Citation: 2005TCC761
Date: 20051215
Docket: 2002-33(IT)G
BETWEEN:
SANDRA BURROWS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Lamarre, J.
[1] This is an appeal of an
assessment made by the Minister of National Revenue ("Minister")
under the Income Tax Act ("Act"), which included pre‑judgment
interest from a pay equity award in computing the income of the appellant for
the 2000 taxation year.
Agreed Statement of
Facts
[2] The facts which gave
rise to the present appeal are summarized in the Agreed Statement of Facts filed
jointly by the parties as Exhibit A-7. It is reproduced in part below:
1. In 1984 and 1990, the Public Service Alliance of Canada (the
"PSAC") presented human rights complaints on behalf of certain
employees represented by it in female-dominated occupational groups: The complaints
maintained that Treasury Board as employer had acted, and was acting, contrary
to section 11 of the Canadian Human Rights Act (the "CHRA") by
failing to provide equal pay for work of equal value (pay equity).
. . .
2. On July 29, 1998, the Canadian Human Rights Tribunal (the
"Tribunal") upheld the complaints, and concluded that the Treasury
Board had acted in violation of section 11 of the CHRA. It ordered the Treasury
Board of Canada to pay the Appellant and other civil servants a pay equity wage
adjustment retroactively to March 8, 1985. The Tribunal's Order also
contemplated the payment of interest on the net amount of direct wages,
calculated as owing for each year of the retroactive period, as well as
post-judgment interest.
. . .
3. On October 19, 1999, the Federal Court, Trial Division,
rejected the Attorney General's application to set aside the Tribunal order of
July 29, 1998.
. . .
4. On October 29, 1999 the PSAC and the Treasury Board entered
into a Memorandum of Agreement (the "Agreement") to resolve remaining
issues arising from the Tribunal's order. On November 16, 1999, the Tribunal
issued a final Consent Order implementing the terms of the Agreement.
. . .
5. Pursuant to that Order and the Agreement, various payments
(retroactive wage, pre-judgment interest and post-judgement [sic] interest)
were made to affected employees in order to achieve compliance with the
Tribunal's Order.
. . .
6. These payments included an amount on account of pre-judgment
interest as was specified by the Tribunal order.
. . .
7. The Agreement provided the details with respect to the
calculation of the interest to be paid to the Appellant. Clause 3.1 of the
Agreement specifically provided that:
3.1 The parties
agree that the following interest rates will be the applicable rate for each
six-month period:
85 11.25%
86 10.00%
87 7.75%
88 9.00%
89 10.50%
90 10.50%
91 10.75%
92 7.50%
93 6.00%
94 4.25%
95 7.50%
96 5.25%
97 5.25%
98 3.50%
99 4.00%
. . .
8. The Appellant, Sandra Burrows ("Ms. Burrows") is an
employee of the federal government. She has been working for Library and
Archives Canada (formerly the National Library of Canada) since 1977.
9. In the course of her employment, Ms. Burrows was member of a
female‑dominated occupational group represented by the PSAC. As such, Ms.
Burrows was one of the beneficiaries of the Tribunal's Order.
10. Pursuant to the Tribunal's Order and the ensuing Agreement,
Ms. Burrows received an amount of $113,301.67 from the Treasury Board of
Canada in the 2000 taxation year. The amount referred to above included a pay
equity wage adjustment of $79,272.34 and interest in the amount of $34,029.33.
. . .
11. When filing her income tax return for the 2000 taxation year,
the Appellant filed a T5 information slip issued by Public Works and Government
Services of Canada showing interest from Canadian sources in the amount of
$34,029.33. The amount is comprised of both pre‑judgment and
post-judgment interest, the judgment date being November 16, 1999. The amount
of pre-judgment interest is $32,637.50 and the amount of post-judgment interest
is $1,391.88.
. . .
12. On May 25, 2001, Ms. Burrows received a Notice of Assessment for
the taxation year 2000 which confirmed the inclusion and taxation of the pre‑judgment
interest in her total income.
. . .
13. On July 4, 2001, Ms. Burrows filed an objection with Canada
Customs and Revenue Agency (hereinafter "CCRA" or "Revenue Canada"), objecting to its assessment of the
pre-judgment interest in the amount of $34,029.33 as taxable income.
. . .
14. On July 30, 2001, Ms. Burrows received a letter from Linda
Matteau, Team Leader, Appeals Division, CCRA confirming that it had received
her objection. Ms. Matteau also indicated in her letter that:
As you might be
aware, this issue involves many clients who have received Notices of assessment
or reassessment which are similar to yours.
The treatment of
all the files is presently under examination and when a decision is reached, we
will inform you of the said decision. In the meantime, your file will be put in
abeyance until a final decision is taken in these files.
. . .
15. On March 29, 2001, Headquarters, Appeals Branch issued an internal
memorandum to all Tax Services Offices and Tax Centres advising of the
procedures to follow in processing (i.e. coding and tracking) the objections
filed by members of the PSAC with pay equity entitlements.
. . .
