Date: 19971122
Docket: 96-4163-IT-I
BETWEEN:
SYLVIA MENDES-ROUX,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Léger, D.J.T.C.C.
[1]
The Appellant, who happens to be a lawyer, was employed with the
Translation Bureau of New Brunswick for a period of seven years
from 1987 to 1993. She acted as co-ordinator for Court
interpreters. Her place of work was Bathurst, New Brunswick. The
employment consisted of training, evaluating court interpreters
and being a liaison officer betwen judges, lawyers, court
interpreters and the Translation Bureau.
[2]
In April of 1993, the Appellant applied for and was granted
maternity leave which was effective from June 7 to August 27,
1993. During her leave and without prior notice or discussion,
she was informed that the Bathurst office of the Translation
Bureau was to be closed and the court interpretation
co-ordinating service was to continue to operate at the City of
Fredericton effective September 1, 1993. She was also told
she would be assigned to other duties but her salary and
classification would remain the same. Finally in September 1993,
the Appellant went to work at the Bathurst office and was told to
report to the Fredericton office or her employment would be
terminated under the heading of "Abandonment of
Position".
[3]
The Appellant told us in effect that the Director of the
province's Translation Bureau, her immediate superior, was a
very cunning individual. She suspected he had reasons to be
apprehensive of her and had a desire not to have her in his
employ.
[4]
She was asked to elaborate on the above. She was very emotional
during the time she gave evidence and counsel for the Respondent
did not object to our hearing her contention. She told us that
during the course of her employment she had uncovered and
reported that a certain court interpreter was cheating the
Translation Bureau. The discipline of the said employee had to be
dealt with by her immediate superior, that is the Director of the
Translation Bureau. The said Director was not amused.
[5]
The Appellant alleged that it later appeared that the Director
himself was involved in less than proper activities. These
activities were in conflict with his duties and are described in
a newspaper clipping attached to her written submission and
marked K-2. Her submission is that her boss had an apprehension
if she continued in her present position she might blow the
whistle on his illicit activities. She submits the said Director
organized a transfer of the Bathurst office to Fredericton while
she was on leave. The allegations of the Appellant in regards to
the motives of her boss to transfer the said office are just
that, allegations and not proof. She also alleges the Director,
being aware of her family commitments, knew she could not or
would not accept a transfer to Fredericton.
[6]
The evidence discloses that the Appellant had three infant
children of tender age and that her husband who is a lawyer was
engaged in the practice of law in the City of Bathurst. The
distance between Bathurst and Fredericton is far greater than
acceptable to allow the Appellant to commute daily and still be
able to attend to the needs of her husband and family.
[7]
After having heard the evidence it is obvious to this Court that
the Appellant was wrongfully dismissed.
[8]
The Appellant after her dismissal claimed damages from her former
employer for the wrong she suffered and the loss of benefits
which she endured.
[9]
Some of the benefits lost can be summarised as follows:
Group
pension
half paid by employer
Sick
leave
paid by employer
Paid
Vacation
paid by employer
Blue
Cross
half paid by employer
The benefit of being in a group (approximately
$2,300/year).
Group life insurance for herself, her husband and
three children.
Group health and dental insurance for herself, her husband and
three children.
Annual Bar dues paid by her and reimbursed by her employer
(about $900/year).
[10] The
evidence discloses that the husband of the Appellant, being a
lawyer, negotiated a settlement with the province of New
Brunswick which resulted in her receiving the sum of $25,376
according to a "Release" signed September 30, 1994.
[11] The said
Release which is set out in the 8th page from the end of the
Appellant's submission reads as follows:
"I, SYLVIA MENDES-ROUX, of the City of Bathurst, in the
County of Gloucester and Province of New Brunswick in
consideration of the payment to me of the sum of One Dollar
($1.00) and other valuable consideration, the receipt of which is
hereby acknowledged, as payment of special damages incurred,
general damages, legal costs and interest, by Her Majesty the
Queen in right of the Province of New Brunswick as represented by
the Minister of Supply and Services (thereinafter called the
"Minister"), do hereby RELEASE, REMISE AND FOREVER
DISCHARGE the Minister, his successors and assigns, from any and
all claims of every nature and kind, including costs and interest
thereon, which I may have against the Minister arising from the
termination of my employment with the Translation Bureau of the
Department of Supply and Services, in September, 1993.
