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Citation: 2003TCC1
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Date: 20030130
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Docket: 2002-3454(IT)I
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BETWEEN:
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MANON RODIER,
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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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[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Lamarre, J.T.C.C.
[1] The appellant is appealing from an assessment made by the Minister of National Revenue (the "Minister") under theIncome Tax Act (the "Act") for the 2001 taxation year.
[2] In assessing the appellant in this way, the Minister included in the appellant's income the amount of $17,968 that she had received from her former employer, Hydro-Québec, in 2001.
[3] The appellant submits that this amount was received from Hydro-Québec for damage and harm as a result of her early retirement for medical reasons. In her opinion, this amount, just like the amounts that she had received in previous years from the Commission de la santé et de la sécurité du travail ("CSST"), should not be taxable pursuant to the Act. In the Minister's opinion, this income is a reimbursement of salary taxable under section 5 of the Act. In the alternative, he submits that this income constitutes a retiring allowance taxable under subparagraph 56(1)(a)(ii) of the Act.
[4] The facts on which the Minister relied in making the assessment under appeal are summarized in paragraph 4 of the Reply to the Notice of Appeal and read as follows:
[TRANSLATION]
(a) the appellant was employed as a clerk in the Supply and Services unit of Hydro-Québec;
(b) in January 1996, the appellant fell in the Hydro-Québec parking lot and injured herself;
(c) as a result of the fall, the appellant was away from work for the period from January 16, 1996, to September 13, 1999;
(d) the appellant tried a gradual return to work by working half-days during the period from September 13, 1999, to June 30, 2000;
(e) on June 1, 2000, the appellant was notified that the management of Hydro-Québec was going to retire her early for health reasons;
(f) the appellant, assisted by the Syndicat des employé-e-s de techniques professionnelles et de bureau d'Hydro-Québec, local 2000 - C.U.P.E., filed a grievance on June 20, 2000, and demanded that she be reinstated in her position and demanded monetary compensation for the damage and harm sustained;
(g) on July 10, 2000, the appellant was notified in writing by Hydro-Québec that her early retirement for health reasons had been confirmed as of July 1, 2000;
(h) to settle the dispute, an out-of-court settlement dated November 8, 2001, between the Syndicat des employé-e-s de techniques professionnelles et de bureau d'Hydro-Québec, local 2000 - C.U.P.E., and senior management, Supply and Services, Hydro-Québec, stipulated the following, inter alia:
(i) the union and the grievor, Manon Rodier, are abandoning the grievances referred to in the subject line and any other grievance that might exist between the parties;
(ii) the Employer will pay the grievor, as reimbursement of salary, the amount of thirty-five thousand dollars ($35,000) with interest beginning on June 20, 2000, less the usual deductions, including provincial and federal income tax; the net amount will be payable in two equal payments, the first within two weeks from the signing of this agreement and the second on January 10, 2002;
(iii) in consideration of the provisions of this settlement, the parties grant each other full, mutual and final discharge from any amount owed and the grievor explicitly waives any recourse or action relating to facts arising from these grievances or from this settlement;
(iv) the grievor acknowledges that she has read this agreement and has understood the agreement's purport since she has been able to consult with resource persons for this purpose;
(i) pursuant to the agreement referred to in the preceding paragraph, Hydro-Québec sent the following T4 to the appellant for the taxation year at issue:
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(i)
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Income from employment
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$17,968
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source deductions
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(ii)
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Quebec Pension Plan
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$751
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(iii)
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Employment Insurance Premiums
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$398
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(iv)
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Federal tax
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$3,426;
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(j) the Minister, in computing the appellant's income for the taxation year at issue, therefore included the amount of $17,968, as wages.
[5] The appellant admitted all these facts, with the exception of subparagraph 4(h)(iv), in relation to which she said that she had not understood the meaning of the agreement she signed with Hydro-Québec dated November 8, 2001, since she had not been able to consult with resource persons for this purpose.
[6] The appellant explained in her testimony that she had been working for Hydro-Québec for 25 years when her fall occurred on January 15, 1996, in the employer's parking lot. The fall caused a lumbar sprain that subsequently worsened and caused the appellant physical and psychological problems. She was considered to have suffered an occupational injury beginning on January 15, 1996, and received CSST benefits until September 22, 1997. Beginning on September 23, 1997, she was no longer eligible for CSST benefits (see the decision of the Commission des lésions professionnelles dated May 8, 1998, fixing September 22, 1997, as the consolidation date for the appellant's employment injury (Exhibit A-1)). Accordingly, she took her accumulated sick leave days and therefore received her full salary from Hydro-Québec for a period of one year, that is, from September 23, 1997, to September 22, 1998. After that, she was remunerated under Hydro-Québec's Régime d'assurance salaire invalidité de longue durée ("RASILD") until September 13, 1999, the date when she attempted to return to work half time. Thus, beginning on September 13, 1999, she was compensated by Hydro-Québec for her half-days of work and, under the RASILD, for the half-days when she was not at work. This went on until June 30, 2000.
