REASONS
FOR JUDGMENT
Lafleur J.
[1]
This is an appeal filed by
the appellant regarding the addition to his income for the 2012 taxation year,
under the provisions of the Income Tax Act, R.S.C. 1985, c. 1 (5th
Supp.) (the Act) of $19,094.40 paid by the Régie des rentes du Québec (RRQ) as
disability benefits as well as of $23,581.62 paid by Great West Life Assurance Company
(Great West) as disability benefits under his group disability insurance plan. The appellant also disputes the $73.35 in
late filing penalties under subsection 162(1) of the Act.
I. Facts
[2]
The facts in this case are uncontested.
[3]
In 2011 and 2012, the
appellant was disabled. He
received disability benefits from his group disability insurance plan
administered by Great West. The appellant
stated that there were three different levels of insurance and that he had
taken the best plan.
[4]
In a letter dated February
13, 2012, Great West informed the appellant that he could be eligible for
disability benefits from the RRQ. That letter is part of the document filed by
the respondent as Exhibit I-1 entitled [Translation]
“Appellant’s Tax Return for 2012” at page 17. In the letter (page 18 of Exhibit
I‑1), Great West informed the appellant that, if the RRQ agreed to pay
him disability benefits retroactively, he would be obliged to repay the amount overpaid
by Great West in accordance with the conditions of his group insurance plan. Accordingly, pending the RRQ’s decision,
Great West asked the appellant to choose the option that best suited him. Under
option 1, Great West’s disability benefits would be decreased during this
waiting period to take into account the approximate amount of disability
benefits that would be paid by the RRQ. Under option 2, Great West’s benefits would not be decreased
during the waiting period, and the appellant would authorize the RRQ to
reimburse Great West directly if an overpayment is made to the appellant by the
group disability insurance plan.
[5]
On March 22, 2012, the
appellant chose option 2 and sent the form indicating his selection to Great
West (page 21 of Exhibit I-1). During the same month, the appellant applied to
the RRQ to receive disability benefits.
[6]
On March 23, 2012, the
appellant signed an RRQ form authorizing it to reimburse Great West directly in
case of an overpayment (page 40 of Exhibit I‑1).
[7]
On July 24, 2012, the
RRQ confirmed to the appellant that he was entitled to RRQ disability benefits,
which should have been paid to him as of July 2011 (page 47 of Exhibit I‑1). The appellant was entitled to monthly RRQ
payments of $1,041.36 for 2011 and $1,070.52 for 2012.
[8]
Because the RRQ paid the
appellant disability benefits for an earlier period, Great West calculated that
it had overpaid the appellant $12,947.58. Great West advised the appellant of
this fact in a letter dated July 17, 2012, (page 25 of Exhibit I‑1). At page 26 of Exhibit I-1, Great West
provided the details of the overpayment calculations.
[9]
In July 2012, the RRQ gave
the appellant a cheque for $794.22 for the period from July 2011 to July 2012
(page 49 of Exhibit I-1); that amount is equivalent to the difference between
the RRQ disability pension that should have been paid to him, namely,
$13,741.80 (six months at $1,041.36 per month and seven months at
$1,070.52 per month) and the amount the RRQ reimbursed directly to Great West
because of the overpayment, namely, $12,947.58.
[10]
In a letter dated August 22,
2012, Great West confirmed to the appellant that it had received $12,947.58
from the RRQ as reimbursement of the overpayment (page 28 of Exhibit I‑1).
[11]
The appellant explained to
the Court that he had cashed only one cheque for $794.22 from the RRQ in the
2012 taxation year. All the other cheques from the RRQ for the 2012 taxation
year, that is, the five cheques for August to December 2012, were indeed
received by the appellant in 2012, but were not cashed that year. At pages 50
to 55 of Exhibit I-1, the RRQ confirmed in various letters to the appellant
(five letters from April 2013 to August 2013) that, because those five cheques
were not cashed and were issued more than six months earlier, they were no
longer valid. The RRQ asked the appellant to contact it in order to resolve
this problem.
[12]
I understand that the
appellant communicated with the RRQ several times in 2013. In their last exchange, the appellant
agreed to have his disability benefits deposited in his bank account by direct
deposit. In a letter dated November 16,
2013 (page 56 of Exhibit I-1), the RRQ confirmed to the appellant that it owed
him the payments for the last five months of the 2012 (August to December 2012)
and for eight months in 2013 as well as interest.
