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Citation: 2004TCC510
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Date: 20040729
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Docket: 2003-3756(IT)G
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BETWEEN:
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MAUREEN COULTER,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR ORDER
Little J.
A. Statement of
Facts:
[1] The Appellant, a Registered Nurse,
was employed by the Queen Elizabeth II Health Science Centre
(the "Employer") in Halifax, Nova Scotia.
[2] In 1992 the Appellant became
disabled due to an environment illness as a result of toxins in
the Hospital operated by the Employer.
[3] From 1992 to 2001 the Employer
made a total of $132,914.31 in payments to the Appellant. The
payments are referred to in the Notice of Appeal as 'Advances
on Worker's Compensation payments'.
[4] The various 'Advances on
Worker's Compensation payments' were reported as income
by the Appellant in each of the 1992 to 2001 taxation years.
income taxes, CPP and EI were deducted and withheld by the
Employer.
[5] In 2001 the Appellant settled her
worker's compensation claim and received $136,812.19 from the
Worker's Compensation Board of Nova Scotia (the
"Board"). Of this amount $132,914.31 was paid by the
Board directly to the Employer as a repayment of the
'Advances on Worker's Compensation payments' paid to
the Appellant from 1992 to 2001.
[6] On July 9, 2002 the Minister of
National Revenue (the "Minister") issued a Notice of
Assessment for the 2001 taxation year. In the Assessment the
amount of $132,914.31 was included in income for the 2001
taxation year.
[7] On August 7, 2002 a Request was
filed by the Appellant with the Canada Revenue Agency
("CRA") under the Fairness legislation. No written
response has been received by the Appellant to this request.
[8] A Notice of Objection was filed by
the Appellant to the Notice of Assessment issued for the 2001
taxation year.
[9] On July 28, 2003 a Notice of
Reassessment for the 2001 taxation year was issued by the
Minister. In the Notice of Reassessment all payments received
from the Board were included in the Appellant's income under
paragraph 56(1)(v) of the Act and deducted
under paragraph 110(1)(f) of the Act.
[10] A further Notice of Objection was filed
by the Appellant.
[11] The Appellant maintains that since the
settlement that she made with the Board was not taxable, the
'Advances on Worker's Compensation payments' that she
received from 1992 to 2001 - which were intended to be advances
on her non-taxable settlement - should not be taxable
either. The Appellant relies on the CRA Information Bulletin
IT-202R2 (and other policy statements) as support for her
position, and notes that most of the settlement that she received
from the Board in 2001 was paid directly by the Board to the
Employer as a reimbursement of the Advances that were paid from
1992 to 2000.
[12] The Respondent argues that no Notices
of Objection were filed with respect to the Notices of
Assessment/Reassessment issued for the 1992 to 2000 taxation
years.
[13] The Respondent maintains that the
Notices of Assessment/Reassessment issued for the 1992 to 2000
taxation years are therefore not properly before the Court.
[14] With respect to the Appellant's
2001 taxation year, the Respondent argues that although a valid
Notice of Objection was filed by the Appellant within the
prescribed time limit, a nil assessment cannot be objected
to.
[15] On January 14, 2004 the Respondent
filed an Amended Notice of Motion. In the Amended Notice of
Motion, Counsel for the Respondent stated as follows:
1. with respect to the
1992, 1993, 1994, 1995, 1996, 1997, 1998, 1999 and 2000 taxation
years, the Appellant has not filed a Notice of Objection pursuant
to section 165 of the Income Tax Act, R.S.C. 1985, c. 1
(5th Supp.), as amended (the "Act"), and
therefore has not met a condition set out in section 169 of the
Act; and
2. with respect to the
Appellant's 2001 taxation year, that the assessment is a nil
assessment and therefore the Appellant is not appealing with
respect to an assessment of tax, interest or penalties pursuant
to subsection 169(1) of the Act.
B. ISSUE
[15] Should the Amended Notice of Motion
filed by counsel for the Respondent be granted?
C. ANALYSIS:
[16] Under the provisions of the Income
Tax Act (the "Act") a taxpayer cannot file
Notices of Objection to the 1992 - 2000 taxation years after the
period specified in the Act for filing Notices of
Objection. New St. James Ltd. v. M.N.R., 66 DTC 5241
stands for the proposition that a loss incurred in a statute
barred year can be recalculated for the purpose of reassessing a
non-statute barred year. However, that court decision will not
permit the Appellant in this case to open up prior years for
which no valid Notice of Objection was filed.
[17] I must next consider whether the
Appellant can file a Notice of Objection to the Notice of
Reassessment issued on July 28, 2003 for the 2001 taxation year.
The courts have held that there is no right of appeal from a nil
assessment.
[18] I have concluded that the Notice of
Motion that was filed by the Respondent should be granted.
[19] Before concluding my remarks I would
like to re-examine the Appellant's tax position with respect
to the Advances that were paid by the Board.
[20] Subsection 23(2) of the Financial
Administration Act provides that the Governor-in-Council may
refund taxes paid where the Minister considers that the
collection of the tax was unreasonable or unjust or that it is
otherwise in the public interest to remit the tax or penalty.
Remission Orders can be applied for by writing to the
taxpayer's District Taxation Office. If granted, the
Remission Orders are issued on the recommendation of the
Minister. The Order is approved by a committee of Cabinet through
an Order-in-Council and is published in The Canada
Gazette.
