Citation: 2003TCC97
Date: 20030228
Docket: 2001-1121(IT)I
BETWEEN:
RENÉ THÉBERGE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Archambault, J.T.C.C.
[1] René Théberge has appealed from an assessment by the Minister of National Revenue (the Minister) concerning the 1997 taxation year. The Minister included additional employment income in the amount of $7,214 in Mr. Théberge's income. Mr. Théberge has argued that this amount constitutes non-taxable compensation for the period during which he was on sick leave because of a work accident. The Minister has argued that this amount constitutes wages that were paid by Mr. Théberge's employer and formed part of Mr. Théberge's employment income during the 1997 taxation year.
Facts
[2] Mr. Théberge has worked for the city of Montréal for 25 years. In 1997, the taxation year at issue, he was a parking officer. On September 9, 1997, after being given a ticket by Mr. Théberge, a citizen chased him in his car, while driving in a dangerous manner, then got out of the car, shook his fists at Mr. Théberge, and threatened to kill him.
[3] A few days later, on September 23, 1997, Mr. Théberge went on sick leave. He testified that he suffered a nervous breakdown that kept him off work until February 1998. After a brief return to work, he went on sick leave once again, from March to August 1998.
[4] Under the collective agreement governing the conditions of his employment, Mr. Théberge was entitled to receive an amount equal to the net wages, at straight time, he would have received if he had remained at work. More specifically, clauses 25.01 and 25.02 of this collective agreement stipulate as follows:
[TRANSLATION]
25.01 (a) In case of injury or disease resulting from the performance of the employee's duties, the employee shall receive an amount equal to the net wages, at straight time, the employee would have received had that person remained at work. However, the employee shall repay the employer any amount of money the employee receives as wage compensation under Quebec's Automobile Insurance Act or its accompanying regulations. Similarly, the employee shall repay the employer any amount of money the employee receives as wage compensation under Quebec's Workers' Compensation Act or its accompanying regulations.
(b) In all other cases, Quebec's Act respecting industrial accidents and occupational diseases (R.S.Q., c. A-3.001), as amended, shall be applicable.
25.02 For the purposes of interpreting this article, the amount of the net wages, at straight time, shall be equal to the compensation payable under Quebec's Workers' Compensation Act, increased by an amount sufficient to maintain the net wages, excluding any bonuses except the bonus provided for in clause G-8.01 and after deductions for the regular contributions to the employer's supplementary pension plan, income tax, and the public plans applicable to this amount. The related calculations shall be made on an annual basis.
[Emphasis added.]
[5] According to an analysis of the paycheque stubs adduced as Exhibit A-2, in Mr. Théberge's case, after September 26, 1997, the city of Montréal continued to calculate gross wages of $1,412.69, the same amount it calculated for him starting with the pay period ending on May 23, 1997, to the pay period ending on September 26, 1997. In other words, aside from the fact that there was no overtime pay (since Mr. Théberge did not work overtime) and that the pay stopped after the pay period ending on December 19, 1997, no change was made to the way Mr. Théberge was paid while he was on sick leave. Starting with the pay period ending on January 2, 1998, the paycheque stubs bear the following notation: "abs. mal." ("absence de maladie", or sick leave). According to my calculations, the gross pay for the period from September 23 to December 31, 1997 (the 1997 sick leave period) is $9,041.
[6] Following the September 9, 1997, incident, on October 23, 1997, the city of Montréal sent Quebec's Commission de la santé et de la sécurité du travail (the CSST) a notice of accident and an application for repayment for the first 10 days of Mr. Théberge's sick leave for $961.50, equivalent to 90 per cent of his net wages.[1] On November 5, 1997, the CSST informed Mr. Théberge of its decision to disallow the application for benefits concerning him, on the ground that the harm suffered and the September 9, 1997, incident were unrelated. Mr. Théberge was also informed that he would be asked to repay the amount of $961.50 paid by his employer [TRANSLATION] "for the compulsory period of the first 14 days, from September 23 to October 6, 1997".[2] Mr. Théberge then asked the CSST to review its decision.