[13]
The RRQ gave the appellant a
tax slip (T4A((P)) for the 2012 taxation year indicating disability
benefits of $19,094.40. There were no source deductions (page 4 of Exhibit I‑1).
[14]
Great West also gave the
appellant a T4A tax slip indicating payments of $23,581.62 as wage loss
insurance. Source deductions were made from the amount (page 5 of Exhibit I‑1).
[15]
The appellant agreed that Exhibit
I-1 is the tax return that he had filed with the Canada Revenue Agency (CRA)
for the 2012 taxation year. He
agreed that he had crossed out his own signature because, according to him, the
information in it was incorrect with regard to the amounts received from the
RRQ. He also agreed that he had a tax preparer
prepare the tax return and that he had signed it in February 2014. Based on Exhibit I‑1 filed at the hearing, the CRA
received the return on February 17, 2014. The
appellant agreed that it is likely.
[16]
On page 3 of Exhibit I-1, we
can see that the amount received from Great West, namely, $23,581.62, was
reported as other employment income and that the amount received from the RRQ,
namely, $19,094.40 ($13,741.80 plus five monthly payments of $1,070.52
from August to December 2012) was reported as disability benefits.
II. Issues
[17]
It must be determined
whether the appellant had to include the amount of $19,094.40 in his income for
the 2012 taxation year as disability benefits paid by the RRQ in the course of
that year as well as the amount of $23,581.62 as wage loss insurance paid by
Great West. In addition, it
must be determined whether late filing penalties of $73.35 should be confirmed
for the 2012 taxation year.
III. Positions of the parties
[18]
The appellant claims that he
should not include in his income for the 2012 taxation year cheques that
he had not cashed during that year. Accordingly, he should include the amount
of $794.40 for the 2012 taxation year, that is, the amount paid by the RRQ that
he had cashed during that year. The $12,947.58 that the RRQ reimbursed and paid
directly to Great West as well as the $5,352.60 from the five monthly cheques
issued by the RRQ that he did not cash in 2012 should not be included in his
income. The appellant agrees
that the amounts paid by Great West should be included in his income.
[19]
The respondent claims that the
appellant must include in his income the amount of $19,094.40 that the RRQ paid
to him in 2012. Indeed, according to the respondent, it is the time when the
cheque is received, not when it is cashed, that is determinative. Receiving a
cheque is like receiving money. In addition, the amount that the RRQ paid to Great West is also an
amount that the RRQ paid to the appellant since the appellant chose the option
authorizing the RRQ to reimburse Great West directly in case of an overpayment
resulting from the RRQ’s disability benefit payments.
IV. The
Act and analysis
A. Great West’s benefits.
[20]
Paragraph 3(a) of the
Act sets out that a taxpayer must, among other things, include employment
income in his or her income.
[21]
Under paragraph 6(1)(f)
of the Act, the amounts periodically received by a taxpayer as compensation for
the loss of all or part of the taxpayer’s income from employment under a
disability insurance plan to which the taxpayer’s employer has contributed
should be included in the taxpayer’s employment income. The provision reads as follows:
6. (1) There shall be included in computing the income of a
taxpayer for a taxation year as income from an office or employment such of the
following amounts as are applicable
. . .
(f) the total of
all amounts received by the taxpayer in the year that were payable to the
taxpayer on a periodic basis in respect of the loss of all or any part of the
taxpayer’s income from an office or employment, pursuant to
(i) a sickness or
accident insurance plan,
(ii) a disability insurance
plan,
.
. .
[22]
I am of the view that the
disability benefits of $23,581.62 paid to the appellant by Great West in the
2012 taxation year under the disability insurance plan that it administers must
be included in the appellant’s income for that year under paragraphs 3(a)
and 6(1)(f) of the Act.
[23]
As indicated on the T4A slip
given to the appellant by Great West, it paid him $23,581.62 in wage loss
insurance in the 2012 taxation year. In that regard, I would like to note that that amount does
not include the amount that it had paid the appellant before the RRQ paid him
disability benefits, which the RRQ reimbursed directly to Great West, namely,
$12,947.58. Although it was not discussed at
the hearing, according to page 25 of Exhibit I-1, during the 2012 taxation
year, Great West made seven monthly payments of $3,478 (before the RRQ started
to pay disability benefits) and five monthly payments of $2,436.64 (after the
RRQ agreed to pay disability benefits), for a total of $36,529.20. That amount
includes the amounts from which Great West collected source deductions. The T4A
slip that Great West gave to the appellant indicates $23,581.62, not
$36,529.20, the difference between the two amounts being $12,947.58, that is,
the appellant’s overpayment amount. Therefore,
Great West did not indicate as disability benefits for the 2012 taxation year
the amount of $12,947.58 reimbursed by the RRQ on the appellant’s behalf.