[21] The Appellant's argument is that
the 'Advances on Worker's Compensation payments'
should not have been taxed, since they were simply an advance or
a loan that was repayable out of her eventual non-taxable
Worker's Compensation Board settlement. The Appellant points
out that almost all of her settlement went directly to the
Employer to repay the amounts she was advanced. The Appellant
also notes that if she had received the settlement at the time of
her disability (i.e. 1992) she would have received the full
amount tax-free.
[22] There are a number of administrative
policy statements issued by the CRA that would tend to support
the Appellant's argument. Paragraph 7 of Interpretation
Bulletin IT-202R2 - Employees' or Workers'
Compensation states:
7. Where it
can be established that an employee received a loan or advance
from his or her employer which is to be repaid from future
payments of compensation, the loan or advance constitutes neither
income to the employee nor deductible expense to the employer.
However, when the compensation is paid and is received by the
employee, it will be treated in accordance with 3 and 5 above.
The amount received by the employer from or on behalf of the
employee in repayment of the loan or advance will not constitute
income to the employer.
In a Revenue Canada notice issued on September 9, 1999 and
reproduced in the 17th and 18th editions of the Practitioners
Income Tax Act, the following comment is found:
WCB advances (loans)
An employer will still be allowed to make an advance or loan
to an employee while waiting for a decision on a claim, and we
will not consider this amount to be employment income.
[23] Therefore, if the 'Advances on
Worker's Compensation payments' were a loan or advance to
the Appellant from her employer, income taxes, CPP and EI should
not have been deducted or withheld. It should also be noted that
irrespective of CRA policy on this issue, under general income
tax principles loan proceeds are not considered income, and loans
are not taxable under section 3 of the Act.
[24] In The Queen v. Whitney the
following comments are found:
(...) an amount is not within the scope of paragraph
56(1)(v) and subparagraph 110(1)(f)(ii) unless it
is paid in accordance with a workers' compensation law. A
payment made under a contractual arrangement, even one that
includes an extra-statutory adjudication by a workers'
compensation board or commission, is outside the scope of those
provisions. To the extent that IT-202R2 is inconsistent with this
interpretation, it is wrong in law.
The Queen v. Whitney, [2002] F.C.J. No. 948, 2002 FCA
266. See also Suchon v. Canada, [2002] F.C.J. No. 972,
2002 FCA 282.
[25] In other words, based on the above
decisions, only amounts received by an injured employee directly
from a provincial Worker's Compensation Board are included in
income under paragraph 56(1)(v) and deductible under
paragraph 110(1)(f) (i.e. tax free). Furthermore, it
is important to note that the settlement amount that the
Appellant eventually received from the Worker's Compensation
Board in 2001 was deducted from her income under
paragraph 110(1)(f). As a result, the settlement was
not included in her income for the 2001 taxation year.
CONCLUSION:
[26] The issue in this case is the proper
characterization of the 'Advances on Worker's
Compensation payments' the Appellant received from 1992 to
2000. If those payments are characterized as income they
are taxable under section 5 or paragraph 6(1)(a), and the
Appellant should not be entitled to succeed (i.e. obtain a
Remission Order) since the 'Advances on Worker's
Compensation payments' were not paid "... in accordance
with a workers' compensation law", and since she has
already deducted the Worker's Compensation settlement she
received in 2001 under paragraph 110(1)(f) she should not
be entitled to a second deduction under paragraph
110(1)(f).
[27] However, if the 'Advances on
Worker's Compensation payments' are properly
characterized as loan proceeds, then they were not taxable
under section 5 or paragraph 6(1)(a) to begin with, and
the Appellant's employer should not have deducted and
withheld taxes on those amounts. If that is in fact the case,
this would appear to be a case where a Remission Order should be
granted.
[28] The cases referred to above
(Whitney and Suchon) both dealt with amounts that
were paid under a collective agreement or a disability plan and
were clearly caught by section 5 as income. There was no
obligation on the taxpayers to pay the amounts back once a
settlement was received. The issue before the Court in those
cases was whether the amounts were deductible under paragraph
110(1)(f) notwithstanding that they were not paid under a
workers' compensation law. On the other hand, the issue in
the present case is whether the amounts (i.e. the 'Advances
on Worker's Compensation payments') are really loan
proceeds as opposed to income, and therefore not taxable to the
Appellant at all.
[29] It appears that the amounts received by
the Appellant from the 1992 to 2000 taxation years were
non-taxable loan proceeds.
[30] In determining whether a Remission
Order should be issued the Minister considers the following
guidelines:
(a) extreme hardship;
(b) incorrect departmental action or advice that
leads directly to additional tax;
(c) other factors such as
- conditions beyond the client's control
- client errors that the Department should reasonably have
caught.
[31] Based on the two documents submitted
into evidence (Exhibits A-1 and A-2) there is evidence of
conditions beyond the client's control as well as an error
(i.e. the error of the Employer withholding and remitting tax,
CPP and EI). Furthermore this type of error is the type of error
that should have been picked up by officials of the CRA.
[32] Under the unusual and unfortunate
circumstances that are referred to above this may be a case where
the Minister should issue a Remission Order under the
Financial Administration Act.
Signed at Vancouver, British Columbia, this 29th day of July
2004.
Little J.
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