Citation: 2010 TCC 520
Date: 20101015
Docket: 2010-766(IT)I
BETWEEN:
JEFFREY SYRYDIUK,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
McArthur J.
[1]
This appeal is from an
assessment of the Minister of National Revenue adding the sum of $14,971 to the
Appellant’s taxable income for the years 2005 & 2006.
[2]
The issue boils down to
whether the Appellant received a taxable benefit in the form of insurance
premiums for disability insurance paid by his employer Vitaid Ltd. (Vitaid) during
the years under appeal.
[3]
The position of the
Appellant includes: the disability insurance policy was purchased for the benefit
of the employer; in the alternative, the insurance policy was part of the
employer’s group sickness or accident insurance plan and therefore exempt pursuant
to subparagraph 6(1)(a)(i); and finally Vitaid misled the taxpayer on
the tax consequences of the insurance and therefore should be held liable for
the tax payable.
[4]
The Respondent submits
that the premiums on the disability insurance paid by the taxpayer’s employer
are a taxable benefit under paragraph 6(1)(a) and are not exempt under
subparagraph 6(1)(a)(i). The benefit of the disability insurance was to
the taxpayer and any advantage to the employer was incidental; “group
insurance” should be defined based on insurance legislation and the taxpayer’s
policy does not fit that definition; misunderstanding of tax consequences does
not exempt from tax owing.
[5]
For the most part, the
facts are not in dispute. An edited version of the assumption of facts with my
commentary follows.
[6]
The Appellant was
employed by Vitaid during the years under appeal, 2005 and 2006. The Appellant
reported annual income of approximately $205,000 to $225,000. Vitaid paid
premiums for the Appellant’s personal disability and critical illness insurance
policies. I believe Vitaid paid the premiums for three key man insurance
policies.
[7]
The Minister denies the
Appellant’s submissions that these were group policies or Vitaid’s standard
sickness or accident insurance policies.
[8]
The Appellant claims
that the payment of premiums and resulting insurance coverage was made for
Vitaid’s benefit. He states the following in his Notice of Appeal:
Mr. Syrydiuk ought not to be responsible in equity for the
unreported taxes for the 2005 and 2006 taxation years as they were the result
of a situation unnecessarily created by and for the benefit of Vitaid Ltd.
without Mr. Syrydiuk’s knowledge, consent or control.
Although writing in the third person, the
Appellant added:
Clearly these policies were issued by and for the benefit of Vitaid
Ltd. The annual cost of the premiums for these policies was more than $30,000
of which the disability policy alone was over $14,000. In November 2002, Mr.
Syrydiuk could not afford to purchase, or even accept, any of these policies if
there were any associated costs to himself given his tenuous personal and
financial situation and lack of a formal relationship with Vitaid.
Vitaid also deliberately withheld information regarding the personal
taxable benefit it had created for Mr. Syrydiuk and of their failure to
increase his income accordingly when they chose to omit reporting these tax
benefits in preparing Mr. Syrydiuk’s T4 forms for 2005 & 2006 as required
by law. These negligent actions by Vitaid again prevented Mr. Syrydiuk from
being alerted to this impropriety or any recourse. It should be noted that
excluding matters related to the disability policy, Mr. Syrydiuk was properly
alerted to each and every other taxable benefit added to his compensation
during his tenure with Vitaid (Exhibits 5 &6). This anomaly supports that
Vitaid knowingly and deliberately withheld information in this matter creating
an unfair situation with Mr. Syrydiuk outside of his control.
Mr. Syrydiuk should not be held liable for outstanding taxes,
interest or penalties as ignorance of the facts that give rise to a tax
liability is not the same is ignorance of the law.
. . . Vitaid had an obligation to declare, withhold and remit all
taxes related to this assessment and should be directed by the Court to do so.
In addition, Revenue Canada could have resolved this issue immediately upon discovering the
unreported employee tax benefit during the Vitaid Ltd. audit by denying
Vitaid’s claim and requiring that Vitaid to pay any outstanding taxes, interest
and penalties. This action would have prevented unfairly involving Mr. Syrydiuk
into a situation outside his knowledge or control and causing him undue
hardship and unnecessary costs for the past year.