[7] On June 1, 2000, the appellant was notified by her employer, Hydro-Québec, that she was to take her retirement for health reasons, beginning on July 1, 2000. Since the Hydro-Québec health service had declared the appellant to have a permanent partial disability, she thus lost her entitlement to RASILD benefits as of July 1, 2000. The Hydro-Québec pension committee then voted an annual pension of $20,305.05 payable to the appellant retroactive to July 1, 2000, which pension was to be reduced to $12,689.42 when the appellant reached the age of 65 years (Exhibit A-8).
[8] On June 20, 2000, the appellant filed a grievance with her employer jointly with her union representative and asked her employer to reinstate her in her position. She also asked for full monetary compensation for the damage and harm sustained. I believe I understand that the appellant felt that she had been wronged, inter alia, because she had been dismissed for health reasons after trying to gradually return to work. It would appear that, by returning to work gradually this way, she could not have received the pension she had accumulated in the Hydro-Québec pension plan up to when her disability began. She apparently bought back the contributory period for the pension plan for the years that passed during her absence from work (Exhibit A-7). I must say that I do not see exactly what the harm is on that point since, by buying back her contribution period, the appellant re-established her entitlement to her future pension as if there had not been an interruption in her contributory period. Moreover, Exhibit A-9 shows that the appellant received a better deal by being retired for health reasons than if she had voluntarily left Hydro-Québec on May 31, 2000, under the staff adjustment program.
[9] In fact, the appellant acknowledged that by filing her grievance she was aware that she could no longer perform her duties productively, but she felt that she had not been sufficiently compensated for the accident on January 15, 1996. According to her, she had been the victim of a serious trauma and was entitled to monetary compensation for the damage and harm sustained.
[10] On November 8, 2001, the appellant agreed to sign a settlement of her grievance with the employer, which settlement had been negotiated by the union of the employer's employees on the appellant's behalf. The settlement reads as follows (Exhibit A-12):
[TRANSLATION]
Notwithstanding any contrary provision in the collective agreement, the parties to this agreement agree to settle out of court without admission of liability the grievances referred to in the subject line, the whole subject to the following conditions:
1. The union and the grievor, Manon Rodier, abandon the grievances referred to in the subject line and any other grievance that may exist between the parties;
2. The Employer shall pay to the grievor, as reimbursement of salary, the amount of thirty five thousand dollars ($35,000) with interest, from June 20, 2000, less the usual deductions, including provincial and federal income tax. The net amount shall be payable in two equal payments, the first within two weeks from the signing of this agreement, the second, on January 10, 2002;
3. In addition to the amounts referred to in the preceding paragraph, the Employer shall pay to the grievor, as moral damages, the amount of five thousand four hundred fifty dollars ($5,450), non-taxable, this amount including all interest;
4. From the proceeds of the amount described in paragraph 3 of this agreement, the Employer shall make a set-off in order to proceed with the payment of the amounts owed by the grievor to the Employer, which as of the date of this agreement are in the amount of four thousand nine hundred ninety-two dollars and eighty-nine cents ($4,992.89), the Employer waiving the interest on this amount and the balance after set-off being payable to the grievor within two weeks from the signing of this agreement;
5. In consideration of the provisions of this settlement, the parties grant each other full, mutual and final discharge from any amount owed and the grievor expressly waives any recourse or action relating to the facts arising from these grievances or from this settlement;
6. The grievor acknowledges that she has read this agreement and has understood the agreement's purport since she has been able to consult with resource perons for this purpose.
This agreement is intended solely to settle these specific cases without any admission by the parties and cannot be pleaded in any other circumstance.
[11] The appellant explained that she was not at all satisfied with the settlement (the amount of $35,000 provided for in paragraph 2 did not represent even one year's salary). She would have preferred to receive $40,000 as moral damages (which according to her would have been non-taxable) instead of $35,000 as salary and $5,450 as moral damages. She said she finally agreed to sign the settlement after her shop steward had made her understand that there was no other possible deal.
[12] The appellant argued that the amount of $17,968 that she received in 2001 pursuant to this settlement was paid from Hydro-Québec's pension fund. She maintained, however, that it was not a pension, a salary, or a retiring allowance but rather compensatory damages for the harm suffered as a result of her employment injury, which according to her was not taxable within the meaning of the Act.
[13] Unfortunately for the appellant, whether the amount she received upon the settlement of her grievance is considered as a reimbursement of salary or as compensation for damages sustained, in any event, this income is taxable under the Act, as I shall explain below.
[14] On the one hand, on reading the grievance settlement (Exhibit A-12), it is clear that the employer, Hydro-Québec, agreed to pay the appellant (the grievor) the amount of $35,000, payable in two equal payments, as reimbursement of salary. It was even indicated in the settlement signed by the appellant that this amount was subject to the usual deductions, including provincial and federal taxes. The appellant clearly understood the purport of the settlement, which she agreed to sign because, before signing, she complained to her shop steward about the amount she was being offered since it was less than her annual salary. Her shop steward having answered that there was no other deal possible, she finally agreed to sign the settlement knowledgeably and willingly. By signing this settlement, she was resigning herself to the fact that the employer agreed to pay her the amount of $35,000, a part ($17,968) of which was paid in 2001 as reimbursement of salary. Such an amount is taxable as income from employment under subsection 5(1) of the Act, which reads as follows:
SECTION 5: Income from office or employment.
