Date: 19971125
Docket: 95-3761-IT-G
BETWEEN:
PHILLIP T. OVERIN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Rip, J.T.C.C.
[1] Phillip T. Overin is appealing from a reassessment for the
1992 taxation year in which the Minister of National Revenue
(“Minister”) rejected his claim that money he
received from the Province of British Columbia was a payment on
account of capital representing proceeds of disposition of his
“rights, interest and remedies” which he had against
his former employer and which he assigned to the Province. The
Minister denied the claim on the basis that the payment received
by the appellant from the Province was a “retiring
allowance” as defined in subsection 248(1) of the
Income Tax Act (“Act”) which is to be included
in income under subparagraph 56(1)(a)(ii) of the
Act.
[2] The parties proceeded to trial by way of a Statement of
Agreed Facts. The relevant portions of the Statement of Agreed
Facts are as follows:
1. The Appellant is an individual ... .
2. Cassiar Mining Corporation (the “Company”) was
a corporation that had its head office at
2000-1055 West Hastings Street, Vancouver, B.C., V6E
3V3 and mining operations in the Town of Cassiar, B.C.
3. The Appellant was an employee of the Company as at February
4, 1992, working at the Company’s head office in Vancouver,
British Columbia.
4. On February 4, 1992, (the “Appointment Date”)
Arthur Anderson Inc. (the “Receiver”) was appointed
the Receiver of the Company pursuant to an order of the Supreme
Court of British Columbia.
5. The terms of the Receiver’s appointment required it
to close down the operation of the Company and take the necessary
steps to safeguard and preserve the Company’s assets.
6. In furtherance of this requirement, by letter dated
February 5, 1992, the Receiver notified the Appellant and all of
the other employees of the Company that their employment with the
Company was terminated effective immediately.
7. By a second letter dated February 5, 1992, the Receiver
offered employment to the Appellant and all of the other
employees of the Company.
8. This offer of employment was subject to the terms and
conditions set out in the February 5, 1992 letter, a copy of
which is attached as Schedule “A” to [these reasons
for judgment].
9. At the time that the Appellant was terminated, the Company
did not provide any severance or other pay to the Appellant or to
any of the other employees of the Company.
10. At the time that the Appellant was terminated, no prior
notice of termination was provided to the Appellant or to any of
the other employees by the Company or the Receiver.
11. On March 23, 1992, the Appellant was presented with and
executed an agreement in the form attached as Schedule
“B” to [these reasons for judgment].
12. Pursuant to an agreement reached between the Province of
British Columbia (the “Province”) and the terminated
employees of the Company, the Appellant received a payment equal
to 8 weeks of salary on the basis that he was employed by the
Company for less than 10 years.
13. Arthur Andersen Inc., in addition to being the Receiver of
the Company, was the agent of the Province and became a trustee
of a settlement fund created by the Province. As agent for the
Province, Arthur Andersen Inc. made a payment to the Appellant on
March 23, 1992 in the amount of $9,416.
14. In his 1992 tax return, the Appellant characterized his
payment from the Province as proceeds of disposition received on
the disposition of a capital property. The Appellant included
three-quarters of the resulting capital gain (or $7,062) in his
income, and claimed a deduction of $7,062 in respect of the
payment from the Province under subsection 110.6(3) of the
Income Tax Act (Canada).
15. On September 1, 1995, the Minister of National Revenue
confirmed a Notice of Reassessment dated December 22, 1993.
[3] Counsel also acknowledged that because of the impact the
closing of Cassiar had on the Town of Cassiar, the British
Columbia government decided to make the payment to former
employees of Cassiar, including the appellant. The payments were
described as a “political bail out”.
[4] The appellant says that when Cassiar closed down in 1992
his employment was terminated without Cassiar or the Receiver
paying any severance or termination pay. The Province made a
payment to him pursuant to the terms of the Assignment and was
substituted for him in respect of his rights against Cassiar.
Since the property he disposed of had no adjusted cost base to
him, the appellant realized a capital gain equal to the proceeds
of disposition, three-quarters of which is to be included in his
income under paragraph 3(b) of the Act.