16. On August 27, 2001, Income Tax Appeals Directorate issued an
internal memo reiterating its procedures to follow upon receipt of an objection
on the issue of taxability of the interest received by members of PSAC on pay
equity payments. The memo also indicates that:
"This matter
is currently under review. As a result, we remind you to hold all these
objections in abeyance until the CCRA has determined its position on this
issue."
. . .
17. CCRA also issued other memos dealing with pay equity.
. . .
18. On September 18, 2001, Income Tax Appeals Directorate issued an
internal memo advising that the "issue of the taxability of interest
received on pay equity payment is currently under review".
. . .
19. In
his notes dated October 12, 2001, CCRA Manager Michel Carbonneau wrote:
"Impact – Harris – re: traitement favorable à un groupe particulier".
.
. .
20. On
October 18, 2001, representatives of CCRA met to discuss CCRA's policy on
pre-judgment interest.
.
. .
21. On
November 8, 2001, the Policy and Legislation Technical Subcommittee met and discussed
its policy on pre-judgment and pre‑settlement interest on damages for
personal injury, death, wrongful dismissal and workers' compensation awards in
light of the position being taken by the PSAC on the issue of the taxation of
the pre-judgment interest paid on the pay equity payments.
.
. .
22. On
November 16, 2001, counsel for Ms. Burrows provided written submissions to CCRA
respecting the taxability of pre-judgment interest payments made as a result of
the Tribunal order on pay equity.
.
. .
23. On
December 7, 2001, CCRA confirmed its assessment and advised Ms. Burrows
that the sum of $34,029.33 was interest under paragraph 12(1)(c) of the Income
Tax Act (the "Act") and was included in computing her
income in accordance with section 3 and paragraph 12(1)(c) of the Act.
.
. .
24. On
December 21, 2001, Ms. Burrows filed a Notice of Appeal objecting to the
inclusion as income and taxation of the pre-settlement interest paid to her
pursuant to the Tribunal Order. Ms. Burrows alleged at paragraphs e)ii) and
f)iii) of her Notice of Appeal that the taxation of pre-settlement interest as
described above is contrary to section 15 of the Canadian Charter of Rights
and Freedoms.
.
. .
25. Ms.
Burrows provided further particulars to the Respondent by way of letter dated
February 28, 2002 wherein she confirmed through her counsel:
With respect
to your letter dated February 28, 2002, we can confirm that we intend to rely
upon sections 2, 5, 7 and 11 of the Canadian Human Rights Act. As you are aware from the Notice of Appeal in each of
the above-noted matters, the essential thrust of the Appellants' position is
that the tax treatment of the payments in issue is discriminatory. It is our
position that the treatment of these payments is directly contrary to sections
5 and 7 of the Canadian Human Rights Act and is inconsistent with the
language and purpose of sections 2 and 11 of the Canadian Human Rights Act.
. . .
26. By letter dated December 7,
2001, Burrows was advised that her objection had been dismissed and that she
would, accordingly, be required to pay income tax on the pre-judgment interest
portion of her pay equity compensation. On January 10, 2002, CCRA completed its
Report on Objection wherein it stated:
-The amount received is
described, defined and calculated as interest in the decision of the Tribunal
of July 29, 1998 and its implementation was made according to the agreement
between the Public Service Alliance of Canada and the Treasury Board on October
29, 1999;
-The amount received was
compensation for the delayed receipt by the complainants of the total compensation
to which the client was entitled under the Tribunal's ruling and agreement of
the Public Service Alliance of Canada.
. . .
27. In a memo dated February 3,
2000, CCRA took the position that the interest on the pay equity payments
constitutes "ordinary interest, payable as compensation for the use of
money during the delay in settlement, is taxable as interest". "As
the pay equity payments are not damages for personal injury or wrongful
dismissal, the interest on pay equity payments is taxable as interest income
pursuant to paragraph 12(1)(c) of the Income Tax Act for the year
payment is received".
. . .
[3] The balance of the Agreed
Statement of Facts (paragraphs 28 to 68) gives the historical background of the
Canada Customs and Revenue Agency's ("CCRA") policy of not taxing pre‑judgment
interest on awards for personal injury or death, on retroactive workers'
compensation and, until January 1, 2004, on wrongful dismissal awards.
Appellant's
Argument
[4] Before this Court, the
appellant limited herself to challenging the tax treatment of the pre-judgment
interest as being discriminatory under the Canadian Charter of Rights and
Freedoms ("Charter"). At trial, counsel for the appellant advised
the Court that he was no longer disputing the fact that the pre‑judgment
interest constituted interest for the purpose of paragraph 12(1)(c) of
the Act. He stated that the constitutional challenge was not directed at
paragraph 12(1)(c) of the Act per se, but rather at the CCRA's
decision to tax pre-judgment interest in the appellant's case when other pre‑judgment
amounts were exempted from taxation by the CCRA. Indeed, over the years the CCRA
has taken the position that it will exempt from tax all pre‑judgment
interest payable in respect of awards of damages for personal injury or death,
or workers' compensation awards. The same tax exemption policy was also applied,
until January 1, 2004, to pre-judgment interest in respect of awards of damages
for wrongful dismissal.
