Scott – Tax Court of Canada finds that compensation to former Nortel employees for loss of life insurance was non-taxable

In connection with the Nortel asset distributions, a Nortel health and welfare trust made lump sum payments in 2011 to various beneficiaries in satisfaction of their entitlement to payments under the trust. These beneficiaries included:

• Ms. Ellis, who was a retired employee who had had a vested right for the trust to pay the periodic premiums for life insurance policies on her life (giving rise to income inclusions to her under s. 6(4)), with the insurance proceed to be paid to her beneficiary on her death.
• Mr. Scott, who had been the husband of a full-time non-unionized employee, and had been receiving monthly survivor income benefits following her death, that had been included in his income under s. 56(1)(a)(iii) as death benefits.

Sommerfeldt J found that the sum so received by Ms. Ellis was tax free. Although it could easily be considered to be a benefit that arose out of her previous employment, he applied the Savage principle of interpretation that:

where, in addition to the general provision in paragraph 6(1)(a), there is “a specific [statutory provision] containing detailed conditions for the inclusion of an amount in income that would not otherwise be income” … the general provision cannot be used “to fill in all the gaps left by” the specific provision [viz. s. 6(4)].

As for Mr. Scott, his payment was included in his income under s. 56(1)(a)(iii) as an amount paid “in lieu of” a death benefit, a phrase that had been broadly interpreted in Transocean.

Neal Armstrong. Summaries of Scott v. The Queen, 2017 TCC 224 under s. 6(1)(a), s. 56(1)(a)(iii), Tax Court Rules, s. 89(1)(a), ITA s. 107.1(a), s. 9 - Compensation Payments and General Concepts – Stare Decisis.