In my view, this practice is consistent with the Act
and with the definition of “receive”.
[24]
As Justice D’Auray of this
Court stated in Martin v. The Queen, 2015 CCI 118,
[32] The case law is clear: the term “receive” must be
interpreted broadly. Receive obviously means to benefit or profit from (Morin
v. Canada, [1974] F.C.J. No 907 (QL) (F.C.T.D.), at paragraph 23).
[25]
In this case, it cannot be
concluded that the appellant received $12,947.58 from Great West because the
RRQ reimbursed this amount on his behalf. However, the appellant received
$23,581.62 from Great West during the 2012 taxation year as indicated on
the T4A slip.
B. RRQ’s benefits
[26]
According to clause 56(1))(a)(i)(B)
of the Act, amounts received as disability benefits from a provincial pension
plan must be included in a taxpayer’s income:
56. (1) Without restricting the generality of section 3,
there shall be included in computing the income of a taxpayer for a taxation
year,
(a) any amount
received by the taxpayer in the year as, on account or in lieu of payment of,
or in satisfaction of,
(i) a superannuation or
pension benefit including, without limiting the generality of the foregoing,
(A) the amount of any
pension, supplement or spouse’s or common-law partner’s allowance under the Old
Age Security Act and the amount of any similar payment under a law of a
province,
(B) the amount of any
benefit under the Canada Pension Plan or a provincial pension plan as defined
in section 3 of that Act,
. . .
[27]
Thus, under the Act, the
amounts paid by the RRQ to the appellant as disability benefits must be
included in his income.
[28]
In Lessard v. The Queen,
2006 TCC 45, Justice Lamarre-Proulx of this Court stated the following:
[19] Pursuant to clause 56(1)(a)(i)(B) of the
Act, any amount received in the year in payment of a benefit under a provincial
pension plan must be included in the calculation of income in the year in which
it is received.
[20] It must be understood that according to the economy
of the Act, a taxpayer must declare their income year by year. At the end of
each year, the taxpayer must calculate their income as it is during that year
and the tax is assessed as a function of that income.
[21] In 2002, the
Appellant received from the Régie an amount in payment of a disability benefit
under the plan, an amount that she was entitled to dispose of. The right to
dispose of the received amount is clear. The Appellant cashed the cheque and
the money was paid into her account. Under a judgment handed down in 2004, the
decision of the review office was set aside, and following this judgment, the
Appellant received a demand for repayment of the amount paid. In 2002, she had
obtained full ownership of this amount.
[29]
That decision was upheld on
appeal (Lessard v. Canada, 2007 FCA 9).
[30]
In light of the foregoing,
it is clear that the appellant must include in his income for the 2012 taxation
year the amount of $794.40, which he had received in that year. The appellant is also of this view.
[31]
However, it must be
determined whether the amount that the RRQ paid to Great West directly because
of its overpayment to the appellant, namely, $12,947.58 must be included in the
appellant’s income for the 2012 taxation year.
[32]
The evidence has shown that
the RRQ paid that amount to Great West. In a letter to the appellant dated
August 22, 2012, Great West confirmed that it had received that amount as
reimbursement of the amount it had overpaid to the appellant (page 28 of Exhibit I‑1).
[33]
For clause 56(1)(a)(i)(B)
of the Act to apply, the appellant must have received some amounts as
disability benefits.
[34]
In this case, the appellant has
benefited from the $12,947.58, which the RRQ had reimbursed to Great West in
the 2012 taxation year. If the RRQ had not made that reimbursement, the
appellant would have had to reimburse that amount to Great West. The appellant had therefore received that
amount during the 2012 taxation year.
[35]
In light of the foregoing, I
am of the view that the $12,947.58 that the RRQ repaid to Great West must be
included in the appellant’s income in accordance with clause 56(1)(a)(i)(B)
of the Act.
[36]
Let us now turn to whether
the disability benefits from August to December 2012, namely, $5,352.60,
must be included in the appellant’s income for the 2012 taxation year.
[37]
According to the appellant,
the cheques were received during the 2012 taxation year, but he decided
not to cash them that year.