I acknowledge that this payment is made without any admission of
liability by the Minister, and I promise to keep confidential the
details hereof.
Dated at Bathurst, New Brunswick this 30 day of September,
1994.
SIGNED, SEALED AND DELIVERED
in the presence of:
(indecipherable) signed by Sylvia
Mendes-Roux
(SYLVIA MENDES-ROUX"
[12] The
important words used in this Release are:
"in consideration of the payment to me of the sum of One
dollar ($1.00) and other valuable consideration...
...as payment of special damages incurred, general damages,
legal costs and interest...
...arising from the termination of my employment with the
Translation Bureau..."
[13] The
details of the settlement was not set out in any document. The
Province obviously recognized the Appellant had a good course of
action since it paid her the sum involved. For whatever reason
the Province desired to keep the details of the settlement
confidential.
[14] The only
document which throws any light on the subject is the Record of
Employment (Exhibit "M") attached to the submission of
the Appellant. This is a form required by Revenue Canada which
must be filled out by the employer. In answer to question number
15 the insurable earnings are set out as being $745 for one week.
In answer to question number 17 "Payments or Benefits (other
than regular pay)" it is indicated "vacation pay
$1,610.40 (8 1/4 days)"; and "Other monies
(specify)" it is stated "see below number 22 -
$25,376" which reads: "comments/* was on child care
leave prior to this record. **She was dismissed. She made a claim
for damages and the claim was settled".
[15] Over and
above this memo we have the sworn testimony of the Appellant. She
said she does not know precisely how the amount of the settlement
was calculated or arrived at. She told us she believed it was
based on three months of salary, compensation for overtime
earned, sick leave and earned vacation pay. The wages for three
months would amount to about $8,900, the vacation pay $1,610.40;
these amount to a total of $10,510.40. The other items were not
proven. The Appellant claimed that most of the amounts accepted
by her were for wrongful dismissal, loss of fringe benefits,
legal fees, interest and pain and suffering. The Respondent has
not refuted this claim.
[16] The
Respondent relies on the provisions of subparagraph
56(1)(a)(ii) and subsection 248(1) of the Income Tax
Act and claims that the sum of $25,376 was received by the
Appellant from the Province of New Brunswick as a retirement
allowance as defined by the above sections of the Act.
[17]
Subparagraph 56(1)(a)(ii) of the Act reads as
follows:
"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,
(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,
..."
Subsection 248(1) of the Act defines "retiring
allowance" and reads as follows:
"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
...
(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..."
[18] The cases
cited to me by the parties are going to be reviewed by me one at
a time.
[19] Claude
A. Vachon v. Her Majesty the Queen [1996] 3 C.T.C. 2306D: the
facts in this case are that the taxpayer was an employee of D
Inc. and on April 12, 1993 his employment was terminated. He
accepted a lump sum of $5,000 as a full and complete settlement
of all claims arising from the termination of his employment. The
issue was whether the $5,000 payment was a retiring allowance
within the meaning of subsection 248(1). The taxpayer did not
give evidence in this case. The release was introduced in
evidence and relieved the employer from any action against it by
reason of the cessation of the employment. The Court declared
that the amount of $5,000 was a retirement allowance within the
meaning of the Act.
[20] The case
of Hugh Merrins v. Her Majesty the Queen [1995] 1 C.T.C.
111: in May 1985, the taxpayer was laid off from his employment.