[5] It appears that that tax
policy was based on the principle that pre-judgment interest payable in respect
of an award of damages should be treated, for income tax purposes, in the same
manner as the award itself. Thus, the taxation of pre‑judgment interest
would follow the tax treatment of the award with which it was associated. Where
the award was not taxable, the CCRA considered the pre‑judgment interest
payable in respect of that award to be not taxable either. This policy was
adopted regardless of the fact that pre-judgment interest on any type of award
should be included in income as interest under paragraph 12(1)(c) of the
Act.
[6] Furthermore, with respect to
the termination of an office or employment occurring after November 12, 1981,
damages for wrongful dismissal are included in the definition of "retiring
allowance" in subsection 248(1) of the Act and are taxable pursuant
to subparagraph 56(1)(a)(ii) of the Act. Nevertheless, the CCRA's
policy not to tax pre-judgment interest received in respect of an award of
damages for wrongful dismissal was maintained until January 1, 2004, at which
time the CCRA changed its policy so as to exclude pre-judgment interest on
wrongful dismissal awards from the administrative exception, and to therefore
tax it as interest income. Essentially, as of January 1, 2004, the CCRA's new
position is that all pre-judgment interest which is explicitly identified as
interest in a court order or settlement agreement will be taxed as interest
income, except for pre-judgment interest on awards for personal injury or death,
or interest on retroactive workers' compensation. This new administrative position
continues to recognize that pre-judgment interest on non-taxable awards related
to personal injury or death, or interest on retroactive workers' compensation
payments will not be subject to tax (see copy of the policy change announcement
made at the September 2003 Canadian Tax Foundation conference in Montreal,
Exhibit A‑3, Tab 6).
[7] In the appellant's view,
nothing in the Act supports the CCRA's policy of not taxing interest on
awards where the capital portion is not taxed. This exemption from taxation of
pre-judgment interest, which is otherwise taxable under section 12 of the Act,
is an administrative position. The appellant submits that the protection
which the Charter gives to individuals like her extends to the manner in
which the statute is applied and interpreted, including any administrative
positions taken by the taxing authority in exercising its discretion to exclude
some groups from tax liability but not others. The appellant submits that the discrimination
suffered by victims of prohibited discrimination is compounded by the
differential treatment of those victims and their disentitlement to the same
exemption from taxation as that given to persons in employment who have
suffered violations of tort, workers' compensation or contract rights. Accordingly
the taxation of pre-judgment interest in the present case should be found to offend
the Charter.
[8] In the appellant's view, where
the CCRA has decided that victims of human rights violations under the Canadian
Human Rights Act are entitled to less protection and benefit of the law than
employees who have had their contract of employment breached because they did
not receive adequate notice of termination, or employees who are experiencing
delays in receiving workers' compensation benefits, or persons who received
interest in respect of personal injury awards, there is a Charter
violation. In her view, there is no rational basis for the distinction. Indeed,
the CCRA's explanation for the distinction is that the taxation of interest
should follow the taxation of the principal (although there is no legal basis
for that in the Act). But if this is the governing principle, how can
the CCRA justify the non-taxation of pre-judgment interest on wrongful
dismissal awards up to January 1, 2004, when these awards had been taxable
since 1981? There is clearly differential treatment here, without any evidence
of a rational objective or purpose. This is discriminatory.
[9] The appellant also emphasized the
fact that the payments ordered by the Canadian Human Rights Tribunal
("Tribunal") were designed to remedy discrimination practised by the
Treasury Board on the basis of sex. The pre‑settlement interest ordered
by the Tribunal was designed, in part, to compensate the victims of that discrimination
for the fact that they had been unlawfully deprived, for a substantial period
of time, of the income represented by the payments.
[10] The appellant suggests that the
decision to tax the payment of pre‑settlement interest therefore directly
undermines the remedy provided by the Tribunal — a remedy which was designed to
make the victims whole and compensate them for the discrimination they had experienced.
By eroding the value of that remedy, the CCRA has deprived these victims of the
monies which the Tribunal deemed necessary to compensate them. The CCRA's
actions have therefore had an unlawful discriminatory effect on these persons.
This effect is contrary to the Charter.
[11] The appellant submits that the
interest component is designed to compensate the victims of the discrimination
for the delay in paying non‑discriminatory wage rates. The tax which has
been collected by the CCRA's actions will ultimately flow back to the federal government.
The appellant argues that to a large extent, therefore, the government here is
simply recouping the payments it was ordered to make by the Tribunal. In her
view, any actions which dilute the value of the payments made to compensate the
victims of discrimination have the effect of exacerbating the original
discriminatory practices against these persons.
[12] The appellant submits that the
application of any law that is inconsistent with the Charter is of no
force or effect. The Charter may be infringed not just by the
legislation itself (here the appellant is not seeking a declaration that
paragraph 12(1)(c) of the Act is unconstitutional), but also
by the actions of a delegated decision-maker in applying the legislation (see Eldridge
v. British Columbia (Attorney General), [1997] 3 S.C.R. 624, at 644).