[7] In her testimony, Linda Coulombe, the representative of the city of Montréal's pay and benefits department, confirmed that the city guaranteed its employees, during leave taken because of occupational diseases or industrial accidents, 100 per cent of their net wages, until the CSST had made a determination on entitlement to disability benefits. If the CSST denied all liability, particularly because the harm did not result from the performance of the employee's duties, the disability benefits would be paid under the disability
insurance plan[3] managed[4] by London Life.
[8] After the CSST disallowed the application for benefits, the city of Montréal stopped making any payments to Mr. Théberge (as indicated above),[5] and the disability insurance plan paid him disability benefits. Under the disability insurance plan, he was entitled to receive 70 per cent of his gross wages. Although the city of Montréal continued to pay Mr. Théberge's wages until mid-December 1997, in 1997 London Life apparently paid him disability benefits for the entire 1997 sick leave period, in the amount of $7,310.69; this amount was included in Mr. Théberge's income for the 1997 taxation year.[6] According to Mr. Théberge and Ms. Coulombe, if the CSST rightly decided that Mr. Théberge was not entitled to disability benefits, he would have had to repay a certain amount to his employer. Since the above-mentioned clauses of the collective agreement deal only with industrial accidents and the relevant contract clause governing disability leave not resulting from [TRANSLATION] "the performance of the employee's duties" was not adduced in evidence, it is not possible to accurately determine the extent of this obligation on the part of Mr. Théberge.[7]
[9] According to the T4 slip issued by the city of Montréal, Mr. Théberge's employment income during the 1997 taxation year was $42,567.17. This amount was calculated by taking Mr. Théberge's total pay for the period from January 1 to December 19, 1997, in the amount of $43,373.56, by adding a taxable benefit in the amount of $159, and by deducting a repayment received by the city of Montréal from the CSST in the amount of $961.50. Mr. Théberge filed an income tax return only on January 18, 2000, declaring employment income in the amount of $35,353,[8] which he stated[9] was equal to the wages earned from January 1 to September 26, 1997.
[10] As in his 16 other applications to the CSST for disability benefits, Mr. Théberge won his case: on April 9, 2002, the CSST reached a decision acknowledging that Mr. Théberge suffered from post-traumatic stress syndrome following the September 9, 1997, incident. Following that decision, in 2002, the CSST repaid the city of Montréal the wage replacement paid for the period from October 7 to December 31, 1997, in the amount of $6,628.88 with respect to the 1997 taxation year. This amount plus the compensation paid for the period from September 23 to October 6, 1997, in the amount of $961.50 comes to $7,590.38.[10] The amount of the benefits paid by the CSST was calculated on the basis of gross insurable earnings of $43,718.25 (including the overtime pay during the period at issue) and Mr. Théberge's family situation: he had two dependants, including his spouse.
[11] On the date of the hearing, Mr. Théberge had not yet repaid the compensation received from London Life in the amount of $7,310.69. However, since the CSST acknowledged his entitlement to disability benefits, Mr. Théberge expects to receive a request for repayment from London Life.
Positions of the Parties
[12] The parties have agreed that, although under paragraph 56(1)(v) of the Income Tax Act (the Act)[11] the disability benefits paid by the CSST must be included in a taxpayer's income, these benefits are not taxable since an equivalent amount was deducted in computing taxable income under subparagraph 110(1)(f) of the Act.[12] However, the disability benefits received under London Life's disability insurance plan are taxable.
[13] Mr. Théberge's position is not very clear. He appears to have argued that the amounts paid by the city of Montréal pending the final decision by the CSST should be treated as some kind of advance on benefits paid by the CSST and thus should not be taxable.
[14] Counsel for the respondent has argued that the amounts paid by the city of Montréal in 1997 are wages, which must be included in Mr. Théberge's income for the 1997 taxation year under subsection 5(1) of the Act. Under clause 25.01 of the collective agreement, Mr. Théberge was obliged to repay the city of Montréal the amounts he received under Quebec's Workers' Compensation Act.[13] Since the CSST repaid the city of Montréal only in 2002, Mr. Théberge would be entitled to the deduction under paragraph 8(1)(n) of the Act (which reads as follows) only in that taxation year:
SECTION 8: Deductions allowed.
