REASONS
FOR JUDGMENT
Campbell J.
[1]
This appeal concerns the Appellant’s 2006
taxation year. There are two issues before me:
(1) Whether the Minister of National Revenue (the “Minister”) properly included certain amounts in the
Appellant’s income; and
(2) the amount that the Appellant may be entitled to deduct in
respect to legal expenses.
[2]
At the commencement of the hearing, Respondent
counsel advised the Court that the Minister was conceding several amounts in
respect to this appeal. First, the Appellant’s assessed income in 2006 is to be
reduced by the amount of $61,888 and second, the amount of $16,700 in respect
to legal fees was also conceded.
[3]
The Appellant was initially assessed on August
11, 2008 to include the following amounts in his income:
|
Pension Income
|
$ 2,444
|
|
Interest Income
|
248,863
|
|
Other Income
|
90,559
|
[4]
On July 8, 2010, the Appellant was reassessed to
include amounts in respect to rental income but no other adjustments in respect
to the income inclusions were made.
[5]
The Appellant had been employed with Ford Motor
Company (“Ford”) until 1985, when he was
released from his employment. The Appellant commenced an action with the Ontario
Human Rights Tribunal (the “Tribunal”) which, unfortunately for all parties,
meandered over the course of twenty-one years through a number of tribunals and
courts. In the end, the Appellant was awarded and received from Ford the
following amounts:
(a) general damages of $30,000;
(b) pre-judgment interest of $33,143.21 on those general
damages;
(c) special damages of $90,559.04;
(d) pre-judgment interest of $100,047.27 on those special
damages; and
(e) post-judgment interest of $115,673.30 in respect to both
the general and the special damages.
[6]
According to the 2006 Tribunal decision, at
paragraph 14 (Respondent’s Book of Authorities, Tab 11), the total, of the
aforementioned amounts, was subject to a garnishment of $16,700 to be paid to
the law firm of Koskie & Minsky that had briefly represented the Appellant
for a period of time. Although it was Ford which paid the $16,700 in legal
fees, this amount was deducted from the total that the Appellant was otherwise
entitled to and I assume this was the reason the Respondent conceded all of
that amount in this appeal. The Appellant’s position, however, is that he was
represented at other times throughout the years by other law firms and, in
fact, that he cashed in his RRSPs to pay retainers and fees.
[7]
The Respondent submitted that, taking into
account the Respondent’s concessions, the following amounts, totalling
$285,647.19, should be included in the income of the Appellant:
(a) the special damages award of $90,559.04 which the Respondent
claims is a retiring allowance paid to replace lost wages;
(b) pre-judgment interest of $100,047.27 in respect to the
special damages award;
(c) post-judgment interest of $86,888 on the special damages
award;
(d) pension income of $2,444.88 received from RBC in 2006; and
(e) net rental income of $5,708.
[8]
The Appellant’s concessions in this regard
relate to a deletion of the award of general damages together with an
adjustment of post-judgment interest in this regard. The amounts in 7(d) and (e) are not in issue.
[9]
The first question is whether the special damages
award of $90,559 was a retiring allowance as defined in subsection 248(1) of
the Income Tax Act (the “Act”).
The relevant portions of that definition, as far as this appeal is concerned,
states that an amount received by a taxpayer will be a retiring allowance if it
is received “… in respect of a loss of an office
or employment … 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, …”
(emphasis added).
[10]
I quote from paragraphs 20 and 21 of Dunphy v
The Queen, 2009 TCC 619, 2010 DTC 1028, where Justice Sheridan stated the
following in respect to the appropriate test to be applied:
[20] The
jurisprudence is clear that the use of the words “in
respect of” in the definition of “retiring
allowance” is very broad in scope.
[21] To
determine whether there is a sufficient nexus between the loss of employment
and the payment received, the courts have held that the appropriate test is “but for the loss of employment would the amount have been
received?” To paraphrase former Chief Justice Bowman in Stolte v. R.,
the trick is to figure out what payment was for; the answer will depend on the
facts in each case.
[11]
It is apparent from the Tribunal’s decision in
this appeal and the evidence before me that the award of $90,559 was to
compensate the Appellant for lost employment income and benefits. At paragraph
50 of that decision, the Tribunal ordered, among other things, that Ford was “… to pay Mr. Naraine special damages to compensate for the
income and benefits he would have been entitled to for the period from his
discharge at Ford in August 1985 to his hiring at General Motors in the spring
of 1987”. The other monetary amounts of $20,000 and $10,000 were awarded
as general damages to compensate for mental anguish and those amounts have not
been included in income. Since this amount is clearly a compensatory amount for
the Appellant’s lost income and related benefits for the period of his
termination at Ford until his hiring at General Motors, the amount was
correctly included in the Appellant’s income in the 2006 taxation year pursuant
to subparagraph 56(1)(a)(ii) of the Act.
[12]
With respect to the amounts awarded for
pre-judgment and post-judgment interest on the award of $90,559, these amounts
are also properly included in the Appellant’s income as interest income
pursuant to paragraph 12(1)(c) of the Act.
[13]
Although the Appellant claimed additional legal
expenses, the onus is upon him to support that claim with evidence that would
permit an additional amount in excess of the $16,700 conceded by the
Respondent. There was no documentary evidence introduced to support the
allowance of any amounts beyond the $16,700. The Appellant did provide a
document at Exhibit A-2 entitled “retainer” in
which he agreed to retain the law firm of Koskie and Minsky in the matter of
his complaint and that he would compensate the firm at the hourly rate of $150
for their anticipated services. However, this retainer engagement contains
nothing in respect to a specific sum paid beyond the $16,700, which the
Tribunal ordered to be deducted from the total amount awarded to the Appellant
and paid to the law firm of Koskie & Minsky. Consequently, even though the
Appellant claims he cashed in RRSPs to pay legal fees, there is no evidence to
support any amount paid by the Appellant for legal fees beyond the $16,700
concession.
[14]
In summary, the appeal is allowed to permit the
following concessions made by the Respondent:
(1) The amount to be included in the Appellant’s income is reduced
to a revised amount of $285,647.19, as reflected at paragraph 7 of my Reasons.
(2) The second amount that is conceded relates to the legal fees
in the amount of $16,700. The Appellant shall be permitted to deduct this amount
as an expense pursuant to subsection 60(0.1) of the Act.
[15]
The appeal is allowed, in part, but only to permit
the Respondent’s concessions.
[16]
Costs shall be to the Respondent.
Signed at Ottawa,
Canada, this 28th day of April 2015.
“Diane
Campbell”
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