In such cases, the legislation remains valid, but there are equality violations
in the application of the legislation. According to the appellant,
discriminatory application of the law gives rise to the application of
subsection 52(1) of the Constitution Act, 1982, which states that
any law that is inconsistent with the Charter is of no force or effect. A
remedy for that unconstitutional action may be sought pursuant to subsection
24(1) of the Charter. The remedy sought by the appellant is a ruling that
the pre-judgment interest is not to be included in income. She is asking for a
declaration that she should be treated the same way as victims of wrongful dismissal,
work-related injuries, personal injury, and wrongful death.
[13] The appellant relies on the
decisions of this Court in Campbell v. Canada, [2004] T.C.J. No. 514
(QL), rev'd 2005 FCA 420, and O'Neill Motors Limited v. The Queen, [1995]
T.C.J. No. 1435 (QL), (aff'd [1998] 4 F.C. 180; [1998] F.C.J. No. 835 (QL)
(FCA)), to argue that this Court has jurisdiction to provide an appropriate
remedy where there is a violation of the Charter. In the present case,
she submits, this Court has the authority to declare the taxation of
pre-judgment interest inappropriate on the basis that the administrative decision
of the CCRA to, in effect, tax the victims of human rights violations is discriminatory
and unconstitutional.
Respondent's
Argument
[14] Counsel
for the respondent notes that the appellant does not dispute the fact that the
pre-judgment interest in this case is interest within the meaning of paragraph
12(1)(c) of the Act. He also notes that the appellant has limited
her argument to the unconstitutionality of the CCRA's policy of taxing pre‑judgment
interest in some cases and not in others. It is counsel's understanding that
the appellant limits her argument to the question of discrimination under
section 15 of the Charter in the application of the CCRA's policy and that
she seeks a remedy pursuant to subsection 52(1) of the Constitution Act,
1982 and subsection 24(1) of the Charter.
[15] Subsection 52(1) of the Constitution
Act, 1982 reads as follows:
PART VII
GENERAL
52. (1) The
Constitution of Canada is the supreme law of Canada, and any law that is
inconsistent with the provisions of the Constitution is, to the extent of the
inconsistency, of no force or effect.
[16] Counsel for the respondent
submits that subsection 52(1) declares unconstitutional or inoperative a
section of a particular law to the extent that that section is inconsistent
with the provisions of the Constitution (which includes the Charter).
The respondent submits that subsection 52(1) does not apply to administrative
actions of the government.
[17] In Eldridge, supra,
La Forest J. stated the following at page 644:
. . . First, legislation may
be found to be unconstitutional on its face because it violates a Charter right
and is not saved by s. 1. In such cases, the legislation will be invalid and
the Court compelled to declare it of no force or effect pursuant to s. 52(1) of
the Constitution Act, 1982. Secondly, the Charter may be
infringed, not by the legislation itself, but by the actions of a delegated
decision-maker in applying it. In such cases, the legislation remains valid,
but a remedy for the unconstitutional action may be sought pursuant to s. 24(1)
of the Charter.
[18] Here, paragraph 12(1)(c)
of the Act is not being challenged. What is being challenged is a CCRA
policy, that is, the CCRA's administration of that paragraph. As stated by La Forest
J., in such cases the legislation remains valid and a remedy for the
unconstitutional action may be sought pursuant to subsection 24(1) of the Charter.
Thus an administrative policy cannot be declared invalid pursuant to subsection
52(1) of the Constitution Act, 1982.
[19] Subsection 24(1) of the Charter
reads as follows:
Enforcement
|
Enforcement
of guaranteed
rights and
freedoms
|
24. (1)
Anyone whose rights or freedoms, as guaranteed by this Charter, have been infringed
or denied may apply to a court of competent jurisdiction to obtain such
remedy as the court considers appropriate and just in the circumstances.
|
[20] In the respondent's view, this
Court does not have the jurisdiction to vacate an assessment on the basis of subsection
24(1) of the Charter, in the circumstances of this case. The appellant
argues that she is being discriminated against because she does not have the
benefit of the exemption from taxation that others have pursuant to a CCRA
policy. She accordingly seeks to have her assessment vacated on the ground that
it was improperly arrived at by the CCRA, not on account of its being
inconsistent with the provisions of the Act, but rather on the basis of its
unfairness. The respondent submits that the Federal Court of Appeal has found
it to be plain and obvious that this Court does not have jurisdiction to set
aside a valid assessment of tax on the basis of a challenge to the process by
which it was established, or how other taxpayers are treated. Counsel referred
to the cases of Main Rehabilitation Co. v. Canada, [2004] F.C.J.
