from his employer by reason of his employment, with certain exceptions. Specifically included as income to a taxpayer are amounts received on a periodic basis in respect of the loss of all or any part of his income from an office or employment, pursuant to a sickness or accident plan. This is textually what paragraph 6(l)(f)(i) says and, in my respectful opinion, it should be interpreted in a manner consistent with the intent of Parliament.

I will concede that historically, courts may perhaps have taken a highly semantic approach to the interpretations of taxing statutes and have pathologically analyzed and scrutinized every individual element in the enactment. I would like to think that this is a thing of the past, and that today, the more universal approach to critical analysis is that articulated by Dreidger in Construction of Statutes, 2nd Ed., Butterworths, Toronto, 1983, at page 8, where he stated that “the words of a statute are to be read in their entire context and in their grammatical and ordinary meaning, har- moniously with the scheme of the Act, the object of the Act and the intention of Parliament”.

Counsel for the parties will recall that the oral evidence in the course of the trial of this action was not crystal clear in its delivery or in its content. Nevertheless, I found both counsel particulary cogent in both their oral summation and in the briefs they individually filed with this Court.

The resolution of the issue raised by the plaintiff has taken a long time. It is also obvious that the plaintiff, for reasons advanced following an application for dismissal for want of prosecution, experienced a number of financial problems in securing the services of counsel for which, by reason of his disability, he had very limited means. And yet, he exhibited this strong and unalterable opinion that he was right.

The Court appreciates the plaintiff’s difficulties and the varying degrees of disability which he has endured over time. In the circumstances, however, I must dismiss the plaintiff’s appeal. Costs to the defendant Crown, if demanded.

Appeal dismissed.