[38]
The courts have disposed of
this issue several times. In Kowalczyk
v. The Queen, [1986] 2 C.T.C 2092, Judge Brulé stated that the generally
accepted conclusion is that a cheque payment is equivalent to a cash payment
unless special circumstances point to a different conclusion or, obviously, if
the cheque bounces when it is presented for payment. He referred to the comments of Judge Thurlow of the
Exchequer Court in Moody v. Minister of National Revenue, [1957] Ex.
C.R. 33, at pages 40 and 41.
[39]
Judge Garon applied the same
principles in Piché v. The Queen, [1992] T.C.J. No. 655 (QL), affirmed
by [1993] F.C.J. No. 510 (QL) (F.C.A.), quoting the following excerpt from Moody,
supra:
In the absence of some
special circumstance indicating a contrary conclusion such as, for example, post-dating
or an arrangement that the cheque is not to be used for a specified time, a
payment made by cheque, although conditional in some respects, is nevertheless
presumably made when the cheque is delivered and, in the absence of such
special circumstance, there is, in my opinion, no ground for treating such a
payment other than as a payment of cash made at the time the cheque was
received by the payee.
[40]
In this case, no special
condition or circumstance surrounded the five cheques from the RRQ for
August to December 2012. In
addition, the appellant agreed that he had received these five cheques during
the 2012 taxation year. Thus, the appellant
could have cashed the cheques at any point during that taxation year. I am therefore of the opinion that the appellant received
the $5,352.60 during the 2012 taxation year as disability benefits paid by the
RRQ from August to December 2012. Accordingly, he
must include that amount in his income for the 2012 taxation year even though
he did not cash the cheques until 2013.
[41]
In light of the foregoing,
the amount of $19,094.40 that the RRQ paid to the appellant during the 2012
taxation year as indicated on the T4A(P) slip given to the appellant by the RRQ
must be included in the appellant’s income for the 2012 taxation year.
C. Late
filing penalties
[42]
Under paragraph 150(1)(d)
of the Act, a taxpayer (such as the appellant) must file his income tax return
with the Minister of National Revenue for each taxation year by April 30 of the
following year at the latest.
[43]
Thus, the appellant had to file his income tax
return for the 2012 taxation year no later than April 30, 2013. The appellant agrees that he filed his return for the 2012
taxation year in February 2014. In his
testimony, the appellant agreed that he had crossed out his signature on the
tax return because he believed it contained incorrect information, even though
his tax preparers had confirmed to him that the return was in compliance.
Indeed, he incorrectly believed that, because he had not cashed the RRQ cheques
in 2012, he should not have included them in his 2012 income. He also believed that he did not need to pay taxes on the
amounts that the RRQ had reimbursed to Great West because, according to him, it
would have been double taxation. The appellant testified that he had tried to
talk to RRQ representatives several times but to no avail. He also testified
that he had tried to obtain information from Great West representatives.
[44]
The $73.35 penalty was imposed pursuant to
subsection 162(1) of the Act, which does not provide for a statutory due
diligence defence. It reads as follows:
162. (1) Every person who fails to file a return of income
for a taxation year as and when required by subsection 150(1) is liable to a
penalty equal to the total of
(a) an amount
equal to 5% of the person’s tax payable under this Part for the year that was
unpaid when the return was required to be filed, and
(b)
the product obtained when 1% of the person’s tax payable under this Part for
the year that was unpaid when the return was required to be filed is multiplied
by the number of complete months, not exceeding 12, from the date on which the
return was required to be filed to the date on which the return was filed.
[45]
In Jay v. The Queen,
2010 TCC 122, Justice Woods of this Court found as follows after analyzing that
provision:
[12] Notwithstanding
the strictness of the legislation, it has generally been accepted that a
penalty of this nature should not be imposed if the taxpayer has undertaken all
reasonable measures to comply with the legislation: Royal Bank of Canada v.
The Queen, 2007 FCA 72, [2007] GSTC 18.
[46]
Given the particular
circumstances of the appeal and of the appellant’s efforts to find out the
correct way to prepare his tax return for the 2012 taxation year, I am of the
view that the late filing penalties should be cancelled.
[47]
The appeal from the assessment made under the
Act for the 2012 taxation year in respect of the penalties is allowed, without
costs, and is referred back to the Minister of National Revenue for
reconsideration and reassessment. In all other respects, the assessment shall
remain unchanged.
Signed at Ottawa, Canada, this 9th day of July 2015.
“Dominique Lafleur”
Translation certified true
On this 25th day
of August 2015
Margarita Gorbounova, Translator
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