No. 2030 (QL), 2004 FCA 403, leave to appeal to the Supreme Court of
Canada dismissed [2005] S.C.C.A. No. 37 (QL), and Sinclair v. The Queen,
2003 DTC 5624 (FCA), [2003] F.C.J. No. 1381 (QL).
[21] Counsel refers more
particularly to the Sinclair case, in which the Federal Court of Appeal
found that it is not open to this Court to vary an otherwise valid assessment
of tax on the ground that the taxpayer was not granted the favourable tax
treatment afforded to others. Sinclair was cited with approval in Main
Rehabilitation Co., supra, a decision in which the Federal Court of
Appeal stated at paragraph 8:
¶ 8 This is because what
is in issue in an appeal pursuant to section 169 is the validity of the
assessment and not the process by which it is established (see for instance the
Queen v. the Consumers' Gas Company Ltd. 87 D.T.C. 5008 (F.C.A.) at p. 5012).
Put another way, the question is not whether the CCRA officials exercised their
powers properly, but whether the amounts assessed can be shown to be properly
owing under the Act (Ludco Enterprises Ltd. v. R. [1996] 3 C.T.C. 74 (F.C.A.)
at p. 84).
[22] The respondent submits that the
appellant is proposing to extend the jurisdiction of this Court by seeking an
order varying her assessment of tax notwithstanding the fact that the
assessment is correct in fact and in law. The right of appeal is a substantive
right which must not be extended beyond the purpose for which it was conferred.
Parliament has given this Court specific jurisdiction to deal with the
correctness of a tax assessment and its remedial powers are set out in
subsection 171(1) of the Act.
[23] Counsel for the respondent
argues that this Court is not a court of competent jurisdiction empowered under
subsection 24(1) of the Charter to grant the remedy sought by the
appellant. He relies on the decision of the Supreme Court of Canada in Mills
v. The Queen, [1986] 1 S.C.R. 863, at 890, where Lamer J. identified
"a court of competent jurisdiction" under subsection 24(1) as being a
court that has (a) jurisdiction over the person, (b) jurisdiction over the
subject matter and (c) jurisdiction to grant the remedy.
[24] Here, this Court is lacking
jurisdiction over the subject matter, as it does not have the jurisdiction to
look at the assessment process to determine whether an assessment is valid or
not. This Court's jurisdiction is limited to a determination of whether the tax
assessment is well founded in fact and law pursuant to the provisions of the Act.
It cannot take into consideration how other taxpayers have been treated.
[25] Counsel for the respondent
submits that the appellant's request that this Court consider the actions of
CCRA officers as grounds for vacating the assessment is, in fact, a request for
judicial review of the administrative actions of the federal Crown. It is argued
that this Court does not have statutory jurisdiction for such a review. As
suggested by the Federal Court of Appeal in Sinclair, supra, at
paragraph 8, the appellant might seek a remedy before the Federal Court, but no
such remedy is available before this Court.
[26] The respondent further submits
that if this Court finds that it has the jurisdiction to vacate the assessment
on the basis that others have received differential treatment, then this
treatment does not constitute discrimination within the meaning of section 15
of the Charter.
[27] Section 15 of the Charter is
not intended to protect individuals from all types of differential treatment.
The application of section 15 is predicated on a finding of differential
treatment based either on either one or more enumerated personal characteristic
or on analogous grounds of discrimination recognized under section 15. Here,
the appellant compares her tax treatment to that of recipients of awards for
personal injury or death, retroactive workers' compensation, or awards for
wrongful dismissal, none of whom are taxed on pre-judgment interest. She claims
that the CCRA's failure to accord her the same tax exemption on her
pre-judgment interest amounts to differential treatment based on her gender. In
the respondent's view, this is an inappropriate comparison, as the appellant
and the comparator groups do not share the characteristics relevant to the
benefit being sought. Pre-judgment interest arising from personal injury or
death awards or from retroactive workers' compensation payments is not
considered taxable, irrespective of the recipient's gender. It is not
considered taxable because the principal amount from which such interest arises
is not taxable. The treatment of pre-judgment interest under the Act is therefore
based on source of income. The appellant's source of income from which the pre‑judgment
interest arises is employment income. By contrast, personal injury or death
awards, workers' compensation awards and wrongful dismissal awards are
considered different sources of income. The respondent suggests that the
appellant's proposed comparison fails because its basis, the source of income,
is not a personal characteristic recognized as a ground of discrimination under
section 15. A distinction among taxpayers drawn on the basis of source of
income is not drawn on any basis of discrimination proscribed by section 15 of
the Charter (see Kasvand v. Canada, [1994] F.C.J. No. 510 (QL)
(FCA), at paragraph 3).
[28] Additionally, in the
respondent's view there is no evidence that the application of paragraph 12(1)(c)
of the Act has an adverse differential impact on the appellant on the
basis of her gender. In this regard, counsel argues, it is not enough to show
that more women may be adversely affected by the application of this provision
than men; it must also be demonstrated that this provision has a qualitatively
different impact on the appellant than on the comparator groups because of her
gender (see Respondent's Written Submissions at paragraph 63, where reference
is made to the case of Thibaudeau v. M.N.R. (C.A.), [1994] 2 F.C. 189
(FCA)).