Counsel relied on the definition of “property” in
subsection 248(1) of the Act and the definitions of
“disposition” and “proceeds of
disposition” in section 54. The word ‘property’
means property of any kind whatever whether real or personal or
corporeal or incorporeal, and ... includes a right of any kind
whatever, a share or a chose in action ...”. The word
“disposition” includes “any transaction or
event entitling a taxpayer to proceeds of disposition of
property”. The term “proceeds of disposition”
includes “the sale price of property that has been
sold”.
[6] The appellant’s rights against Cassiar constituted a
chose in action and the right of action was assigned, or disposed
of, to the Province. By the terms of the Assignment, the
appellant disposed of that property and received proceeds of
disposition in excess of his adjusted cost base of the property.
This gives rise, counsel submitted, to a capital gain pursuant to
paragraph 39(1)(a) of the Act.
[7] Appellant’s counsel referred me to several decisions
in support of the proposition that a disposition of an interest
in a law suit is a disposition of property under the Act
which may give rise to a capital gain to the person disposing of
the interest: Pe Ben Industries Company Limited v. The
Queen, 88 DTC 6347 (FCTD) and Cormier v. MNR, 90 DTC
1167 (TCC). I agree with counsel that this is a valid proposition
of law.
[8] The appellant’s counsel stressed that the payment
was not a retiring allowance as claimed by the Minister. A
“retiring allowance” is defined in subsection 248(1)
of the Act as follows:
“retiring allowance” means an amount ...
received
(a) upon or after retirement of a taxpayer from an office or
employment in recognition of his 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 ...
[9] Counsel insisted the payment received by the appellant
does not fall within the scope of the definition of a retiring
allowance. In the alternative, even if it does fall within the
scope of the definition of retiring allowance, the Act
will purport to tax the payment under two provisions, as a
capital gain and as a retiring allowance. To resolve this
conflict, he stated, the capital gains provision is to be
preferred as it more specifically addresses the character of the
payment. Counsel referred to the decision of Richardson v. The
Queen, 88 DTC 1134 (TCC), a decision of Tremblay, J.T.C.C.
for the proposition that a payment of damages in respect of a
loss of an office or employment is not a retiring allowance
unless the damages originate from the breach of the contract of
employment. Counsel argued that since the payment originated with
the Province and the Province acquired the appellant’s
rights to damages against Cassiar, the payment was consideration
for a sale of those rights; the payment did not originate with
the employer or stem from the contract of employment.
[10] Counsel also referred to a judgment of the Supreme Court
of Canada in Schwartz v. The Queen, 96 DTC 6103, for the
proposition that not every payment which has a connection to
one’s employment will fall within the definition of a
retiring allowance and, in particular, that an amount in respect
of damages from the loss of intended employment did not
constitute a retiring allowance. Counsel concluded from these two
cases that there must be a clear connection between the payment
and the contract of employment for the definition of retiring
allowance to apply. Counsel also referred to Niles v. MNR,
91 DTC 806 (TCC). In the appellant’s view a retiring
allowance must have a direct link to a contract of employment and
there is no direct link in the appeal at bar.
[11] I am unable to agree with the appellant’s
submission.
[12] In Richardson, supra, Tremblay, J.T.C.C.
found that there was no contract of employment and therefore the
wording of the retiring allowance provision had not been met.[1] In
Schwartz, supra, the Supreme Court of Canada held
that there had only been an intended employment, therefore there
was no actual employment that could have been lost for the
purposes of applying the definition of retiring allowance. In the
case at bar, there was a contract of employment. The authorities
cited by the appellant are distinguishable.
[13] I agree with appellant’s counsel that the payment
by the Province to the appellant was proceeds of disposition of
capital property. There is no doubt the appellant transferred its
rights to sue Cassiar, or its successor, for damages for breach
of an employment contract in return for the payment. However, the
payment received by the appellant from the Province did not
constitute a damage award or a payment in lieu of damages.
Rather, the Province and the appellant entered into a legally
binding arm’s length agreement under which the appellant
assigned his rights to the Province in consideration for the
payment received.