(1) In computing a taxpayer's income for a taxation year from an office or employment, there may be deducted such of the following amounts as are wholly applicable to that source or such part of the following amounts as may reasonably be regarded as applicable thereto:
...
(n) Salary reimbursement - an amount paid by or on behalf of the taxpayer in the year pursuant to an arrangement under which the taxpayer is required to reimburse any amount paid to the taxpayer for a period throughout which the taxpayer did not perform the duties of the office or employment, to the extent that
...
[Emphasis added.]
[15] As well, since the amounts received from the city of Montréal in 1997 were not paid by the CSST under Quebec's Act respecting industrial accidents and occupational diseases, Mr. Théberge may not take advantage of paragraph 110(1)(f) of the Act. In support of his position, counsel for the respondent cited the Federal Court of Appeal decision in Whitney v. Canada, [2002] F.C.J. No. 948 (Docket A-305-01, June 21, 2002), that amounts paid under a collective agreement are not the same as amounts paid under a workers' compensation law. In this decision, Noël J.A. writes as follows, at paragraph 14:
The scheme is not so broad. The relevant provisions refer to "... compensation received under [a] ... compensation law ...". This wording, on the face of it, excludes payments made to a disabled worker by an employer under a long-term disability program (see Suchon v. Canada, [2002] 1 C.T.C. 2094) or under a collective agreement.
[Emphasis added.]
Analysis
[16] In my opinion, the position adopted by counsel for the respondent is justified. Indeed, as the Federal Court of Appeal concludes in Whitney, amounts paid under a collective agreement are not the same as amounts paid under a workers' compensation law. Here, the evidence is clear: the amounts Mr. Théberge received during the 1997 taxation year were paid by the city of Montréal under the terms and conditions of the collective agreement between the city and its employees. Until December 19, 1997, the city of Montréal continued to pay Mr. Théberge the same gross wages it had paid him during the four months preceding his sick leave.[14]
[17] While the arguments were being presented, I wondered whether the amounts paid by the city of Montréal had all the quality of income according to the authority established by Thorson J. of the Exchequer Court of Canada in Kenneth B. S. Robertson Ltd. v. Canada (Minister of National Revenue - M.N.R.) [1944] Ex. C.R. 170; 2 DTC 655. In that decision, Thorson J. adopted an approach taken by the Supreme Court of the United States in Brown v. Helvering (291 U.S. 193); he sets out the issue as follows, at paragraph 19 (DTC: pages 660 and 661):
This does not, however, dispose of this appeal, for the question remains whether all of the amounts received by the appellant during any year were received as income or became such during the year. Did such amounts have, at the time of their receipt, or acquire, during the year of their receipt, the quality of income, to use the phrase of Mr. Justice Brandeis in Brown v. Helvering (supra). In my judgment, the language used by him, to which I have already referred, lays down an important test as to whether an amount received by a taxpayer has the quality of income. Is his right to it absolute and under no restriction, contractual or otherwise, as to its disposition, use or enjoyment? To put it in another way, can an amount in a taxpayer's hands be regarded as an item of profit or gain from his business, as long as he holds it subject to specific and unfulfilled conditions and his right to retain it and apply it to his own use has not yet accrued, and may never accrue?
[Emphasis added.]
[18] Quoting crucial passages from the decision of the Supreme Court of the United States in Helvering, Thorson J. writes as follows, at paragraph 14 (DTC: page 659):
... It was held that he was not entitled to make any deduction for such purposes. Mr. Justice Brandeis, in delivering the opinion of the Supreme Court of the United States, said, at page 199:
"The overriding commissions were gross income of the year in which they were receivable. As to each such commission there arose the obligation - a contingent liability - to return a proportionate part in case of cancellation. But the mere fact that some portion of it might have to be refunded in some future year in the event of cancellation, or reinsurance did not affect its quality as income . . . When received, the general agent's right to it was
absolute. It was under no restriction, contractual or otherwise, as to its disposition, use or enjoyment."