He filed a grievance seeking reinstatement for breach of
seniority provisions of the collective agreement. On April 7,
1988, the employer agreed to pay to the taxpayer the sum of
$60,000 in order to conclude the arbitration proceedings. The
Minister considered the $60,000 payment a "retiring
allowance" within the meaning of subsection 248(1) and
included it in the taxpayer's income pursuant to subparagraph
56(1)(a)(ii). The taxpayer appealed and the Court held
that on the facts of this case the amount received was in
relation to his loss of his employment and therefore taxable.
[21] George
Niles v. The Minister of National Revenue [1991] 1 C.T.C.
2540: here an employee filed a complaint of discrimination under
the Ontario Human Rights Code after being laid off. After
negotiation, the parties settled the claim and the employee was
awarded $5,000 in settlement of his claim for loss of employment.
There was no finding of discrimination nor that the award might
have altered the character of the payment. The Court held that
the amount was taxable as a retirement allowance.
[22] The case
of John James Young v. The Minister of National Revenue,
86 DTC 1567, was also cited. Here the facts are that the
Appellant was awarded damages by court order in the following
amounts:
$10,000 for wrongful dismissal,
$12,500 for exemplary damages,
$12,500 for mental distress,
$ 5,000 for costs.
[23] The
Minister claimed all of the above amounts were taxable as being a
retirement allowance. The Appellant did not testify. The above
facts were agreed to by the parties. The Court dismissed the
appeal and in so doing said the following in the second last
paragraph of his decision:
"...it would have taken some direct evidence or testimony
to fulfil the appellant's total obligation thereunder, and
the critical question of the origin of the amounts at issue was
not addressed by the appellant."
Based on the above finding the Court declared the total
amounts to be taxable.
[24] The next
case is Louis-Phillipe Bédard v. The Minister of
National Revenue [1991] 1 C.T.C. 2323: in this case the
Appellant was unjustly dismissed from his position with Relais
Jeune Est of Matane. The reasons for his termination were
broadcasted on radio and television where the Appellant lived.
The Appellant denied the reasons and sought reinstatement and a
public retraction. An arbitrator was brought in to settle the
dispute and an agreement was reached whereby the Appellant was to
receive six months salary and "$32,000 (net) by way of
compensation for the damage suffered". The Appellant claimed
the $32,000 was meant to be non-taxable as he had received it as
compensation for both economic loss and moral harm. The
Respondent claimed that the amount was directly related to the
Appellant's loss of employment and taxable as such.
[25] The Court
ruled that $16,000 should be included in the Appellant's
income as compensation after he lost his job. The balance
constituted damages for defamation that were not within the
definition of retiring allowance and therefore not taxable as
such. The appeal was allowed in part.
[26] The
appeal court judge reviewed the evidence in great detail and
reviewed all the precedents cited to him. In the other cases, the
decisions reached were that the amounts were taxable because
there was a lack of evidence to establish the true nature of the
payments. In this case, as well as in the case at bar, there was
testimony upon which the Court could determine the amount which
was paid for loss of employment and damages resulting from
damages for loss of fringe benefits, mental distress, interest
and costs.
[27] I have
thoroughly studied the cases cited. I have also given
consideration to the evidence adduced before this Tribunal. After
having given consideration to the proof advanced, this Court
finds and decides that the Appellant has established that the
settlement obtained by her included a sum for loss of wages of
approximately three months compensation for earned overtime,
earned vacation and earned sick leave. These items are taxable.
The other factors such as damages for mental distress and costs
are not taxable because they do not enter into the definition of
retirement allowance as defined in subsection 248(1) of the
Income Tax Act.
[28] After
having considered all of the evidence, the Court finds and
declares that 50% of the sum of $25,376 was received by the
Appellant as a "retirement allowance" and is therefore
taxable. The balance was received by her as compensation for
damages and is not taxable.
[29] The
appeal is therefore allowed and the matter is returned to the
Respondent with a direction to reassess the Appellant in
accordance with the above findings.
Shenstone, New Brunswick, November 22, 1997.
"C.I.L. Léger"
D.J.T.C.C.
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