[29] Counsel for the respondent
concludes that paragraph 12(1)(c) of the Act and the CCRA's
policies regarding the application of this provision, are gender neutral and
that the appellant has not shown that paragraph 12(1)(c) is being differentially
applied by the CCRA on the basis of any personal characteristic, including
gender.
[30] Furthermore, the respondent
submits that should this Court find there has been a violation of section 15 of
the Charter, such violation is justified under section 1 of the Charter.
[31] Finally, counsel for the
respondent submits that the issue is no longer about the appellant's employer
maintaining wage gaps between female and male employees. The CCRA is not the
appellant's employer. The CCRA is charged with administering the Act and
in so doing it applied the provisions thereof to the pre-judgment interest
received by the appellant as a result of the order issued by the Tribunal. The
appellant alleges that to tax the interest portion of a remedy ordered by the Tribunal
is itself to compound and continue the discrimination that was found to exist by
the Tribunal. In Sveinson v. Canada (Attorney General) (C.A.), [2003] 4
F.C. 927 (FCA), at paragraph 17, Evans J.A. found that such an argument
"amounts, in effect, to a claim that legislation that does not rectify all
the indirect consequences of unlawful discrimination by an employer is itself
inconsistent with the [Canadian Human Rights Act]. In [his] opinion,
this is not the kind of inconsistency that requires otherwise valid legislation
to be rendered inoperative".
Analysis
[32] The appellant is not asking the
Court to vacate or vary the assessment on the grounds of its invalidity in
light of the Act, nor is it asking the Court to strike down paragraph
12(1)(c) of the Act as unconstitutional. The appellant is asking
this Court to vacate the assessment on the grounds that the Minister, by reason
of an administrative policy, does not enforce paragraph 12(1)(c) in the
case of pre‑judgment interest on awards with respect to workers'
compensation, wrongful dismissal, personal injury or death, yet chooses to
enforce it with respect to pre-judgment interest granted to a group whose
members have been found to be the victims of a human rights violation. The
appellant argues that under subsection 24(1) of the Charter this Court
has the power to grant that remedy.
[33] This Court has the power to
grant a remedy under subsection 24(1) of the Charter when it has
jurisdiction over the person, jurisdiction over the subject matter and jurisdiction
to grant the remedy (see Mills, supra, referred to by counsel for
the respondent).
[34] It was admitted that this Court
has jurisdiction over the appellant but it was disputed that this Court has either
jurisdiction over the subject matter or jurisdiction to grant the remedy
requested.
[35] This Court's jurisdiction is
limited by the Act and the Tax Court of Canada Act ("TCC
Act"). Section 12 of the TCC Act grants this Court exclusive
original jurisdiction over references and appeals arising under the Act.
The main right of appeal is set out in section 169 of the Act, where what
is in issue is the validity of the assessment and not the process by which it
is established. Indeed, I agree with the respondent that the case law
establishes that the right to appeal to this Court is limited to appealing the
tax due, and does not extend to the manner in which that amount was determined.
If the tax due is correctly calculated, in light of validly enacted provisions
of the Act, then the assessment must be upheld and the appeal dismissed
(see Canada v. Consumers' Gas Co., [1987] 2 F.C. 60 (FCA); Webster v.
Canada, [2003] F.C.J. No. 1569 (QL); Lassonde c. La Reine, 2005 CAF
323).
[36] Under subsection 171(1) of
the Act, the jurisdiction of this Court is therefore limited to a
determination of the correctness of an assessment. That subsection reads as
follows:
SECTION 171: Disposal of
Appeal.
(1) The Tax Court of Canada may dispose of an appeal by
(a) dismissing it; or
(b) allowing it and
(i) vacating the assessment,
(ii) varying the assessment,
or
(iii)
referring the assessment back to the Minister for reconsideration and
reassessment.
[37] Here, the appellant has
specifically limited her argument to a challenge of the process used by the
Minister to determine that the pre-judgment interest the appellant earned was taxable.
[38] In Sinclair v. Canada,
[2002] T.C.J. No. 388 (QL), aff'd [2003] F.C.J. No. 1381 (QL), [2003] FCA 348, where a similar Charter
challenge was made and the complaint concerned the CCRA's treatment of the
taxpayer, not the validity of the assessment under the Act, Judge Bowie of
this Court stated:
¶6 The decision of the
Federal Court of Appeal in Ludmer v. Canada [See Note 1 below] makes it clear that on an appeal
from an assessment to income tax, evidence is not admissible to show that other
taxpayers have been assessed more favourably in identical circumstances. The
Court there quoted with approval the following passages from the judgment of
Rothstein J., as he then was, in Hokhold v. Canada: [See Note 2 below]
__________________________________________________________
Note 1: [1995] 2 F.C. 3.
Note 2: [1993] 2 C.T.C.
99.
__________________________________________________________
The plaintiff's
concern seems to be that other taxpayers were treated differently than was he
by Revenue Canada. Whatever the reasons for Revenue Canada's
action in respect of other taxpayers, they are not relevant to the plaintiff's
situation. ...
...
