James N. Knox v. Her Majesty the Queen (Informal Procedure), [1994] 2 CTC 2125

Sobier, J.T.C.C.:—The appellant appeals from the assessment by the Minister of National Revenue (the "Minister") with respect to his 1992 taxation year, whereby the Minister included in his income amounts received by him in that year pursuant to a long-term disability plan.

The applicable provisions of paragraph 6(1)(f) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") read 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 aggregate of amounts received by him in the year that were payable to him on a periodic basis in respect of the loss of all or any part of his income from an office or employment, pursuant to

(i) a sickness or accident insurance plan,

(ii) a disability insurance plan, or

(iii) an income maintenance insurance plan

to or under which his employer has made a contribution

It is the appellant’s contention that the pian under which he was aid was one which came into being prior to 1971 and that his disability resulted from an event which occurred prior to 1974.

The appellant's apparent authority for this proposition is his claim that the policy, which was in effect prior to 1975, continued to be in effect notwithstanding that a new plan came into effect on April 1, 1975.

The appellant was employed by Ontario Hydro and was a member of the Society of Ontario Hydro Professional Engineers and Associates (the "Society").

Prior to 1975, and perhaps beginning as early as 1969, the Society made available to its members a long-term disability insurance policy, the premiums of which were paid solely by the members and not Ontario Hydro (the "Society plan”). In 1975 the Society and Ontario Hydro negotiated collectively and as a result a new long-term disability plan came into existence. Under this plan all premiums were paid by Ontario Hydro and none by the employees (the "Hydro plan").

There is no doubt from the evidence, both documentary and viva voce, that effective April 1, 1975 the Society plan was terminated and the Hydro plan commenced. The appellant attempted to establish that there was a so-called "grandfather clause” which had the effect of somehow continuing the Society plan or rendering the benefits paid under the Hydro plan non-taxable.

The appellant referred to Interpretation Bulletin IT-428, especially paragraph 3, dealing with exceptions from the provisions of section 19 of the Income Tax Application Rules, 1971. Although this Interpretation Bulletin is not binding upon me, its plain reading does not assist the appellant.

Paragraph 3 of Interpretation Bulletin IT-428 reads in part as follows:

3. Transitional provisions in section 19 of the Income Tax Application Rules, 1971 stipulate that amounts that would otherwise be included in income under paragraph 6(1)(f) are to be excluded if they were received pursuant to a plan that existed on June 18, 1971 and were in consequence of an event that occurred prior to 1974.

[Emphasis added.]

The Hydro plan under which the appellant was paid did not exist prior to June 18, 1971 and the Society plan, which was in effect on June 18, 1971 ceased to exist after April 1, 1975. The first long-term disability benefits were paid to the appellant in either December 1981 or January 1982.

The correspondence between the Society and its consultant makes it clear that the Society plan was terminated and the Hydro plan came into being on April 1, 1975. It was also pointed out in the correspondence that while the benefit payments under the Society plan were not taxable, the benefits under the Hydro plan were taxable.

The appellant maintained that there was an agreement that would ensure that the benefits under the new plan would be at least as good as those under the old plan, and that since the benefits under the old plan were non-taxable, those paid under the new plan would also be non-taxable. Whether there was an agreement between Ontario Hydro and the Society or the appellant does not alter the tax consequences flowing from paragraph 6(1 )(f) of the Act.

In addition, the fact that the appellant had been favourably reassessed in previous years after objecting to the inclusion of the benefits is of no help to the appellant. See Ludco Enterprises Ltd. v. Canada, [1994] 1 C.T.C. 368, 94 D.T.C. 6143 (F.C.T.D.). [1]

For these reasons, the appeal is dismissed.

Appeal dismissed.