Date: 19990615
Docket: 98-1040-IT-I
BETWEEN:
FRANÇOIS J. SUERMONDT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for judgment
Bowman, J.T.C.C.
[1] This appeal is from an assessment for the appellant's
1991 taxation year. The issue is whether the appellant must pay
tax on $72,500 which he received pursuant to a settlement of a
wrongful dismissal action.
[2] Prior to 1991 the appellant was dismissed from his
employment with a company known as Datapoint Canada Inc. He sued
for damages and a settlement was reached in 1991.
[3] He had lawyers but the final settlement was negotiated by
him personally. He testified that his understanding was that the
settlement amount was $111,540, from which income tax as well as
Canada Pension Plan and Unemployment Insurance premiums were to
be deducted and remitted to the Receiver General and that he
would receive a net amount of $72,500.
[4] That is not what happened. On February 4, 1991, the
president of Datapoint, Mr. George D. Oyagt, wrote to the
company's lawyer, Ms. Chantal C. Beaulieu of Ogilvy
Renault as follows:
Re: François Suermondt vs Datapoint Canada
Inc.
Please find enclosed two cheques made payable to Godin,
Raymond, Harris, Thomas – In Trust in the amount of
$72,500.00 and $500.00, being the amount of settlement with Mr.
Suermondt and Mr. Suermondt's legal fees, respectively.
The settlement, I believe, is realistic under the
circumstances. We have acknowledged that we owed François
outstanding commissions of $36,000 (his claim $44,000), plus
alleged outstanding twenty-two days of vacations. If we add into
that, his claim for lost interest on commissions due him from
August 1989, the six to nine man days of David Cunningham's
and my time lost in presenting our case before the courts, and
the potential award for wrongful dismissal (Suermondt's total
claim of $115,000) the settlement is less painful. I have cleared
this settlement with Mr. Philip Freeman, Senior Vice-President
and Chief Legal Counsel for Intelogic Trace, Inc.
Along with a full release from Suermondt, would you please
ensure that any unemployment insurance, income tax (Quebec and
Federal), and other legal/governmental implications of this
settlement are taken care of prior to the release of the cheques
in order to save harmless Datapoint Canada Inc. and Intelogic
Trace Canada Inc. from further liabilities and obligations
relative to Mr. Suermondt.
It has been a pleasure dealing with you in this legal matter.
Thank you for all your assistance in bringing about this out of
court settlement.
[5] The letter is somewhat strange. Why would he send a cheque
for $72,500 to his lawyers, payable to Mr. Suermondt's
lawyers, and instruct them to ensure that "any unemployment
insurance, income tax (Quebec and Federal), and other
legal/governmental implications of this settlement are taken care
of prior to the release of the cheques..."? The cheque
was not payable to Ogilvy Renault and so Ms. Beaulieu could not
have withheld any tax.
[6] Ms. Beaulieu testified, but given the passage of eight
years and the unavailability of the files, she was unable to shed
any light on the settlement.
[7] It does not appear that the settlement was reduced to
writing.
[8] The Department of National Revenue received a T4A slip for
1991 from Intelogic Trace Canada Inc. (which had acquired
Datapoint Canada Inc.) showing the payment to Mr. Suermondt of
$72,500 as a retiring allowance, with no deductions.
[9] The Department of National Revenue contacted the
appellant, who had not filed a return for 1994. When he did file
he did not declare the amount of $72,500.
[10] The Minister assessed him on this amount.
[11] The appellant's principal contention is not that the
amount was not a retiring allowance but rather that he was
supposed, under the terms of the settlement, to have received it
net of tax and that the responsibility of remitting tax on the
amount of $111,540 lay with Datapoint. He sought to hold
Datapoint to what he believed was the settlement he made with it,
but found that in the meantime it had left Canada.
[12] I have no hesitation is believing Mr. Suermondt when he
says that his understanding of the settlement was that he was to
receive $72,500 net of tax and other applicable deductions.
[13] Unfortunately, the settlement was not reduced to writing
and if that was the deal, Datapoint reneged.
[14] Where an employer withholds tax from an employee's
wages or salary and fails to remit it, it is clear that the
Minister cannot pursue the employee for the unremitted tax. Once
it is withheld it is held in trust for Her Majesty.
[15] That is not the situation where there is an oral
understanding that the employee will receive his or her salary or
wages (or, as in this case, a taxable lump sum) "net of
taxes". Such an understanding does not bind the Minister and
does not amount to the type of withholding that could create a
trust in favour of Her Majesty or a defence that the employee can
use against a claim by the Minister for tax on the amount
received by him.[1]
[16] I regret having to reach this conclusion. Mr. Suermondt
has been deceived by Datapoint, which did not live up to its
agreement with him. However that fact cannot redound to the
detriment of the respondent.
[17] The appeal is dismissed.
Signed at Ottawa, Canada, this 15th day of June 1999.
"D.G.H. Bowman"
J.T.C.C.
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