[14] However this is not determinative of the matter before
me. I must determine the true nature of the transaction. The
disposition of the appellant’s chose in action
cannot be considered in a vacuum. The former employer, Cassiar,
was in receivership. The provincial government intervened and
came to an agreement with the former employee pursuant to which
the appellant received the payment in question. I think, to
resolve this issue, the question that must be answered is: would
the appellant have received any payment from the Province had he
not lost his employment with Cassiar?
[15] The appellant submitted that since the payment originated
with the Province and consideration did not flow from employment
or from the employment contract the receipt is not caught by the
definition of “retiring allowance”. I cannot agree.
The definition of “retiring allowance” in
subsection 248(1) is unequivocal, words should not be
imported into the provision when Parliament has not seen fit to
use them.[2] The
language of the provision is clear and does not impose the
requirement that the payment originate with the employer.[3]
[16] The use of the words “in respect of” in the
definition of retiring allowance has been recognized as conveying
a connection between a taxpayer’s loss of employment and
the subsequent receipt.[4] In order for the retiring allowance provision to have
real meaning, however, some limit must be placed on the ambit or
scope of the required connection between a receipt and a loss of
employment. In this regard two decisions may be of some
assistance. First, in Merrins, supra, Pinard, J.
observed at 6670:
There is no doubt that the amount was received by the
plaintiff in respect of the loss of his employment with AECL. Had
there been no loss of employment, there would have been no
grievance, no settlement, no award and, therefore, no payment of
the sum to the plaintiff.
What is implied from Pinard, J.’s analysis is that in
determining the limit to be placed on the connection between a
payment and a loss of employment, the appropriate test is to ask
“but for the loss of employment would the amount have been
received?” If the answer to that question is in the
negative, then a sufficient nexus exists between the receipt and
the loss of employment for the payment to be considered a
retiring allowance.
[17] In Leest, supra, Dussault, J.T.C.C. observed:
As there is no doubt in my mind that the appellant lost, for
all practical purposes and effect his employment for a lengthy
period, although not permanently as he was later reinstated by
the Arbitration Board, I also conclude that the award of damages
by the Arbitration Board was directly related to that loss and
directed at compensating it.
In that sense, the amount was "with respect of" the
loss of employment. This being so, such damages can rightly be
considered a "retiring allowance" as that term is now
defined by subsection 248(1) of the Act. They are thus
taxable by virtue of subparagraph 56(1)(a)(ii) of the
Act.
[18] It is quite clear then that in addition to the
“but/for” test, where the purpose of a payment is to
compensate a loss of employment it may be considered as having
been received “with respect to” that loss.
[19] In the case at bar, the appellant lost his employment.
The transaction between the appellant and the Province and his
loss of employment with Cassiar cannot be put in two separate
watertight compartments. But for the loss of employment
the appellant would not have received any money from the Province
of British Columbia. That Cassiar was in receivership and the
Province intervened to assure a payment was made does not, in my
opinion, alter this conclusion. To the extent that the purpose
and effect of the Province’s intervention was to
counterbalance the effect of the appellant’s loss of
employment by compensating the appellant, the payment may be
considered to have been received in respect of a loss of
employment because of its compensatory nature. The payment,
therefore, can reasonably be considered to be a “retiring
allowance” within the meaning of subsection
248(1).
[20] In the event the receipt from the Province may be
characterized as both a capital gain and a retiring allowance,
counsel for the appellant argued that the provisions governing
these two concepts are in conflict and that the capital gains
provision should be applied because it is more “appropriate
and natural” and specific to the circumstances.
[21] Driedger on the Construction of Statutes observes
at 177 with regard to the interpretative presumption of coherence
that:[5]
[I]f the provisions cannot both apply without conflict, the
courts resort to one of the conflict avoidance or conflict
resolution techniques at their disposal. These include (1)
interpretation to avoid conflict; (2) the paramountcy of some
categories of legislation over others; (3) implied exception
(generalia specialibus non derogant); and (4) implied
repeal.
[22] In my opinion, the appropriate technique to consider in
the present matter is that of implied exception. It is noted in
Driedger at 186 and 187:
Where two provisions are in conflict and one of them deals
specifically with the matter in question while the other is of
general application, the conflict may be avoided by applying the
specific provision to the exclusion of the more general one. The
specific prevails over the general; it does not matter which was
enacted first.