Vitaid was fully aware of its tax obligations they created with the disability
policy by naming Mr. Syrydiuk as the Owner. This was confirmed to Mr. Syrydiuk
on July 20, 2009 in his conversation with Kent Wooton of Worthington Financial,
the insurance agent who sold the policies to Mr. Steward/Vitaid in 2002.
It obviously was a complete surprise when Mr. Syrydiuk was contacted
by the Revenue Canada Audit Department on January 8, 2009 (Exhibit 3); a full
six years after the policies were issued. This was the first time that Mr.
Syrydiuk was ever alerted to the possibility of personal benefit derived from
any of the key man insurance policies purchased by Vitaid in 2002. From the
onset Mr. Syrydiuk always understood that these policies to be for the benefit
of Vitaid and that these specific policies would not give rise to a taxable
benefit for himself. This understanding was further supported by the
following:…
[9]
The Appellant’s
submissions included the following; Vitaid received a benefit from purchasing
insurance for the Appellant, as well as two key employees. Mr. Syrydiuk refers
to the testimony of Mr. Wooton, the insurance agent, who stated that Vitaid
purchased insurance to protect itself. The Appellant relied on Rachfalowski
v. The Queen
for the assertion that if the primary benefit falls to the employer, it should
not be a taxable benefit to the employee. In Rachfalowski, the Tax Court
of Canada found that the benefit of the golf club membership was to the
employer and therefore, it was not a taxable benefit to the employee.
[10]
He relies on the Canada
Revenue Agency Interpretation Bulletin and Information Circular to support his
position that it is possible for individual insurance policies owned by
employees to be combined to form a common plan. He also relies on Meyer v.
The Queen,
where the taxpayer was the only employee involved in a group plan.
[11]
He argues that since
Vitaid created this tax liability without his knowledge or consent, it should
be directed to pay it.
[12]
The Respondent relies in
part on the test set out by the Supreme Court of Canada in The Queen v. Savage (as quoted in Schroter v. Canada):
In The Queen v. Savage, [1983] 2 S.C.R. 428,
the Supreme Court held the meaning of the phrase “benefits of any kind
whatsoever” in paragraph 6(1)(a) was “clearly quite broad” and the
phrase “in respect of” was intended to convey the widest possible scope.
The paragraph was held to take into income a material acquisition which
conferred an economic benefit, so long as the acquisition did not fall within
one of the exceptions, and so long as the acquisition was received in
connection with employment.
[13]
Further, if there was a
benefit to the employer in purchasing insurance for the taxpayer, it was only
incidental. The primary benefit of this insurance policy accrued to the
taxpayer.
[14]
With respect to the
position that it was not a group policy, the Minister relies on the following
exert from Plumb v. The Minister of National Revenue:
I am of the view that the words “group insurance” have an ordinary
and popular meaning which involves a contract that provides for the insurance
of a number of persons individually. A typical example is a contract between an
insurer and an employer providing for the insurance of employees of the
employer.
[15]
Counsel submits the
following definition from the Carswell textbook on insurance law should be
applied in deciding whether the policy in question qualifies as “group sickness
or accident insurance plan” under subsection 6(1)(a)(i):
“Group insurance” means insurance, other than creditor’s group
insurance and family insurance, by which the lives of a number of persons are
insured severally under a single contract between an insurer and an employer or
other person.
Legislation
Income Tax Act
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
amount as are applicable
Value of benefits
(a) the value of board, lodging or 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 or group term life insurance policy.
Analysis
[16]
The Appellant’s first
submission, taken from his reasons for appeal, is one of equity. He states he
should “not be responsible in equity for the unreported taxes”. He continues at
length to argue that his additional tax was created by Vitaid without his
knowledge and therefore Vitaid should be responsible for the tax. Clearly, this
Court does not have jurisdiction to exempt a taxpayer from liability on
equitable grounds. The Tax Court is created by the Federal Legislation. While
the Income Tax Act legislation can and is interpreted in a fair and
equitably manner, the Court cannot change the law. That is the prerogative of
Parliament. (Grimard v. The Queen.)