... While it is
understandable that the plaintiff considers it unfair that Revenue Canada
appears to have treated taxpayers in similar circumstances differently, that
cannot be the basis for the plaintiff's appeal. The plaintiff is either
entitled on a reasonable interpretation of the words of ... the Act, to the
social assistance deduction or he is not. [See Note 3 below]
_________________________________________________________
Note 3: ibid. at p. 106.
_________________________________________________________
The Court of Appeal dismissed
the appeal from the decision of the Trial Division, struck out the offending
part of the notice of appeal, and noted in doing so the invidious consequences
that would flow from letting an issue proceed to trial that would inevitably
become an inquiry into the tax treatment of persons who were not parties to the
appeals before the Court.
[39] On appeal, Evans J.A. noted in
paragraphs 7 and 8 of his reasons:
¶ 7 In our view, it is
not open to the Tax Court to set aside a tax reassessment on the ground that
the taxpayer ought to have been given the same favourable treatment as others
who are similarly situated. The issue before the Tax Court in this case is
whether Ms. Sinclair is entitled to an exemption under section 87. This must be
decided on the basis of the interpretation of the section and its application
to her situation: that others are given the benefit of the exemption is simply
not relevant to Ms. Sinclair's appeal. See Hokhold v. Canada, [1993]
2 C.T.C. 99 (F.C.T.D.); Ludmer v. Canada, [1995] 2 F.C. 3 (C.A.);
Hawkes v. The Queen, [1997] 2 C.T.C. 5060 (F.C.A.). Apart from the allegation
that some similarly situated taxpayers receive more favourable treatment,
Ms. Sinclair does not suggest that section 87 is unconstitutional, either
as interpreted or as applied to her case.
¶ 8 If Ms. Sinclair
wishes to challenge the validity of the Guidelines issued by the Minister with
respect to the interpretation and application of section 87 on the ground that
they are contrary to section 15 by virtue of their under inclusiveness, she
might seek a declaration of invalidity in the Federal Court.
[40] In Main Rehabilitation Co., supra, a unanimous bench
reiterated at paragraphs 7 and 8:
¶ 7 . . . Courts have
consistently held that the actions of the CCRA cannot be taken into account in
an appeal against assessments.
¶ 8 This is because what
is in issue in an appeal pursuant to section 169 is the validity of the
assessment and not the process by which it is established (see for instance the
Queen v. the Consumers' Gas Company Ltd. 87 D.T.C. 5008 (F.C.A.) at p. 5012).
Put another way, the question is not whether the CCRA officials exercised their
powers properly, but whether the amounts assessed can be shown to be properly
owing under the Act (Ludco Enterprises Ltd. v. R. [1996] 3 C.T.C. 74 (F.C.A.)
at p. 84).
[41] Furthermore, the Federal Court
of Appeal in that case considered the argument that the decision in O'Neill
Motors, supra (referred to by the appellant in the present case)
"supports the proposition that an assessment can be vacated by the Tax
Court in an appeal pursuant to section 169 where it can be shown that the
process leading to the issuance of the assessment is tainted by the breach of a
Charter right" (see paragraph 11 of the judgment). The Federal Court of
Appeal in Main Rehabilitation Co., supra, did not accept that argument
and pointed out that the decision in O'Neill Motors Ltd. stood for the
proposition that an assessment may be vacated because of a lack of evidence to
support the Minister's assumptions, not on the basis of the actions of the
CCRA. The Federal Court of Appeal said at paragraph 13:
¶ 13 . . . O'Neil [sic]
merely stands for the proposition that an assessment may be vacated in an
appeal pursuant to section 169 if it is not supported by reason of the
exclusion of the evidence which led to its issuance.
[42] As stated in Main
Rehabilitation Co., supra, at paragraph 15, there is a well‑established
line of cases confirming the limited jurisdiction of this Court. O'Neill
Motors Ltd., supra, must therefore be seen as authority only
for the principle that this Court can use section 24 of the Charter when
it is a court of competent jurisdiction (i.e., where it has jurisdiction over
the person, jurisdiction over the subject matter and jurisdiction to grant the
remedy), but not for the principle that it has jurisdiction over the actions of
the CCRA. As a matter of fact, in O'Neill Motors Ltd., both Judge Bowman
of this Court (as he then was) and Linden J.A. of the Federal Court of
Appeal cautioned that careful consideration is required before granting a
section 24 remedy.
[43] Furthermore, the appellant also
relied on Campbell, supra, where Hershfield J. of this Court, in
turn relying on O'Neill Motors, supra, stated that the Federal
Court of Appeal had acknowledged the general authority given to this Court by
subsection 24(1) of the Charter to grant such remedies as it considers
appropriate and just. Hershfield J. concluded, at paragraph 27, that it was
"clear that this Court has jurisdiction to hear Charter questions
respecting impugned provisions of the ITA or Regulations or the
manner in which an impugned provision has been applied . . . and the remedy
available is that governed by the Charter". Although the Federal Court of
Appeal recently reversed Judge Hershfield's decision in Campbell, supra,
Evans J.A. in writing for a unanimous panel stated at paragraph 23 that:
On the other hand,
it is clear in light of Nova Scotia (Workers' Compensation Board) v. Martin, [2003] 2 S.C.R. 504, that, pursuant to subsection
52(1) of the Charter, the Tax Court has jurisdiction to decide Charter
challenges to the validity of a provision of the ITA or its application
to particular facts, or of administrative action purportedly taken pursuant to
it, when necessary to dispose of an appeal otherwise within its jurisdiction.