[...]
A key consideration in any implied exception analysis is
determining which provision states the general rule and which is
the specific exception.
[23] The retiring allowance provision, in my view, is more
specific than the capital gains provisions of the Act.
Payments flowing from capital gains and enumerated sources are
included in income pursuant to the general scheme of the
Act. The retiring allowance provision includes in income
payments flowing from a discrete source of income (i.e. the loss
of employment) that is not enumerated in section 3 of the
Act. Presumably the provision has been enacted to
expressly ensure that amounts flowing from this source are
included in computing income. In the present circumstances, in
the absence of paragraph 56(1)(a) the amount in question
would be a capital payment. Paragraph 56(1)(a), however,
is a specific exception to the general rule.
[24] In the circumstances, therefore, the appeal will be
dismissed with costs.
"Gerald J. Rip"
J.T.C.C.
Schedule “A”
Arthur Andersen
February 5, 1992
To: All Employees of the Cassiar Mining Corporation
Dear Sirs:
We confirm that we were appointed Receiver of Cassiar Mining
Corporation (the “Company”) on February 4, 1992 (the
“Appointment Date”) pursuant to an order of the
Supreme Court of British Columbia pronounced in Action No.
A920429, Vancouver Registry.
The terms of our appointment require that we close down the
operations of the Company and take the necessary steps to
safeguard and preserve the corporate assets. For this purpose we,
as Receiver of the Company, are prepared to offer you new
employment on the following express terms and conditions:
1. Arthur Andersen Inc. will incur no liability, ... with
respect to any claims you may have against the Company as an
employee ... with relate to the period to and including the
Appointment Date. ...
2. ...
3. ... you will be an employee of the Receiver of the Company
and you will be paid an hourly rate (or salary), annual vacation
pay and holiday pay on the same basis as prior to the
appointment. ...
At this point, we are unable to provide you with any
commitment regarding duration of your employment or the
possibility of ongoing employment with a potential purchaser of
the Company’s assets.
Please confirm your acceptance of these amended terms of
employment by signing and returning to us the enclosed duplicate
copy of this letter.
Yours very truly,
ARTHUR ANDERSEN INC.
Receiver of Cassiar Mining Corporation
By
James C. Stuart
KS/0123E
Enclosure
I accept and agree to the terms as above set forth this
___________ day of ________, 1992.
Signed: ______________________
Schedule “B”
ASSIGNMENT
In consideration for $_________ paid to me by Her Majesty the
Queen in right of the Province of British Columbia (the
“Province”), receipt of which is hereby acknowledged,
I ______________, of Vancouver, British Columbia, assign to the
Province all my rights, interest and remedies in connection with
any claim I may have against Cassiar Mining Corporation (my
“Employer”), now or in the future, for pay in lieu of
notice of termination of my employment with my Employer, or
damages for or arising from termination of that employment
(“Termination Pay”), or any award or settlement in
that connection.
This Assignment includes full power of substitution of the
Province for me in connection with my claim.
I authorize my Employer (including any person in possession or
control of the property, assets or undertaking of my Employer, or
in whom that property is or may become vested) to pay the amount
of my claim for Termination Pay to the Province on presentation
of this Assignment.
Upon receipt of any such payment by the Province, I release my
Employer from liability with respect to my claim for Termination
Pay.
I authorize the Province, on my behalf, to sign any cheques
and receipts required to collect the amount of my claim for
Termination Pay from my Employer, and to furnish evidence of the
payment of that amount.
...
I acknowledge that this is an absolute and unconditional
assignment of my claim for Termination Pay and merges with any
previous assignment to the Province of all or part of my claim in
that regard, any payment in consideration of a previous
assignment is hereby deemed to be paid in consideration of this
Assignment, and in the event of any inconsistency between the
terms of this Assignment and the terms of any previous
assignment, the terms of this Assignment apply.
Dated at ____________________, British Columbia, on
______________,1992.
Witness:
________________________ ______________________________
(signed)
Name:
Address:
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