[Emphasis added.]
[19] This authority of the "quality of income" has been applied in a number of decisions in Canada including, in particular, Rodgers v. Canada (Minister of National Revenue - M.N.R.), [1990] T.C.J. No. 1003; 91 DTC 129. In that case, at issue was whether severance pay in the amount of $120,000 paid by an employer on July 27, 1982, was "income" even though a few days later, in August 1982, the employer asked the taxpayer to recover the severance pay in light of new facts. On January 25, 1983, legal action was initiated against the taxpayer. Subsequently, in computing his income for the 1982 taxation year, the taxpayer deducted the amount of $120,000. At issue, then, was whether the uncertainty concerning the taxpayer's entitlement to retain the amount of $120,000 was sufficient to conclude that this amount no longer had the quality of income. Christie A.C.J. concludes as follows at page 4 (DTC: at page 131):
When the appellant received the $120,000 in 1982 it was not subject to specified conditions about its use or disposition. He was then in a position to use the money as he saw fit even though he might subsequently have to repay some or all of it. I believe that when Thorson J. spoke of "specific and unfulfilled conditions" and when Taschereau J. used the words "free of any restriction" they had in mind conditions and restrictions on the use of funds that arise, for example, in the creation of a trust. There specific equitable obligations exist at the time of receipt that are binding on the trustee in respect of the manner in which he deals with the trust property. Another example that comes to mind is when a taxpayer acts as an escrow agent in respect of money. Undoubtedly there are others.
[Emphasis added.]
[20] In support of that conclusion, Christie A.C.J. also cited Commonwealth Construction Co. v. Canada (FCA), [1984] F.C.J. No. 416; 84 DTC 6420. In particular, he quotes the following passage by Urie J., at page 5 (DTC: at page 6424):
To apply phrases from that quotation to the case at bar, the record discloses that the rights of the Appellant to the amounts paid to it in 1974 and 1975 were "absolute and under no restriction, contractual or otherwise, as to its disposition, use or enjoyment." They were not held subject to any specific and unfulfilled conditions. Once the conditions precedent imposed in the letter agreements between the parties, supra, had been fulfilled, as they were, the right to receive the monies and to retain them had accrued and was absolute. True, it might be necessary to return the monies in whole or in part if the appeal were successful. But, as I see it, that was a condition subsequent which did not affect the unrestricted right of the Appellant to use them until such a requirement occurred. It did not, as I see it, affect their quality as income upon receipt.
[Emphasis added.]
[21] From these passages, it can be seen that Mr. Théberge's obligation to repay the city of Montréal the amounts he received from the CSST is not sufficient to conclude that the wages paid to him by the city during the 1997 sick leave period no longer had the quality of income. Mr. Théberge had full use of the amounts paid by the city of Montréal. He could dispose of them as he saw fit. Nor did the amounts paid constitute a loan; they were indeed wages, as the paycheque stubs adduced at the hearing by Mr. Théberge himself indicate. Furthermore, Mr. Théberge was not necessarily obliged to repay the full amount of the wages paid by the city of Montréal. All that clause 25.01 of the collective agreement requires is repayment of any amounts Mr. Théberge may receive from the CSST. In fact, it appears that Mr. Théberge did not repay the full amount of the wages paid by the city of Montréal during the 1997 sick leave period since, according to my calculations, the amounts paid by the city of Montréal were $9,041 whereas the amounts attributable to that period and repaid by the CSST were $7,590.
[22] For all these reasons, Mr. Théberge has failed to establish that the assessment was unjustified, and his appeal regarding the 1997 taxation year is therefore dismissed.
Signed at Ottawa, Canada, this 28th day of February 2003.
J.T.C.C.
Translation certified true
on this 21st day of April 2004.
Sophie Debbané, Revisor
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