It is my opinion that when Evans J.A.
refers to this Court's jurisdiction to decide Charter challenges to the
validity of "administration action purportedly taken pursuant to [a
provision of the Act]", this does not include the process by which
the assessment was established or whether or not CCRA officials properly
exercised their powers. This is what Evans J.A. himself inferred in Sinclair,
supra, and what the Federal Court of Appeal held in Main
Rehabilitation Co., supra, where it explained the position it took in
O'Neill Motors Ltd., supra. Since leave to appeal to the Supreme
Court of Canada in Main Rehabilitation Co., supra, was dismissed,
it therefore states the law as it is now, on this specific point.
[44] The present appeal is aimed at
the Minister's policy of exempting certain pre-judgment interest from taxation,
while not offering a similar exemption for the pre-judgment interest on a pay
equity award. This is an attack on the process behind an otherwise valid
assessment. No provisions of the Act were challenged and the only
subject matter of this appeal is the conduct and policies of the Minister. These
matters are not within the jurisdiction of this Court, which does not have
jurisdiction over the subject matter of the appeal. Accordingly, this Court
cannot grant a subsection 24(1) remedy in this case for a violation of section
15 of the Charter committed by the Minister in his administrative
capacity as tax collector.
[45] This conclusion spares me the
necessity of saying anything more in order to dispose of this appeal. However,
I will add a few comments with respect to the Charter argument. The
appellant's complaint regarding the taxation of her pre-judgment interest
pursuant to paragraph 12(1)(c) of the Act was that other
taxpayers were not being taxed under this provision. The Act clearly
does not exempt pre‑judgment interest from tax. In Ludco Enterprises
Ltd. v. R., [1996] 3 C.T.C. 74 (FCA), in writing about the duty of
fairness, the Minister's duty to follow his own policies and the question of
treating taxpayers in similar situations in a uniform manner, the Federal Court
of Appeal stated at page 84:
. . . Neither the Minister of
National Revenue or [sic] his employees have any discretion whatever in
the way in which they must apply the Income Tax Act. They are required
to follow it absolutely, just as taxpayers are also required to obey it as it
stands. The institution of Commissioners equipped with broad powers and an
extensive discretion to deal with particular cases does not exist here. Accordingly,
it is not possible to judge their actions by varying and flexible criteria such
as those required by the rules of natural justice. In determining whether their
decisions are valid the question is not whether they exercised their powers
properly or wrongfully, but whether they acted as the law governing them
required them to act.
[46] In the appellant's case, the
Minister did act as required by the Act. Any differential treatment that
occurs between taxpayers does not result from a formal distinction in the Act,
but stems rather from the Minister's enforcement of the Act. The
appellant says that she should be afforded the benefit of the same tax
exemption on her pre‑judgment interest as that given to those who receive
other kinds of awards. If there is discrimination here, the proper remedy would
be to force the Minister to enforce the Act according to its literal
meaning. It is certainly not a proper remedy to exempt the pre-judgment
interest received by the appellant, as that would be contrary to the provisions
of the Act.
[47] Finally, it was argued by the
appellant that, as a woman who had received a pay equity award as a victim of prohibited
discrimination, she was already a disadvantaged member of Canadian society. She
suggested that the decision to tax the pre-judgment interest in her case directly
undermined the remedy provided by the Tribunal. I agree with the respondent
that the discrimination and violation of the appellant's rights was remedied by
the Tribunal pursuant to section 11 of the Charter. The case before me
however, deals with the tax treatment under the Act of pre-judgment
interest received on a pay equity award. As stated by Evans J.A. in Sveinson,
supra, at paragraph 17, "this is not the kind of inconsistency that
requires otherwise valid legislation to be rendered inoperative". I would
also add that the final consent order issued by the Tribunal on November 16,
1999, implemented the terms of the agreement between the Public Service
Alliance of Canada ("PSAC") and Treasury Board. As both parties to
that consent order knew that pre‑judgment interest is taxable under the Act,
it was open to them to negotiate another form of settlement, such as damages. Having
agreed to a settlement including pre-judgment interest, the PSAC must be taken
to have accepted the fact that such interest was taxable under the Act.
[48] I therefore conclude that the
appellant cannot succeed in her request to have the assessment varied by the application
of subsection 24(1) of the Charter on the grounds that the taxation of
pre-judgment interest offended against the Charter.
[49] As the inclusion in income of
the pre-judgment interest was done in accordance with paragraph 12(1)(c)
of the Act, the assessment is therefore valid.
[50] The
appeal is dismissed with costs.
Signed at Ottawa,
Canada, this 15th day of December 2005.
"Lucie Lamarre"
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