[17]
The meaning of “benefit
of whatever kind” in paragraph 6(1)(a) is to be interpreted
broadly.
Benefits are not restricted to one’s employment salary. In Hoefele (Indexed
as Krull v. Canada)
the Federal Court of Appeal found that an interest subsidy provided by the
employer for its employee’s mortgage did not increase the taxpayer’s equity in
his or her home and therefore was not a benefit. Presently, the policy premiums
did not increase the Appellant’s net worth but obviously he would benefit in
the event of personal disability or critical illness. His wife Alexandra was
named the beneficiary in the disability policy. The Appellant signed his approval
to these policies prior to their issuance. Thus from a contractual viewpoint,
it was the Appellant’s policy. Bowman J. in Rachfalowski found that a
golf membership was primarily for the benefit of the employer who insisted that
his employee accept it. In our instance while Mr. Syrydiuk was not aware that
the premiums would be taxable to him, he was aware of the benefit that would
flow to him in the event of his illness or accident. I have no doubt that a
reasonable man or woman on the street would not hesitate in finding these large
premiums a personal benefit to the taxpayer. There is insufficient evidence to
conclude that Vitaid benefited more than the Appellant and I am not satisfied
that would have affected this decision.
[18]
The reasons for the
decision in Mindszenthy v. R
apply equally to Mr. Syrydiuk. In Mindszenthy the appellant bought an
imitation Rolex watch for a business presentation. The employer found out and presented
the appellant with a genuine Rolex watch. The Tax Court of Canada found the
appellant received the watch in his capacity as an employee thus making it a
taxable benefit under subsection 6(1)(a). Bowman C.J. wrote:
He [taxpayer] accepted the gift in good faith without being aware of
the tax consequences. Had he known that it carried a tax burden, he might have
refused to accept it. Instead of being a clear benefit, it gave rise to
liability and, as an economic matter, it forced him to pay in taxes a great
deal more than he would have paid for a watch in the first place.
[19]
I now turn to whether
the policy in issue is exempt from taxation under subparagraph 6(1)(a)(i)
which exempts a “group sickness or accident insurance plan”. In Meyer the
issue was whether a sickness and accident insurance plan provided by the employer
qualified as a group sickness and accident insurance plan even though the employer
had only one employee. The Court concluded that even if it could find that the
employer had a sickness and accident plan, it nevertheless could not qualify as
a “group”.
[20]
The following writing
of Cattanach J. in Plumb applies equally to this appeal.
I am of the view that the words “group insurance” have an ordinary
and popular meaning which involves a contract that provides for the insurance
of a number of persons individually. A typical example is a contract between an
insurer and an employer providing for the insurance of employees of the
employer.
The Appellant’s policy does not fit this
description. Mr. Syrydiuk’s policy was designed for him alone; it was not
created to cover a group. I do not accept that one person’s single policy can
meet the definition of “group policy” since “group” is defined in the Canadian
Oxford Dictionary 2005 as “a number of persons or things located or considered
together.” The Appellant’s policy was not considered together with a number of
persons or things. It was not a group policy within the ordinary meaning of the
word.
[21]
The Appellant further
submitted in his second argument that Vitaid did not increase his income to
cover the taxable benefit and it may have hidden this fact from the Appellant
and the Canada Revenue Agency. Again, this is an issue between the Appellant
and Vitaid. If, as stated by the Appellant, Vitaid’s actions have substantially
reduced his compensation, then his recourse is against his former employer.
[22]
The Appellant was a
contracting party in the insurance policy with Maritime Life. He and his wife
were the named beneficiaries. He, and not Vitaid, executed the policy. There
was privacy of contract between the Appellant and Maritme Life and Vitaid was
not a party to it. The evidence does not support the Appellant’s submissions
that it was Vitaid’s policy and for Vitaid’s benefit. The appeal is dismissed.
Signed at Ottawa, Canada, this
15th day of October 2010.
“C.H. McArthur”
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