(1) Subject to this Part, a taxpayer's income for a taxation year from an office or employment is the salary, wages and other remuneration, including gratuities, received by the taxpayer in the year.
[15] Although the amount thus paid by the employer could be considered as compensation for damages, it was also taxable as a retiring allowance within the meaning of subparagraph 56(1)(a)(ii).
SECTION 56: Amounts to be included in income for year.
(1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,
456(1)(a)3
(a) Pension benefits, unemployment insurance benefits, etc. - any amount received by the taxpayer in the year as, on account or in lieu of payment of, or in satisfaction of,
...
(ii) a retiring allowance, other than an amount received out of or under an employee benefit plan, a retirement compensation arrangement or a salary deferral arrangement,
[16] A "retiring allowance" is defined in subsection 248(1) of the Act as follows:
"retiring allowance" - "retiring allowance" means an amount (other than a superannuation or pension benefit, an amount received as a consequence of the death of an employee or a benefit described in subparagraph 6(1)(a)(iv)) received
(a) on or after retirement of a taxpayer from an office or employment in recognition of the taxpayer's long service, or
(b) in respect of a loss of an office or employment of a taxpayer, whether or not received as, on account or in lieu of payment of, damages or pursuant to an order or judgment of a competent tribunal,
by the taxpayer or, after the taxpayer's death, by a dependant or a relation of the taxpayer or by the legal representative of the taxpayer;
[Emphasis added.]
[17] It is clear from the evidence that the amount at issue in the case at bar was negotiated by the union representing the appellant with Hydro-Québec as a result of the grievance filed by her because she had been retired early for reasons of health. Moreover, in agreeing to sign the settlement, the appellant and her union abandoned the grievance they had filed against the employer. From then on, there is no doubt that, without the grievance, there would have been no such settlement providing for the payment of such an amount, especially since the Hydro-Québec pension committee had already voted on an annual pension payable to the appellant after her retirement.
[18] The appellant would not have received this additional amount of money if she had not lost her job. In other words, it is the loss of her employment that generated the grievance, which in turn generated the settlement providing for the payment of an amount of $35,000. In my opinion, there is no doubt that this amount was received by the appellant in connection with the loss of her job and, as such, it meets the definition of retiring allowance provided for in the Act (see Merrins v. Canada, [1994] F.C.J. No. 1582 (Q.L.); and Ahmad v. Canada, [2002] T.C.J. No. 471 (Q.L.).
[19] The appellant stated that the amount she received should be tax-exempt just like the CSST benefits, which she received until September 22, 1997. I understand the CSST benefits that she received were paid pursuant to Quebec's Act respecting industrial accidents and occupational diseases. These benefits are taxable first under paragraph 56(1)(v) of the Act, which reads as follows:
SECTION 56: Amounts to be included in income for year.
(1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,
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456(1)(v)3
(v) Workers' compensation - compensation received under an employees' or workers' compensation law of Canada or a province in respect of an injury, a disability or death;
[20] Those amounts however are deducted in computing taxable income given subparagraph 110(1)(f)(ii) of the Act, which reads as follows:
SECTION 110: Deductions permitted.
(1) For the purpose of computing the taxable income of a taxpayer for a taxation year, there may be deducted such of the following amounts as are applicable:
4110(1)(f)3
(f) Deductions for payments - any social assistance payment made on the basis of a means, needs or income test and included because of clause 56(1)(a)(i)(A) or paragraph 56(1)(u) in computing the taxpayer's income for the year or any amount that is
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(ii) compensation received under an employees' or workers' compensation law of Canada or a province in respect of an injury, disability or death, except any such compensation received by a person as the employer or former employer of the person in respect of whose injury, disability or death the compensation was paid,
[21] Only compensation received under a federal or provincial workers' compensation law is tax-exempt in this way. Compensation paid by the employer to an employee in another capacity, for example, under a collective agreement or pursuant to a long-term disability benefit plan, is not covered by the tax exemption provided for in paragraph 110(1)(f) (see Whitney v. Canada, [2002] F.C.J. No. 948 (Q.L.); and Suchon v. Canada, [2002] F.C.J. No. 972 (Q.L.)).
[22] A payment made by an employer to an employee in settlement of a grievance filed by the employee against the employer is not compensation received under a provincial or federal workers' compensation law and is therefore not exempt from tax pursuant to paragraph 110(1)(f).
[23] I find, therefore, that the amount of $17,968 received by the appellant from her employer, Hydro-Québec, in the 2001 taxation year was taxable within the meaning of the Act. The assessment under appeal is therefore correct.
[24] The appeal is dismissed.
Signed at Ottawa, Canada, this 30th day of January 2003.
J.T.C.C.
Translation certified true
on this 26th day of April 2004.
Sophie Debbané, Revisor
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